Netherlands: The Netherlands - Budget 2018 - Dividend Withholding Tax And Non-Resident Taxation

Last Updated: 28 September 2017
Article by Heico Reinoud, Paul Halprin, Jurjen Bevers and Marnix Veldhuijzen

On 19 September 2017, the Dutch government released the State's Budget for the year 2018. The Budget includes a draft bill to expand the dividend withholding tax exemption to tax treaty countries, to introduce a withholding tax obligation for holding cooperatives and to limit the taxation of non-resident investors. If the draft bill is adopted, the changes will become effective as from 1 January 2018.

1. Dividend Withholding Tax

A. Expansion dividend withholding tax exemption

Current law

Dividend distributions by a Dutch company are subject to 15% dividend withholding tax. An exemption applies if the shareholder:

  1. owns an interest of at least 5% in the nominal paid up capital of the Dutch company;
  2. is the beneficial owner of the dividend;
  3. is a company that according to the tax laws of a EU/EEA member state is a resident in that state; and in addition thereto
  4. would have been able to claim the Dutch participation exemption if it were a resident of the Netherlands.

The current anti-abuse rule states that the above exemption does not apply if the Netherlands has concluded a tax treaty with the country of residence of the shareholder which contains an anti-abuse rule on basis of which the shareholder could not have claimed the reduction as provided for in that tax treaty.

Proposed changes

The draft bill proposed to expand the above exemption to a company that is a tax resident of a country with which the Netherlands has concluded a tax treaty, and which treaty contains a dividend article.

It is further proposed to replace the current anti-abuse rule. The dividend withholding tax exemption will not apply if (i) the shareholder owns the shares in the Dutch company with the main purpose (or one of the main purposes) to avoid Dutch dividend withholding tax which would otherwise have been due if the shareholder would not have been interposed, and in addition thereto (ii) the (scheme of) construction(s) or (scheme of) transaction(s) is artificial. Artificial means that the construction or transaction is not entered into for valid commercial reasons that reflect economic reality. In case a foreign holding company is interposed to obtain the withholding tax exemption, it will not be regarded as artificial if it meets all of the substance requirements set forth in Annex 1.

The Dutch company must inform the Dutch tax authorities in writing within one month following the date of putting the dividend at the disposal of the shareholder that all requirements for claiming the exemption are satisfied.

If a tax treaty provides for an exemption of tax on dividends, and contains less stringent rules than the new anti-abuse rule, the tax treaty prevails. The Netherlands aims to include a similar anti-abuse rule in its tax treaties.

Specific rules are proposed to deal with dividend payments to hybrid entities.

B. Withholding tax obligation for holding cooperatives

Current law

Profit distributions by a Dutch cooperative are not subject to dividend withholding tax, except if:

  1. the cooperative owns shares of which the main purpose (or one of the main purposes) is to avoid foreign or Dutch dividend withholding tax which would have otherwise been due in case the cooperative would not have been interposed; and in addition thereto
  2. the  (scheme of) construction(s) or (scheme of) transaction(s) is artificial. Artificial means that the construction or transaction is not entered into for valid commercial reasons that reflect economic reality.   

In case the cooperative carries out a business enterprise itself, the construction is generally not regarded as artificial. The same is for example true if the (indirect) member(s) of the cooperative carries out a business enterprise and the cooperative owns subsidiaries which are active in the same line of business as the member(s) of the cooperative.

Proposed changes

Profit distributions by a Dutch holding cooperative will be subject to dividend withholding tax, except if:

  1. a member owns an interest in cooperative giving entitlement to less than 5% of the profits, and such member does not belong to a group of which the total entitlement is 5% or more; or
  2. a dividend withholding tax exemption applies (see section A. above).

A holding cooperative means a cooperative of which 70% or more of the activities consist of owning shareholdings that qualify for the participation exemption and/or granting directly or indirectly loans to related parties, for a period of 12 months prior to putting the profit at the disposal of the members. The starting point for this analysis will be the composition of the balance sheet, but also other aspects play a role such as turnover, the profit contribution of the activities, as well as the time spent by the employees. If a cooperative is the top holding of a group, or a private equity investment platform, it may be regarded as 'non-holding'.

Profit distributions by non-holding cooperatives will remain exempt from the obligation to withhold dividend tax.

2. Corporate Income Tax

Current law

A non-resident company that owns an interest in the nominal paid up share capital of a Dutch company of 5% or more, is subject to 20-25% Dutch corporate income tax with respect to dividends, capital gains and interest derived from such investment if:

  1. the non-resident company owns the Dutch shares with the main purpose (or one of the main purposes) to avoid Dutch dividend withholding tax or Dutch personal income tax which would have otherwise been due in case the non-resident company would not have been interposed; and in addition thereto
  2. the (scheme of) construction(s) or (scheme of) transaction(s) is artificial. Artificial means that the construction or transaction is not entered into for valid commercial reasons that reflect economic reality.

If a tax treaty provides for an exemption or lower rate of Dutch corporate income tax, and contains less stringent rules than the above anti-abuse rule, the tax treaty prevails.

Proposed changes

The draft bill proposes to limit the above rule to abuse of Dutch personal income tax, since the abuse of dividend withholding tax will be exclusively targeted via the Dutch dividend withholding tax Act (see Section 1.A and 1.B above). Furthermore, the draft bill clarifies when an interposed non-resident holding company is not artificial. Reference is made to Annex 1.

Annex 1 – Substance requirements for a non-resident holding company

  1. At least 50% of the total executive members of the board of directors live or is established in the state in which the holding company is a resident ('resident directors');
  2. The resident directors of the holding company have the necessary professional knowledge to perform their duties well. These duties consist of at least the decision taking on basis of the holding company's own responsibility and within the framework of the usual involvement of the holding company's headquarter, with respect to transactions to be concluded by the holding company as well as the proper dealing of the concluded transactions.
  3. The holding company has adequate personnel for the adequate execution and registration of the holding company's transactions;
  4. The board decisions are made in the state in which the holding company is a resident;
  5. The main bank accounts of the holding company are kept in the state in which the holding company is a resident;
  6. The bookkeeping of the holding company takes place in the state in which the holding company is a resident;
  7. The employee costs that forms a remuneration for the activities on behalf of the holding function role of the holding company amount to, translated to Dutch standards, at least €100,000 (*); and
  8. The holding company owns or rents office space in the state in which the holding company is a resident for a period of at least 24 months, and which office is equipped to perform the holding function role, which role is actually performed from that office (*).

(*) These two requirements will become effective as from 1 April 2018 instead of 1 January 2018.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
27 Sep 2018, Conference, Budapest, Hungary

Dentons will be sponsoring the Future Law conference taking place on September 27 in Budapest. The event aims at providing a global view on the possible responses of legal industry to technological challenges and will host leading experts in the field.

2 Oct 2018, Other, London, UK

The Build-to-rent (BTR) market in the UK has grown substantially in recent years. In ever-increasing numbers, investors and developers are buying up land and properties for the purpose of BTR - benefitting from both value rises in their acquired assets and from rising rents.

2 Oct 2018, Other, London, UK

Dentons is pleased to invite you to register for a place at an interactive debate, "Is Franchising Good or Bad? And if so, for whom?", which is part of Dentons' International Retail Franchising programme.

Similar Articles
Relevancy Powered by MondaqAI
De Brauw Blackstone Westbroek N.V.
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
De Brauw Blackstone Westbroek N.V.
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions