Application and advantages of Dutch Tax Treaties

The primary benefit of Dutch tax treaties is the elimination of double taxation. This relief is provided in the form of a foreign tax credit or a tax exemption for foreign income or capital located in another country.

How can income be taxed differently in two countries? Because both countries have different reasons for believing they are entitled to claim taxes. For instance, a country may impose taxes on a firm just because the company was formed in accordance with its legal requirements. For The Netherlands, this is accurate. The Netherlands, therefore, considers any legal entity incorporated under Dutch law to be subject to taxation. Due to the fact that the sole employee (director) is a resident of another country, that nation may assert that the same Dutch organisation would be subject to taxation in their jurisdiction. Therefore, the other nation may likewise tax the business depending on where effective management is located.

Double taxation is an undesirable circumstance. The Netherlands has signed tax treaties with a large number of nations to prevent double taxation on income.

An agreement between two countries is known as a tax treaty. The taxing authority for each county is set forth in this agreement. Since a tax treaty is an agreement between two nations, its terms will be subject to negotiation. Because of this, not every country’s treaties contain the same provisions. You must read the relevant tax treaty to determine which nation may impose taxes.

A tax treaty between countries overrules the domestic withholding tax laws. For example, a tax treaty can specify rules for incoming and outgoing transactions. A tie-breaker rule will be included in the treaty. This tie-breaker rule will determine which country can levy taxes after the treaty’s rules have been followed but both countries still want to tax income.

The complete list of countries which the Netherlands has signed a tax treaty with is available here.

What if there is no tax treaty?

The Netherlands has not signed tax treaties with every country in the world. When the Netherlands does not have a tax treaty with a country, the “Double Taxation (Avoidance) Decree 2001” applies.

The Netherlands will not necessarily withhold taxes from your income if it comes from a nation with which it does not have a tax treaty. This is because the Decree applies to this income.  The decree’s implementation will stop that revenue from being taxed twice indicating that you are qualified for double tax relief.

Please don’t hesitate to contact us if you need more information.

Notes:

1. A 0% WHT rate applies to payments to a resident corporation when its shareholding qualifies for the participation exemption and the shares are part of a company whose activities are carried out in the Netherlands. However, dividend WHT may be levied on certain profit-participating loans.
2. The lower rate applies if the foreign company directly owns at least 25% of the capital of the Dutch company.
3. The 5% rate applies if the foreign company directly owns 10% of the Dutch company’s capital. The 0% rate applies if the dividend is paid from ordinary taxed profits and is tax-free in the recipient’s hands.
4. Based upon the treaty concluded with former Yugoslavia.
5. Negotiations on (revisions of) tax treaties are currently pending with Angola, Aruba Australia, Belgium, Brazil, Chile, Colombia, Costa Rica, France, Indonesia, Kenya, New Zealand, Poland, Singapore, Slovak Republic, and Spain. The revised treaty with the Czech Republic is signed but not yet effective.