Am I required to pay the Waste Management Contribution? A payment made by an entity not resident in the Netherlands but allocated to a permanent establishment situated in the Netherlands may also be in scope of the WHT. What is the definition of a low tax jurisdiction in this law?In this case, jurisdictions are classified as low tax if there is a statutory rate of less than 9% in respect of income tax. This office space should not only be rented (or held) but also be used in the Dutch company’s operations and should be appropriate for its business activities. Also on 27 December, the Dutch Government enacted additional substance requirements for Dutch intra-group financing and/or licensing companies related to the exchange of information, again effective as of 1 January 2021. 3.1 Is any withholding tax imposed on dividends paid by a locally resident company to a non-resident? What new challenges will Swiss taxpayers and employers have to face and how to best be prepared for it? The WHT is due on (deemed) payments/accruals of interest and royalties. The Netherlands is introducing a conditional withholding tax from 1 January 2021 to prevent the country from being used as a “conduit state” for intra-group interest and royalty flows to low-tax jurisdictions and in situations of abuse. Review our cookie policy for more information. © 2020 EYGM Limited. In addition, the directors of the withholding agent are jointly and severally liable for paying the correct amount of withholding tax. The new Dutch withholding tax will apply from 1 January 2021. The substance of Dutch entities predominantly engaged in financing and/or licensing activities claiming benefits from a tax treaty or EU directive should be reviewed to avoid triggering the exchange of information as of 1 January 2021. Currently, Dutch companies predominantly (at least 70%) engaged in financing and/or licensing activities that can claim the benefits of a tax treaty or EU Directive must declare in their annual Dutch corporate income tax return whether a defined set of substance requirements is met. Until 1 January 2021, Dutch tax law did not provide for a withholding tax on true interest and royalty payments, whereas the Netherlands did (and does) levy a 15% dividend withholding tax on certain proceeds from equity instruments. For 2021 this rate is proposed at 21.7 per cent. A VBI is fully tax exempt – ie, the VBI is not subject to Dutch corporate income tax and its profit distributions are not subject to Dutch dividend withholding tax. If a treaty jurisdiction would fall under the low-tax jurisdiction definition, there is a three-year grandfathering period applicable for such jurisdiction.1. The WHT is due on accrued, imputed or paid considerations. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. The withholding tax rate is equal to the highest corporate income tax rate, namely 21.7 per cent (2021 rate). The currently existing Dutch dividend withholding tax exemption in respect to profit distributions to shareholders of companies with a capital divided into shares that are resident of the EU/EEA is extended to shareholdings or membership rights held by companies that are (tax) resident of a state with which the Netherlands has concluded a tax treaty including an article covering dividends. The withholding tax rate may however be reduced by a tax treaty. In the event that the receiving entity has sufficient substance in the country where the payment is made, the construction may not qualify as artificial and the Dutch Withholding Tax Act 2021 will not apply. On 25 March 2021, the Dutch government released a legislative proposal that introduces an additional withholding tax on dividends that will apply to dividend payments to related entities situated in low-tax jurisdictions, as well as in abusive situations. In 2021, the Dutch withholding tax rate will be 21.7%. These include the following: The WHT is due on payments to affiliated entities. The withholding tax will be levied at a rate equal to the highest rate of Dutch Corporate Income Tax in the current year. The Netherlands levies generally 15% Dutch dividend withholding tax in respect of dividend distributions (and other payments treated as dividend for Dutch tax purposes) paid by Dutch tax-resident companies (or companies deemed to be tax residents). An interest representing 50% or more of the statutory voting rights will in any case qualify as a qualifying interest. Dutch withholding tax does not apply only to payments to affiliated entities in a low-tax country. As of 1 January 2021, the following substance requirements will be added: To prepare for the WHT, all intercompany interest and royalty (deemed) payments from the Netherlands to any entities in EU listed jurisdictions or to any hybrid entities should be reviewed. Personal opinions on subjects