Details have been made available on the proposed consequences of not abolishing the dividend withholding tax.
Background
Yesterday, it has officially been confirmed that Dutch dividend withholding tax will remain in force. This decision is directly linked to several accompanying tax measures. We will highlight the key elements of the most significant measures below. In essence the business environment measures that were presented in the 2019 Tax Budget are partially reconsidered. Dutch businesses are likely to benefit from the proposed measures that were announced yesterday.
Consequences accompanying measures
Corporate income tax rates
Currently profits up to EUR 200,000 are taxed against a rate of 20%, whereas the remainder is taxed against 25%. In the 2019 Tax Budget, the Dutch government proposed to gradually decrease the corporate income tax rates to ultimately 16/22.25% in 2021. It has now been announced to further decrease the corporate income tax rates to 15%/20.5% per 2021. The highest corporate income tax rate will not yet be decreased in 2019 and thus remain at 25%. No further details are available as yet on the applicable rates in the intermediate period.
Conditional withholding tax on dividend, interest and royalties
In the 2019 Tax Budget, the Dutch government proposed the abolishment of Dutch dividend withholding tax as per 2020. Along with the abolishment, a conditional withholding was to be introduced for intragroup transactions, but only targeting abusive situations involving low taxed jurisdictions. While it has been decided that Dutch dividend withholding tax will remain in force, the implementation of the conditional withholding tax on dividends will be postponed as an overlap is expected.
The proposed measures whereby withholding taxes will be introduced on interest and royalties in abusive situations in low taxed jurisdiction will however be maintained and should still be implemented as per 2021.
Key measures fiscal unity
Following an opinion of the Advocate General of the European Court of Justice, the Dutch government immediately announced emergency measures having effect as per 25 October 2017. Based on the announced legislation, some of the benefits of the Dutch fiscal unity regime are no longer applicable in domestic situations, as certain provisions need to be applied as if the entities of the fiscal unity were independently liable to pay tax.
It has now been announced that the retroactive effect will be limited to 1 January 2018 rather than 25 October 2017. Therefore most taxpayers do not need to comply with the announced legislation in their 2017 Dutch corporate income tax return.
Fiscal investment institution – real estate investments
The 2019 Tax Plan contained a measure under which fiscal investment institutions (in Dutch: “fiscale beleggingsinstelling” or “fbi”) can no longer directly invest in Dutch real estate. This measure was a direct consequence of the abolishment of the dividend withholding tax, since fiscal investment institutions are (effectively) not subject to corporate income tax but are obliged to distribute profits to their shareholders. As Dutch dividend withholding tax will not be abolished, this measure has been withdrawn. Therefore, fiscal investment institutions can continue direct investments in Dutch real estate.
30% ruling
Expatriate employees who satisfy certain conditions enjoy a tax benefit of 30% (or more if this reflects the actual extraterritorial expenses incurred) of their salaries. In the 2019 Tax Budget the Dutch government proposed to shorten the duration of the 30% ruling from eight to five years. No transition period was available. The government has now announced that grandfathering rules will be included for rulings that would no longer be applicable in 2019 or 2020 under the originally proposed measure.