Exemption from Dutch Withholding Tax on Dividends to Netherlands Antilles
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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.
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.
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
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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to be construed or used as general legal advice. Greenberg Traurig attorneys provide
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