Cross-border dividend distributions – what about dividend withholding tax?
Normally speaking, a Dutch company will withhold 15% dividend tax from any dividends it distributes. In some cases, a company may not be liable to this tax, for instance when the recipient company is exempt from dividend withholding tax and no abuse has been identified. Additional conditions apply to Dutch companies with a foreign holding company, i.e. that have a cross-border structure.
Exemption from dividend withholding tax
If your organisation has a cross-border structure and you want to avail yourself of the dividend withholding tax exemption, you will be expected to meet two conditions.
Firstly, the taxpayer for dividend withholding tax purposes (i.e. the recipient company) must be a resident of the Netherlands. The taxpayer can also be resident in an EU/EEA country or a country that has signed a tax treaty with the Netherlands. In the latter case, the treaty must effectively contain a provision regarding dividends.
Secondly, a non-resident taxpayer must have a substantial interest in the company distributing the dividend at the time of the distribution. This typically means that the taxpayer must hold at least 5% of the shares.
The withholding exemption can be refused if abuse is identified. There are two tests for identifying abuse. These are:
- The subjective test: checks whether the shares in the Dutch (dividend-paying) company are being held with the principal objective of avoiding dividend withholding tax in the hands of another party.
- The objective test: checks whether the dividend distribution involves an artificial structure or transaction.
Abuse has been identified if the outcome of both tests is positive.
Nature of tests
What do these tests effectively look like? If you have a holding company in Belgium, for instance, it is particularly important that you are able to demonstrate that this holding company has sufficient substance. Circumstances that will rule out abuse in your situation would then be:
- the taxpayer (Belgian holding company) holds multiple direct or indirect interests in a business; and
- the taxpayer has control of one or more of these interests; and
- the taxpayer has its own offices and employees; and
- the director-majority shareholder provides significant services for the taxpayer. Any related costs are recharged to the operating company or companies in the form of administration and management fees.
You may be liable to dividend withholding tax when distributing a dividend to your holding company. Given that the rules governing the dividend withholding tax exemption are rather complex, we recommend that you seek the advice of a specialist. Our Accon International advisers would be happy to team up with you to explore your options. We are here to help.Need advice on this subject?
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