Update on Dutch withholding taxes
By Edward Hendrickx, EJP Accountants & Adviseurs
Did you know that U2 is not an Irish band but a Dutch one? And that the Rolling Stones are from Amsterdam? Although the managers of these bands deny it, it is often assumed that their main offces are established in the Netherlands due to the lack of royalty withholding taxes. This might change.
Over the past year a heated political debate took place in the Netherlands on the proposed abolishment of the current Dutch dividend withholding taxes. Additionally, a new withholding tax to low tax jurisdictions was introduced. This new tax would cover dividends, royalties and interest. The debate has settled and the future of Dutch withholding taxes seems to be clear.
The proposal to abolish the current dividend withholding taxes was originally filed to attract more main offces of multinational companies to the Netherlands. The proposal was withdrawn after the company Unilever cancelled its plans to relocate its main offce to the Netherlands. As such, the current Dutch dividend withholding tax of 15% will remain unchanged.
While the proposal regarding the new withholding tax to low tax jurisdictions has been temporary withdrawn, for legislative reasons, it will be refiled to parliament. This is expected to happen in September 2019. The temporary withdrawal is to research if the new withholding tax still needs to cover dividends now that the current dividend withholding tax remains.
The withholding tax to low tax jurisdictions is expected to be effective as of 1 January 2021. It will be levied if royalties and interest (and possibly dividends) are paid to recipients which are associated with the paying Dutch company.
The withholding tax will be levied if the recipient is located in a listed jurisdiction. Three months before the start of each calendar year, the list of jurisdictions will be published for the coming calendar year. Jurisdictions will be on this list if their statutory tax rate on profits is no more than 7% or if they are a non-cooperative tax jurisdiction as determined by the European Union.
The rate of the withholding tax will be equal to the rate of the highest bracket of the Dutch corporate income tax. This is expected to be 20.5% in 2021 (currently 25%).
Bilateral tax treaties and directives of the European Union can change the effective tax rates where applicable.
While the withholding tax as of 2021 is still in legislative process, and changes are still possible, the Netherlands will most likely introduce a withholding tax for royalties and interest in the coming years. The withholding tax on dividends remains currently unchanged.
Edward HendrickxEJP Accountants & Adviseurs, ‘s-Hertogenbosch, The Netherlands
T: +31 73 850 72 80, F: +31 73 850 72 99
Published: November 2018 l Photo: Uwe Rieder