If you are missing travelling as much as I am while this Covid pandemic endures, your thoughts may sometimes turn to that voice at Schiphol Airport, warning you to ‘mind your step’ on the moving walkways. It was something that popped into my mind while writing this blog. Dividend tax has not become any easier in recent years, particularly when it comes to international situations. In my experience, not everyone fully realises the tax and practical implications associated with dividend distributions. This can lead to some of the dividend having to be used to pay fines and default surcharges. So, when it comes to planning dividend distributions, it certainly pays to ‘mind your step’. In this blog, I'll be summarising the most important aspects to consider.
Dividend distributions to private individuals
If a company makes a dividend payment to a private individual, this needs to be based on a shareholders' resolution passed at the AGM. The company must then withhold 15% dividend tax and submit a corresponding dividend tax return.
If the recipient lives abroad
If the dividend’s recipient is a foreign private individual and the Netherlands has a double tax treaty with the country in which that person is resident, the dividend tax payable may be less. The tax treaty may, for instance, specify that the Netherlands can withhold only 10% dividend tax. To qualify for the lower treaty rate, a certificate of tax residence issued by the authorities in the country of residence (an IB-92 form) is often also required. Make sure you have the certificate of tax residence, signed and stamped by the relevant tax authorities, before making the dividend available. You may otherwise risk an additional dividend tax assessment, along with a maximum fine of €5,514.
Dividend payments to legal entities
When a company makes a dividend payment to a legal entity, a withholding exemption applies if the recipient benefits from a participation exemption. Ordinarily, a participation exemption will apply to recipients with an equity interest of 5% or more. If a withholding exemption applies, no dividend tax is due on the payment. This also means that no dividend tax return needs to be filed in such cases.
If the recipient is established abroad
If the recipient of the dividend is a foreign legal entity within the EU/EEA, or in a country with which the Netherlands has a double tax treaty with a provision for dividends, the withholding exemption may also be applied, provided that the participation exemption would apply in a domestic situation. Another condition is that there is no question of abuse, which will be the case if (put briefly) the shares in the company established in the Netherlands are held with the primary objective (or one of the primary objectives) being to avoid the levy of dividend tax elsewhere, and the arrangement or transaction is artificial.
If the participation exemption would apply in a domestic situation and there is no question of abuse, the withholding exemption can be applied. In that case, you will not need to file a dividend tax return, but will be obliged to file the ‘Dividend Tax Declaration (exempt payments to foreign beneficiaries in participation situations)' within one month of the dividend distribution. Our experience is that there is tendency to overlook this requirement. Not submitting this declaration on time means risking a fine of up to €5,514.
If you have any questions about the tax consequences of a planned dividend distribution, please feel free to contact your advisor at Visser & Visser. Alternatively, contact me using the details below.