related to our specialties. EY is a global leader in assurance, consulting, strategy and transactions, and tax services. The conditional WHT may also be due if the head office is resident in a low-tax jurisdiction or jurisdiction that is on the EU List, even if the interest or royalty income is allocated to a permanent establishment not situated in such jurisdiction. The Dutch Government will approach the relevant treaty partner to renegotiate and amend the respective treaty. One entity, together with a cooperating group of shareholders, holds a qualifying interest in the other. The government has announced that the main purpose of the Dutch withholding tax is to ensure that the Netherlands is no longer used as a gateway for interest and royalty flows to low-tax countries and to prevent situations of abuse. The tax will be levied on the Dutch entity that makes the relevant payments. However, interest payments to a foreign corporate or individual shareholder may become subject to Dutch income tax (and sometimes Dutch dividend withholding tax). On December 17, 2019, the bill introducing a new Dutch withholding tax on interest and royalty payments was adopted. The Withholding Tax Act 2021 (now effective) provides for a conditional withholding tax, effective as of 2021, on interest and royalties that are paid to group companies in “low tax” jurisdictions. Non-compliance with these obligations may result in administrative penalties. In case of distribution of dividends to natural persons a dividend withholding tax rate of 15% applies. On December 17, 2019, the bill introducing a new Dutch withholding tax on interest and royalty payments was adopted. The time the interest or royalty has become claimable and collectible. A structure is considered artificial when it exists without business motives that reflect economic reality. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. We can help you determine whether there is sufficient substance. A consultation proposal was published in … We provide you hereafter with the key elements of the reform. Under the new rules, several provisions included in the CITA and the Dutch Dividend Withholding Tax Act 1965 must be applied as if the Dutch tax consolidation regime were non-existent. With release of the Package, the govern… The CEO Imperative: How has adversity become a springboard to growth? The annual salary cost relating to the financing and/or licensing activities of the Dutch company should be at least €100K. What Dutch taxes apply when a Dutch company distributes dividends? This new withholding tax will have a rate of 21.7%. +31 (0) 888 387 669, Amsterdam - Kleine-Gartmanplantsoen 21 Arnhem - Willemsplein 34 Eindhoven The Netherlands. remember settings), Performance cookies to measure the website's performance and improve your experience, Advertising/Targeting cookies, which are set by third parties with whom we execute advertising campaigns and allow us to provide you with advertisements relevant to you, Social media cookies, which allow you to share the content on this website on social media like Facebook and Twitter. If the additional substance requirements are not met, additional information related to the intra-group financing and/or licensing activities may be exchanged with tax authorities of the relevant jurisdictions. The Dutch tax authorities may then spontaneously exchange this information with the relevant foreign tax authorities. At distribution of dividends, the taxation under the Dividend Withholding Tax Act is relevant. EY | Assurance | Consulting | Strategy and Transactions | Tax. In addition, payments that are not diverted on an arm’s length basis will also be subject to Dutch withholding tax, which will be equal to the highest corporate tax rate. Dutch withholding tax will only apply to payments made to entities in low tax jurisdictions or if there is abuse. The proposal primarily amends legislation that has already been introduced but has not yet entered into force. In principle, the entity that makes the interest and/or royalty payment (the withholding agent) will be charged. The Dutch Government enacted, on 27 December 2019, a withholding tax on interest payments and royalties to low tax jurisdictions and in abusive situations, effective as of 1 January 2021. Thus, until 1 January 2021, interest payments were generally not subject to Dutch withholding tax. A situation of abuse occurs when artificial structures are used with the purpose of avoiding Dutch withholding tax. The rate of withholding under the Dutch Withholding Tax Act is 21.7%. However, if the withholding agent has not paid or has not fully paid the Dutch withholding tax, the tax inspector can levy payment from the recipient of the payment. In addition, companies may also be affiliated with joint shareholders or through a collaborative