Introduction

When you established your business in the Netherlands and you consider repatriating profits, you may ask 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.

Dividends

The Dutch domestic withholding tax rate for dividend distributions, including interest on certain categories of profit participating loans, is 15% (2020). No dividend withholding tax is due on qualifying domestic dividends, i.e. dividends distributed by a Dutch corporation to a Dutch corporate shareholder if the participation exemption applies for this dividend income.

Also for foreign shareholders, a domestic dividend withholding tax exemption exists. Basically, if the foreign shareholder is a tax resident in a country with which the Netherlands has concluded a tax treaty and no abusive situation exists, the exemption applies. If the exemption does not apply, the rate for intercompany dividends is often reduced, in many cases even to zero 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.

Dutch dividend withholding tax for Dutch Cooperatives (Coöperaties)

As of 2018 the general exemption from dividend withholding tax for cooperatives has been abolished and replaced by a dividend withholding tax obligation for holding cooperatives. A cooperative qualifies as a holding cooperative if the activities of the preceding year consisted for more than 70% of holding of participations or financing of related parties. If the member holds 5% or more of the membership rights in a holding cooperative, 15% Dutch dividend withholding tax is in principle due on dividend distributions (unless the abovementioned domestic dividend withholding tax exemption applies).

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 redistribute dividends received from subsidiaries in 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 (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.

Interest and royalties

The Netherlands does not yet have a withholding tax on (genuine) interest payments and royalty payments. However, as of 2021 a withholding tax on interest and royalties to low-tax countries and in abusive situations will be introduced.

However, interest payments to a foreign corporate or individual shareholder may become subject to Dutch income tax (and sometimes Dutch dividend withholding tax). In many cases Dutch tax treaties prevent (or limit) the Netherlands in its right to exercise this right to tax. 

For an overview of the Dutch treaty rates for interest and royalties we refer to the pages Dutch treaty withholding tax rates for interest and Dutch treaty withholding tax rates for royalties.

The levy of Dutch income tax over outbound interest payments

Dutch taxation over outbound interest payments can occur as follows;

1. dividend withholding tax may be due if the loan is to a certain extent profit dependent or considered to be profit dependent (defined by law) or if the loan is not a genuine loan according to the Dutch definition;
2. Dutch corporate income tax may be due if the lender (i.e. recipient of the interest) is a substantial shareholder of the borrower and the shares in the Dutch subsidiary cannot be allocated to an active business/enterprise.
3. the interest income must be included in the taxable profit of a Dutch permanent establishment if the receivable has to be allocated to the activities of this Dutch permanent establishment.

A substantial shareholder is any person - individual or corporation - (or a related group of persons) who directly or indirectly owns 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.

Dutch artist and sportsman tax

A special tax regime applies for foreign artists and sportsman who perform work in the Netherlands for which they receive a remuneration, 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 'employer' has the legal obligation to withhold 20% tax. The taxable basis is the total remuneration, including costs reimbursements and benefits in kind. 

The 20% tax is in principle the final tax.

However, an exemption applies for non-resident artists and sportsman living in a country with which the Netherlands has 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.

International tax planning

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.

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