When a Dutch company distributes dividends, it is in principle required to withhold 15 % dividend withholding tax on the gross dividend. However, under certain conditions the Dutch law provides for a withholding tax exemption (i.e. no tax is withheld) on dividends to non resident shareholders. This regime is in part aligned with the EU Parent Subsidiary Directive and aims to avoid double taxation.
Contents
Scope of the exemption
The Dutch dividend withholding tax exemption applies to dividends distributed by a Dutch company to a shareholder established within the European Union or in a jurisdiction with which the Netherlands has concluded a tax treaty, provided specific statutory conditions are met.
Key requirements include (non-exhaustive):
The shareholder must hold a qualifying interest - generally at least 5% of the nominal paid-up share capital of the distributing company.
The shareholder must be a corporate entity comparable to a Dutch company limited by shares (e.g., not a tax-transparent entity).
The exemption does not apply in cases involving abuse, i.e., artificial arrangements aimed at avoiding taxation.
The structure must meet substance and economic ownership conditions demonstrating that it serves a genuine business purpose.
When the conditions are met, the Dutch company may distribute dividends without withholding Dutch dividend tax, resulting in cash-flow and efficiency benefits for multinational groups.
Practical challenges
Although exemption can eliminate withholding tax entirely, several nuances are important:
The exemption must be assessed for each dividend distribution separately; it is not always straight-forward (especially when applying the anti-abuse rules).
The Dutch tax authorities may challenge the application of the exemption if they consider the holding structure abusive or lacking economic substance.
After declaring a dividend, the taxpayer is obliged to file a notification with the Dutch tax authorities in which the taxpayer confirms that the conditions of the Dutch dividend withholding tax exemption are met. Therefore the dividend is distributed without withholding any Dutch dividend tax.
As a substantiation we highly recommend to have a professional analysis/memorandum in your files that supports your argumentation why the Dutch dividend withholding tax exemption applies. This analysis can be used as a defensible position in case of queries from the Dutch tax authorities.
Technology and tooling
We are always looking for opportunities to streamline their internal processes by making use of technology. In this respect we have created our own Dutch dividend withholding tax tool. With this tool we can generate an efficient, clear, and comprehensive Dutch dividend withholding tax exemption memo that provides you with a clear step by step substantiation why the Dutch dividend withholding tax exemption applies in your specific situation.
We refer to the video below if you are interested in knowing more about the Dutch dividend withholding tax exemption and about the tool.
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