9 October 2017
The incoming government of the Netherlands has announced to put an end to the Dutch dividend withholding tax, except for abuse situations and in the case of dividend distributions to low tax jurisdictions. It is as yet unclear which situations are considered to be abusive and what falls under the scope of ‘dividend distributions to low tax jurisdictions’.
The main reason for the abolition of dividend withholding tax is to enhance the competitiveness of the Dutch tax system and to take away a hurdle for foreign investment into the Netherlands. In general, companies now pay 15 percent dividend withholding tax on dividends paid to their shareholders. In most cases, domestic shareholders can either benefit from an exemption or set off the dividend withholding tax paid against income tax payable. However, certain foreign investors are not in a position to set off the Dutch dividend withholding tax. The abolition of the dividend withholding tax shall therefore especially benefit foreign investors. For Dutch companies, it primarily means a reduction of the administrative burden.
The initiative to end the dividend withholding tax, which will cost an estimated 1.4 billion euros annually, is part of a larger package of tax measures for corporate entities, including anti abuse measures such as the possible introduction of a withholding tax on certain interest and royalty payments.
The proposed tax measures are part of the agreement between the political parties who will form the new government. This agreement was approved by the parties’ parliamentary on Monday 9 October and announced on Tuesday 10 October. It is now envisaged that these tax measures will enter into force as per 1 January 2019. We will of course keep you informed of the latest developments.