GT Alert

Exemption from Dutch Withholding Tax on Dividends to Netherlands Antilles Shareholders

December 2005

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The Dutch State Secretary of Finance and his Netherlands Antilles colleague have come to an agreement regarding a reduction of the current 8.3 percent withholding tax rate levied on dividend distributions to qualifying Netherlands Antilles shareholders. Such dividends will only be subject to a withholding tax of 5 percent, and in some cases even 0 percent.

Background

In many of the tax treaties concluded by the Netherlands, the Dutch statutory rate for dividend withholding tax of 25 percent is reduced to 5 percent or sometimes even 0 percent for dividend distributions to qualifying shareholders. The Tax Arrangement for the Kingdom of the Netherlands, which basically functions as a tax treaty between the several members of the Kingdom, will now include such low withholding tax rates. The combination of the Netherlands Antilles and the Netherlands will provide increased tax planning opportunities for multinational holding companies.

Exemption

The 0 percent rate will be applicable to dividend distributions to Netherlands Antilles shareholders that are listed companies, banks, insurance companies or pension funds.

Furthermore, the 0 percent rate will be available for Netherlands Antilles shareholders that invest the dividends in the Netherlands Antilles economy (anti-conduit regulation). For this purpose, the Netherlands Antilles central bank will incorporate a new Recovery Bank, through which the Netherlands Antilles shareholders will have to invest in order to apply the 0 percent rate. Only after a period of 24 months following the investment through the Recovery Bank, 25 percent of the invested dividends will be available to be distributed by the Netherlands Antilles company to its shareholder(s). After another period of 24 months, the remaining 75 percent may also be distributed. The Netherlands Antilles companies can also choose to apply the dividends received for investments in the Netherlands Antilles economy, but, in doing so, will have to adhere to strict requirements in order to be entitled to application of the 0 percent rate.

5 Percent Rate

Those Netherlands Antilles resident shareholders of Dutch entities that do not meet the above requirements will be entitled to application of a 5 percent rate, instead of the current 8.3 percent.

Minimum Holding Requirement

Both the 0 percent and the 5 percent rates will be available to shareholders that hold at least 10 percent of the share capital in their Dutch subsidiary, rather than the currently required 25 percent.

Former Offshore Rulings

Numerous multinational groups already use a Netherlands Antilles company for their tax planning. Many of these companies have been provided with advance certainty by the Netherlands Antilles tax authorities regarding their tax position in the form of a tax ruling under the former offshore ruling regime (abolished since January 1, 2002 and grandfathered until December 31, 2019). The described reduction in the applicable withholding tax rate also applies to these old offshore companies.

Most Favored Nation

With respect to the anti-conduit regulation described above, both parties agreed that should the Netherlands in the future conclude tax treaties with Malta or Cyprus that include less strict anti-conduit rules, such rules will replace the one agreed upon by the Netherlands and the Netherlands Antilles.

Entry into Force

The agreement will be incorporated into formal law by the Dutch Ministry of Finance and should be ratified by Dutch parliament in early 2006. However, the reduced withholding tax rates are expected to be implemented with retroactive effect as of January 1, 2006.

This Alert was written by Richard Smeding and Thomas van der Vliet in the Amsterdam office. Please contact Mr. Smeding at + 31 20 30 17 375 or Mr. van der Vliet at +31 20 30 17 387 or your Greenberg Traurig liaison, if you have any questions regarding the subject matter of this Alert.

© 2005 Greenberg Traurig

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