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Dutch Dividend withholding tax – adjustments

A draft legislation has been published regarding adjustments to the Dutch dividend withholding tax to increase the competitiveness of the Dutch corporate tax system. The proposal includes a broadening of tax exemptions for profit distributions to non-EU and non-EER countries, depending on the tax treaty and new anti-abuse rules. In addition, profit distributions by Dutch cooperatives may become taxed as well. Implementation of the final bill is expected on January 1th, 2018.

Current situation – Dutch Dividend withholding tax

In general, profit distributions by Dutch entities are taxed with 15% dividend withholding tax. This rate may be reduced due to tax treaties. Furthermore, dividends paid to corporate shareholders in EU/EER-countries may be fully exempt based on the Parent-Subsidiary Directive.

Profits distributed by Dutch cooperatives are in general not subject to Dutch dividend withholding tax. This makes the Dutch cooperative a popular business form in international structures.

Extended exemptions

With the recent proposal profit distributions to corporate shareholders (and members of cooperatives) will be exempt from Dutch dividend withholding tax if the following conditions apply:

  • The shareholder has an interest of at least 5% in the Dutch company; and
  • A tax treaty applies which includes a dividend provision; and
  • The new anti-abuse rule is not applicable

In general the new anti-abuse rule aims at international structures with passive intermediate holding companies without relevant substance to avoid Dutch dividend withholding tax.

Dutch Holding Coop

It is furthermore proposed that profit distributions from Dutch cooperatives will become subject to Dutch dividend withholding tax. With this respect this may only apply to distributions from so-called holding cooperatives to members who are entitled to at least 5% of the profits or 5% of the liquidation proceeds (so-called qualifying member rights).

A cooperative is considered a holding cooperative if its activities mainly (70% or more) consists of holding participations or (in)direct financing of related companies or individuals. This activity test is based on the activities in the year prior to the profit distribution.

Member rights of affiliated members of the cooperative will be jointly considered in the calculation to determine if the 5% threshold has been breached.

Please note that for holding cooperatives that the same exemptions apply as discussed above.

Going forward – Dutch Dividend withholding tax

After the closing of the consultation, a final proposal is expected on September 19, 2017. New legislation is expected to take effect as per 1 January, 2018.

As the draft proposal does not contain transitional provision or grandfathering rules for current structures it is best to evaluate the consequences for your company as soon as possible.

If you have any questions or need assistance with respect to the above, please do not hesitate to contact MFFA Tax Advice.

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Folkert Mijlof is de oprichter van MFFA Belastingadvies en heeft als fiscaal adviseur meer dan 30 jaar ervaring met particulieren en bedrijven (nationaal en internationaal).