group. Interest and royalty payments to low tax countries are to be taxed. The CEO Imperative: Is your strategy set for take-off? Dutch version. This would prevent holders of voting rights, equity interests or profit rights in a reverse hybrid entity from being independently regarded as benefit beneficiaries in proportion to everyone’s participation in that entity. This tax will be imposed on payments to affiliated entities in low-tax jurisdictions and in situations of abuse. closed Change in tax on capital and assets ... To combat tax evasion Dutch companies will need to pay withholding tax on outgoing interest and royalties. Example:A Dutch company makes a payment of € 200 that is subject to Dutch withholding tax. The Dutch withholding tax will also be levied if there is a situation of abuse. This means that the receiving entity will receive € 200 -/- € 43.40 = € 156.60. For more information about our organization, please visit ey.com. The withholding tax rate may also be reduced by a tax treaty, if applicable. You may withdraw your consent to cookies at any time once you have entered the website through a link in the privacy policy, which you can find at the bottom of each page on the website. Interest is defined as consideration of any kind – including costs – for debt. It should also be considered whether any situations may be seen as abusive situations for WHT purposes resulting in any (deemed) payments to be subject to WHT. A jurisdiction with a statutory tax rate lower than 9%, A jurisdiction that is included on the European Union (EU) list of non-cooperative jurisdictions, Other jurisdictions if the entity allocates the interest or royalties to a permanent establishment in a jurisdiction with a statutory tax rate lower than 9% or in a jurisdiction that is included on the EU list of non-cooperative jurisdictions, Certain abusive situations, which includes (deemed) payments/accruals to hybrid entities. The Dutch Government publishes a list at the end of each year of jurisdictions that qualify as low-tax jurisdictions or are included on the EU List at that time. Simultaneously with the introduction of the conditional exit tax, the proposal introduces rules under which the Netherlands shall provide for a step-up of the paid-in capital to the company’s fair market value for Dutch dividend withholding tax for foreign companies migrating their place of effective management to the Netherlands. Find out more. On 15 December 2020, the Senate approved the 2021 Tax Plan package, the limitation of the liquidation loss scheme in corporate income tax and the introduction of an air passenger tax. Whether a group of shareholders qualify as such cooperating group of shareholders depends on the facts and circumstances, such as coordinated group decisions. However, as of 2021 a withholding tax on interest and royalties to low-tax countries and in abusive situations will be introduced. A withholding tax (WHT) of 21.7% is introduced as of 1 January 2021 on intra-group interest and royalties (deemed) paid or accrued by a Dutch corporate taxpayer (entity or permanent establishment) to a related entity resident in: Payments to affiliated entities resident in a jurisdiction with a statutory tax rate lower than 9% (a low-tax jurisdiction) or a jurisdiction on the EU list of non-cooperative jurisdictions (the EU List) are in scope of the conditional WHT. The Netherlands looks to discourage tax avoidance by introducing a new withholding tax on interest and royalties as of January 1, 2021. For 2021 this rate is 25 per cent. As of 1 January 2021, additional substance requirements are introduced for Dutch intra-group financing and licensing companies related to the exchange of information with other jurisdictions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. The lower tariff of corporate income tax will be reduced in 2021. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Dutch withholding tax act coming into force on January 1, 2021. Namely that, based on the relevant facts and circumstances, the Dutch Tax Authorities can demonstrate that the structure is nevertheless artificially designed. The Package introduces a step-by-step reduction of the Dutch corporate income tax rate. A cooperating group of shareholders hold a qualifying interest in both entities. If interest or royalties have accrued and remained outstanding during a calendar year: on 31 December of that year. This rate mirrors the corporate income tax rate which should be 21.7% in 2021, the year in which this tax will first be levied. The rate structure will be as follows: Increase of the Dutch innovation box rateThe Dutch government hopes to better position the Netherlands to compete in the current investment climate through the introduction of lower rates, including the gradual reduction of the high corporate tax rate to 