Dividend withholding tax for Cooperatives in the Netherlands (2018)

19 January 2018 Add expertise tag Add service tag Add country tag
Corporate Tax Services Company Formation Services Corporate Structuring

In our news item of 27 September 2017, we already informed you of the intended amendment of the Dutch dividend withholding tax legislation to also apply to Cooperatives. This legislation has come into force as of 1 January 2018.

Not all members of Dutch Cooperatives become subject to the withholding of Dutch dividend withholding tax. A potential withholding obligation is only introduced for "qualifying membership rights in Holding Cooperatives residing in the Netherlands."

A "qualifying membership right" requires the entitlement to at least 5% of the annual profits of the Cooperative or at least 5% of the liquidation proceeds. For assessing this minimum threshold of 5% not only the membership rights held by the tax payer (member) count, but also the membership rights held by certain related parties (entities or individuals).

A "Holding Cooperative" is defined as a cooperative which actual activity in the year preceding the year in which the profits are distributed, mainly (for at least 70%) consist of the holding of participations or the direct or indirect financing of certain related parties.

In daily practice the introduction of the liability to withhold dividend withholding tax for cooperatives will have limited impact as a consequence of available exclusions (see below), but will at the same time create a significant administrative burden for Cooperatives.

Still excluded from the withholding obligation are (amongst others):

  1. cooperatives which activities do not mainly consist of holding and/or qualifying financing activities in the preceding year;
  2. profits distributed to members which hold less than 5% (alone or together with certain related parties);
  3. profits distributed to members of the cooperative which can qualify for the newly introduced broadened withholding exemption at source (also per 1 January 2018, the law introduces a broadened exemption for the Dutch dividend withholding dividend tax exemption at source for qualifying interest in Dutch corporations, (BV, NV, etc.) which can also apply to member in holding cooperatives. For details we refer to our news item on this topic).

It is noted that regardless the liability to withhold Dutch dividend withholding tax (or the exemption thereof), the Dutch Corporate Income tax Act does provide for an anti-abuse rule which can result in the levy of Dutch corporate income tax from the income (including dividends and capital gains) earned by foreign corporate shareholders of Dutch corporations and/or members of a Dutch Cooperative. Also this anti-abuse rule had been sharpened per 1 January 2018, in particular by the introduction of concrete substance requirements for foreign shareholders. This anti-abuse rule can also apply to foreign members of a Dutch cooperative.