Dutch withholding taxes on outbound payments
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When you established your business in the Netherlands and you consider repatriating profits, you may question yourself whether Dutch withholding taxes become due on profit repatriations (if you have set up your business as a branch) or dividend distributions (if you have set up your business as a corporation).
The same question may rise regarding outbound interest or royalty payments.
The Dutch domestic withholding tax rate for dividend distributions, including interest on certain categories of profit participating loans, is 15% (2017). No dividend withholding tax is due on qualifying domestic dividends, i.e. dividends distributed by a Dutch corporation to a Dutch corporate shareholder if it is entitled to the participation exemption for this dividend income.
Also for foreign shareholders, the rate for inter-company dividends is often reduced, in many cases even to nil percent, due to application of tax treaties or the implementation laws based on the EU Parent Subsidiary Directive.
For an overview of the Dutch treaty rates for dividends we refer to the page Dutch dividend withholding tax rates for dividends. Dividends paid to qualifying shareholders in the EU are - by virtue of the implementation laws of the EU Parent Subsidiary Directive - exempt from the Dutch dividend withholding tax.
No Dutch dividend withholding tax for qualifying Dutch Co-operations (Coöperaties)
If a dividend is distributed by a corporation which has the legal form of a Co-operative in most cases no Dutch dividend withholding tax or Dutch income tax becomes due.
As from January 1, 2012, a cooperative association will be required to withhold dividend tax from distributions to certain members in situations involving abuse. This may be the case if the member is located in a jurisdiction the Netherlands did not conclude a tax treaty with and the interest can not be allocated to a business entreprise or the primary purpose of the structure is to o avoid dividend withholding tax where the structure has not been put into place for valid commercial reasons which reflect economic reality.
The indirect tax credit for re-distributed dividends
Dutch tax law contains a special provision for dividends paid by Dutch corporations to foreign shareholders which originate from dividends received from other countries. In short, if a Dutch corporation re-distributes dividends which have been subject to a foreign withholding tax, the Dutch corporation is under certain circumstances entitled to a credit on the Dutch withholding tax which it is supposed to pay over the dividends it declares itself (indirect tax credit). The credit can amount to 3% of the dividend declared.
No branch tax in the Netherlands
The repatriating of profits by a Dutch branch to its foreign head office can take place without the levy of Dutch withholding tax.
The Netherlands does not levy any tax on the repatriation of profits by a branch to its foreign head office.
Dividend payments to a Dutch branch by a Dutch company (the Dutch branch functions as holding) can be eligible for an exemption of the Dutch dividend withholding tax at the level of the Dutch company.
The Netherlands do not have a withholding tax on (genuine) interest payments and royalty payments.
However, interest payments to a foreign corporate or individual shareholder may become subject to Dutch income tax (and sometimes Dutch dividend withholding tax), but in many cases Dutch tax treaties prevent (or limit) the Netherlands to exercise this right on taxation.
The levy of Dutch income tax over outbound interest payments
Dutch taxation over outbound interest payments can occur as follows;
- dividend withholding tax may become due if the loan is to certain extent profit dependent or considered to be profit dependent (defined by law) or the loan is not a genuine loan according to the Dutch definition;
- Dutch corporate income tax may become due if the recipient of the interest is a "substantial shareholder" in the borrower which cannot allocate the shares in the Dutch company to an active business/enterprise.
- the interest income must be included in the taxable profits of a Dutch permanent establishment if the receivable must be allocated to the equity of this Dutch permanent establishment.
A "substantial shareholder" is any person - individual or corporation - (or a related group of persons) who directly or indirectly own 5% or more of the issued capital of a Dutch or foreign corporation or entity which is deemed to be treated as a corporation. Please note that the percentage of ownership in this context can include options/warrants.
A special tax regime applies for foreign artists and sportsman who perform in the Netherlands, for instance to give a concert or to participate in a sport tournament.
Although this special tax regime is technically part of the wage tax levy, in practice it works as a (final) withholding tax for foreign artists and sportsmen.
In most cases the Dutch promoter has the legal obligation to withhold a 20% tax. The taxable basis is basically the total remuneration, including costs reimbursements and benefits in kind.
The 20% tax is in principle the final tax.
However, as from 2007 an exemption applies for non-resident artists and sportsman living in a country with which the Netherlands concluded a Tax Treaty. In order to apply the exemption, the foreign artist or sportsman needs to submit an official certificate of residency to the Dutch tax authorities.
Foreign artists and sportsman residing in non-treaty countries will remain subject to taxation at source in the Netherlands.
For more information about the Dutch tax regime for foreign artists and sportsmen we refer to the page Dutch tax regime for foreign artists and sportsmen.
In international tax planning the Netherlands is frequently used because of its sophisticated tax system (see Investing in the Netherlands - Main features of the Dutch tax system), the possibility to conclude tax rulings and its extensive treaty network that in most cases results in a reduction of withholding taxes on outbound and incoming payments.
Many corporations structured their international operations via a Dutch holding company, structured their finance operations via a Dutch finance company and or their Intellectual Property by using a Dutch royalty company.
|Advice on withholding tax issues|
|International tax planning|
|Deal with refund procedures|
|Deal with exemption procedures|
|Preparation and filing of the dividend withholding tax return|
|Negotiation with tax authorities about withholding tax issues|
|Dealing with the compliance to the special tax for foreign artists and sportsmen|
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