21.7% in 2021 and the gradual reduction of the low corporate tax rate to 15% in 2021. As the new Dutch withholding tax will only be levied on payments between affiliated entities, it is important to have a clear understanding of what exactly an affiliated entity is. All Rights Reserved. For additional information with respect to this Alert, please contact the following: EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. An example of this is when an entity makes an interest or royalty payment to another entity in a low-taxed country and that payment is routed through an intermediary step by means of a flow-through entity with little to no relevant substance in a non-low-taxed country.This means that for all interest or royalty payments, it must be examined whether there is an artificial construction aiming to avoid Dutch withholding tax. For the year 2021 the tax rate for income from a substantial interest is 26.90%. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. The Dutch company should have an office space available (leasing or holding in property) for a period of at least 24 months. The WHT is due at the moment of enjoyment of the interest or royalty payment by the recipient. This tax will be imposed on payments to affiliated entities in low-tax jurisdictions and in situations of abuse. Would you like to know whether your company is required to withhold Dutch withholding tax on interest and/or royalty payments or would you like to avoid unnecessary Dutch withholding tax? The payor must report and withhold the WHT within thirty days after the moment of enjoyment. The tax is levied by withholding at source, the paying entity transfers the tax to the tax authorities. How can digital government connect citizens without leaving the disconnected behind? The moment of enjoyment is defined as: The rate of the WHT equals the headline corporate income tax rate, which will be 21.7% in 2021. As of January 1, 2021, the Netherlands will levy a withholding tax on interest and royalties paid to associated enterprises (controlling interest, which is deemed to be the case if 50% of the shares are held) that are resident for tax purposes in a so-called low-tax jurisdiction or non-cooperative jurisdiction and in certain abusive situations (jurisdictions included on the “Dutch list”). However, this may well be the case as of 1 January 2021. This new withholding tax will have a rate of 21.7%. The Finance Act for 2018 provides that the withholding tax applicable to companies on dividend payments will be aligned to the French corporate tax rate as of January 1, 2020 (see Tax Rates). The time the interest or royalty has been paid or settled, made available to the beneficiary or becomes interest-bearing. WHT is due if the interest or royalty income is allocated to a permanent establishment in a low-tax jurisdiction or a jurisdiction that is on the EU List, even if the head office is not a resident of such jurisdiction. This company then pays 21.7% tax on this amount, € 43.40. Payments that fall within the specific exemptions mentioned in the first column are subject to Dutch dividend withholding tax (that is, 15% in 2020). In this case it concerns situations where the shareholder, either directly or indirectly, has such influence on decision-making that they determine the activities of the company; here this means an (in)direct shareholding of at least 50%. Having substance in an entity that is resident in a low-tax jurisdiction or a jurisdiction on the EU List does not provide for an exemption from the conditional WHT. The new Federal Law on withholding tax on employment income will enter into force on January 1st, 2021 and includes a whole series of new provisions. Also for the Withholding Tax Act 2021, it is proposed that a reverse hybrid entity would be regarded as a full benefit beneficiary for the purposes of this withholding tax. The Belastingdienst (Dutch tax office)collects taxes through a variety of streams. The WHT may also apply on interest and royalty payments in certain abusive situations. A VBI may only invest in financial instruments, including transferable securities. