Requirements for the applicability of the Dutch dividend withholding tax exemption as of April 1, 2018
Dividend distributions by Dutch companies are in principle subject to 15% Dutch dividend withholding tax (DDWT). In the past, exemptions were available for Dutch and certain EU / EEA situations (DDWT exemption). DDWT could also be reduced under a double tax treaty. In this article we will elaborate on the legislative changes that took place in 2018 in relation to the DDWT exemption.
In the fight against tax abuse, the requirements to apply the DDWT exemption have been tightened as of January 1, 2018. For dividend distributions to an EU or EEA entity – which were usually exempted in the past - stricter requirements have been imposed.
As of January 1, 2018, one now has to demonstrate that the recipient (of the dividend) either does not hold the interest in the Dutch company with the (main) purpose of avoiding DDWT (subjective test) or the set-up of structure is not considered to be set up artificially (objective test). If one of both tests is met, the DDWT exemption will remain applicable.
The subjective test will be met if one is able to demonstrate that a dividend distribution to the shareholder of the recipient – thus fictitiously ignoring the direct shareholder - would have been exempted from DDWT. The idea behind this test is that if such a distribution would have been exempted from DDWT, there is no need to assume that the shareholder has been interposed for tax avoidance purposes. This fictitious 'thinking test' will have to be carried out between the Dutch company and the first direct or indirect shareholder in the chain of ownership that is considered to conduct an active business enterprise.
The objective test will be met if the recipient of the dividends carries an active business enterprise or performs an essential (link) function within the group. In order to comply herewith the usual substance criteria, need to be met.
As of April 1, 2018, however, two additional substance criteria have been added to the objective test, namely the recipient of the dividends (i) incurs labor costs of at least € 100,000 (x country of residence factor) and (ii) must have an office space available for a period of at least 24 months. For completeness’ sake, we note that the country of residence factor is 100% in most Western countries.
Finally, it will be imperative that when the DDWT exemption has been applied, a notification with the Dutch tax authorities needs to be filed within one month after the dividend has been distributed.
If you are considering to distribute a dividend from your Dutch company to its non-Dutch parent company, we highly recommend to examine the applicability of the DDWT exemption.
For more information, contact Theo Coulen or Justin Ramakers.