Netherlands enacts new legislation regarding dividend withholding tax
The Dutch government has recently enacted new legislation that has both expanded the scope of the Dutch dividend withholding tax, and provided for a new withholding tax exemption for certain non-EU shareholders.
Beginning Jan. 1, 2018, the Netherlands will expand the scope of the dividend withholding tax—a 15 percent withholding tax on certain Dutch dividends—to apply to qualifying membership rights in certain cooperatives (Co-op) that qualify as a Holding Co-op. For the purposes of the expanded dividend withholding tax, a Holding Co-op is any cooperative that consists predominantly (70 percent or more) of holding company or intra-group financing activities.
In conjunction with this expansion in scope, the new legislation will also provide for a unilateral exemption from the withholding tax imposed on dividends distributed by Dutch limited liability companies (LLC) or Co-ops to shareholders or members with tax residencies in countries outside the European Union.
In order for non-resident shareholders or members of Dutch LLCs and Co-ops to qualify for this exemption, they must meet several statutory requirements. Specifically:
- The non-resident shareholder or member must be a tax resident in a jurisdiction that has a tax treaty, including a dividend article, with the Netherlands;
- The direct shareholder or member of the Dutch company may not hold the shares with the principal purpose of avoiding the Dutch dividend withholding tax, and;
- The structure must not be part of an artificial arrangement.
Additionally, Dutch companies that distribute dividends qualifying for this exemption must notify the Dutch Tax Authorities that all of the requisite conditions have been met within one month of the date of distribution.
Multinational entities that may be impacted by this new legislation should carefully review these new dividend withholding tax rules. Those that have not previously been subject to the Dutch dividend withholding tax will not want the surprise of unexpected withholding, and those that have previously been subject to the Dutch dividend withholding tax will not want to miss a prime opportunity to qualify for exemption.