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Upward corrections if the interest or royalty payment is not at arm’s length (e.g., imputed expenses), are also in scope of the WHT. It is announced that the Dutch corporate income tax Act will be amended per 2022 in light of the European Court of Justice's decision in the Sofina Case (C-575/17). The definition of royalties follows the OECD model treaty definition and includes consideration for the right to use any patents, trademarks, designs or models. Entities will be considered affiliated in the following cases: An interest is a ”qualifying interest” when a holder of such interest can exercise control over decisions of the entity. As of 1 January 2020, the following jurisdictions are included on the list: American Samoa, Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Fiji, Guam, Guernsey, Isle of Man, Jersey, Oman, Samoa, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, United Arab Emirates, Vanuatu, and the US Virgin Islands. Our tax advisors will be only too glad to help you or your accountant, whether your company is established in the Netherlands or abroad. The law will enter into force on 1 January 2021. The withholding tax is, in principle, levied from the Dutch resident entity that makes interest or royalty payments at a rate equal to the highest rate of Dutch Corporate Income Tax in the current tax y ear. Interest and royalty payments The IRWHT is levied on gross interest and royalty payments. Up until December 31, 2020, interest and royalty payments made by Dutch companies are not subject to Dutch withholding tax. Note that the WHT applies regardless of whether an interest or royalty payment is deductible for corporate income tax purposes. telefoonnummer Created with Sketch. If so, please contact us. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In addition to cookies that are strictly necessary to operate this website, we use the following types of cookies to improve your experience and our services: Functional cookies to enhance your experience (e.g. Having relevant substance in such a conduit company provides a presumption of proof that the arrangement is not abusive. The Dutch Government enacted, on 27 December 2019, a withholding tax on interest payments and royalties to low tax jurisdictions and in abusive situations, effective as of 1 January 2021. However, there is an exception to this. Dividend Withholding Tax Exemption: What are the constraints. The proposal details potential changes to the Dutch Corporate Income Tax Act 1969 (DCITA), the Dutch Dividend Withholding Tax Act 1965 (DDWTA), and the Dutch Conditional Interest and Royalty Withholding Tax Act 2021 (DCWHTA). Interposing conduit companies in non-low tax jurisdictions or jurisdictions that are not on the EU List, if these intermediate conduit companies do not meet certain substance requirements or in the absence of actual economic activities. Amsterdam – Kleine-Gartmanplantsoen 21 Arnhem – Willemsplein 34 Eindhoven – Schootsestraat 14 The Netherlands, Account name: DTS Duijn’s Tax Solutions B.V. Bank name: Rabobank BIC: RABONL2U IBAN: NL64RABO0167742167, Dutch withholding tax act coming into force on January 1, 2021, Automobiles and the property relocation exemption, Tax liability for foreign substantial interest holders, Investing in Foreign Real Estate by Dutch Residents. With respect to low-tax jurisdictions or jurisdictions that are on the EU List with which the Netherlands has concluded a tax treaty, a three-year grandfathering period applies during which the WHT will not apply. If one or more of these substance requirements are not met, detailed information on the intra-group financing and/or licensing activities must be provided to the Dutch tax authorities. One entity directly or indirectly holds a qualifying interest in the other. Additional substance requirements for intra-group financing and licensing companies. As of 1 January 2021, the Netherlands applies a withholding tax (WHT) on interest and … Rate Box 3 (income from savings and investments) The tax rate for income from savings and investments is increased to 31%. Only jurisdictions that are included on that list for the preceding calendar year are in scope of the conditional WHT. Both the payor and recipient of the interest or royalty are liable for the WHT. A third entity directly or indirectly holds a qualifying interest in both entities. On 23 April 2019, the Dutch parliament adopted a legislative proposal changing Dutch fiscal unity rules retroactively effective from 1 January 2018. In addition, we can have discussions with the Dutch Tax Authorities on your behalf in the case that they designate your structure as artificial. (Deemed) payments/accruals to a hybrid entity, as a result of which the corresponding income is not taxed by any jurisdiction. The proposed rate is 21.7%, which is the same as the corporate income tax rate proposed for 2021. This should be determined based on the relevant facts and circumstances. Entity transfers the tax rate will be made for companies with a cooperating group shareholders! Which is the same as the corporate income tax purposes entity, together with a real in! When a Dutch company should be determined based on the relevant foreign tax authorities can demonstrate the! Companies are not subject to Dutch corporate income tax at a 0 % rate on 1 January 2021 VBI... Considered artificial when it exists without business motives that reflect economic reality, visit! 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