Regular Dividend WHT (15%)
The Regular Dividend WHT generally applies to dividends distributed by Dutch companies. A domestic exemption from Regular Dividend WHT is available where the direct shareholder of the Dutch entity is a resident of a country which has concluded a tax treaty with the Netherlands that includes a dividend tax provision provided that the anti-abuse provision does not apply and certain other conditions are satisfied. The anti-abuse provision should not apply if the direct shareholder is engaged in an active business enterprise. If that shareholder is not engaged in an active business enterprise, the anti-abuse provision should still not apply if there is an entity in the direct chain above the shareholder that is a resident of country which has concluded a tax treaty concluded with the Netherlands and is engaged in an active business enterprise. Essentially, the anti-abuse provision of the Regular Dividend WHT allows Dutch taxpayers to look-through the ownership chain above the Dutch entity and apply the rules to the first entity in the direct chain that is engaged in active business enterprise. As such, all entities in between may be disregarded, including entities located in low taxed jurisdictions. Finally, the exemption from Regular Dividend WHT may be denied in certain hybrid situations.
Conditional Dividend WHT (25.8%)
The Conditional Dividend WHT of 25.8% will generally apply to dividends distributed by Dutch companies to Low Taxed Jurisdictions and in certain abusive or hybrid situations. The Conditional Dividend WHT will be reduced with any Regular Dividend WHT that may also be levied. Therefore, if the Regular Dividend WHT and the Conditional Dividend WHT both apply, a maximum of 25.8% will be levied on the dividend payment.
Under the anti-abuse provision, the Conditional Dividend WHT will apply if dividends are paid to a shareholder that is not resident in a Low Taxed Jurisdiction but that shareholder is directly or indirectly held by an entity resident in a Low Taxed Jurisdiction. However, this anti-abuse provision should not apply if the entity in the resident in a Low Taxed jurisdiction holds the Dutch company through a shareholder that is engaged in an active business enterprise.
The difference between the anti-abuse provision under the Regular Dividend WHT and the anti-abuse provision under the Conditional Dividend WHT is that under the Regular Dividend WHT, one is allowed to look through entities in Low Taxed Jurisdictions in the ownership chain that are not engaged in an active business enterprise above the Dutch entity to apply the rules to the first entity in the direct chain that is engaged in active business enterprise, whereas one is not allowed to look through entities in Low Taxed Jurisdictions for the anti-abuse provision under the Conditional Dividend WHT.
For example the following situation would in principle qualify for an exemption from Regular Dividend WHT, but would in principle be subject to Conditional Dividend WHT: A Dutch company is directly held by a Luxembourg company without an active business enterprise. The Luxembourg company is held by a Bermuda company, that in turn is held by a US company that is engaged in an active business enterprise. Under the Regular DWT, one is allowed to look through both the Luxembourg company and the Bermuda company and the structure should not be considered abusive because the US company is engaged in an active business enterprise. Under the Conditional Dividend WHT, the structure is considered abusive since the Luxembourg company is not engaged in an active business enterprise and is held by a company in a Low Taxed Jurisdiction.
Practically, the Conditional Dividend WHT will apply separately from the Regular Dividend WHT and will need to be tested for each dividend payment as of 1 January 2024.
If there is a Low Taxed Jurisdiction in your structure above the Netherlands, the impact of the Conditional Dividend WHT should be carefully considered before year-end. We encourage you to review your structure for any Low Taxed Jurisdictions in the direct chain above your Dutch entity, and please reach out to us if you would like to further discuss, including any measures that should be taken prior to making a distribution in 2024.
1 Low-Taxed Jurisdictions are jurisdictions with a statutory tax rate of less than 9% or blacklisted by the EU. The Netherlands annually publishes a list of Low Taxed Jurisdictions. Low Taxed Jurisdictions per 2023 are: Anguilla, Bahamas, Bahrein, Barbados, Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey, Cayman Islands, Turkmenistan, Turks and Caicos Islands, Vanuatu, United Arab Emirates, American Virgin Islands, American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago.