Dividend withholding tax: The Netherlands abolishes and France reduces for non-resident individuals. What is the impact for Belgian shareholders?

The Netherlands

The Dutch government announced on 19 September 2017 its tax plan 2018. This plan includes a number of important changes which may impact Belgian shareholders of Dutch companies.

After a very difficult Government formation the new coalition came up with a legislative proposal with the following items of interest regarding Dutch income tax:

• –  abolition of dividend withholding tax (the equivalent of Belgian “roerende voorheffing “ on dividends – at present 15,00%);
• –  phased reduction of corporate income tax (from 25,00% to 21,00% and even to 16,00% for some SMEs); and
• –  introduction of a withholding tax on dividends, royalties and interest paid to beneficiaries in tax havens.The reason for abolishment of the dividend tax is to increase the attractiveness of investments in Dutch companies, it avoids red tape (very often exemptions are already available but require quite a bit paper work) and it abolishes potential discrimination between foreign and Dutch taxpayers.

  In practice the Dutch dividend tax was borne mainly by foreign taxpayers. Dutch individual taxpayers can credit the dividend tax with their Dutch income tax. The Netherlands does not know for individual shareholders, a withholding tax that is a final tax as Belgium does. Of course, in some cases, a foreign recipient may be able to credit or deduct (a part of) the Dutch dividend tax but in most cases the risk on (partial) double taxation almost always remains.

  If a Belgian natural person receives a Dutch source dividend of EUR 100, 15,00% of Dutch dividend tax will be due. The Belgian shareholders will receive “at the border” an amount of EUR 85, which will be subject to 30,00% tax in Belgium. This results in a net amount of EUR 59,50.

  After abolition of the Dutch dividend withholding tax that same Belgian shareholder will receive EUR 100 at the border and will pay 30,00% Belgian tax on it. As a result that shareholder receives a net amount of EUR 70 EUR. This is for an individual investor a significant difference.

  Although not certain yet, the abolition of Dutch dividend tax is likely to be applicable as of 1 January 2020. Note however that even today it is possible to make distributions out of a Dutch company without dividend tax, i.e. under circumstances capital reductions or repayments of share premium (agio) are tax free.

  Corporate groups are also affected by the changes in the dividend tax rules. Even today dividend distributions are exempt if the beneficiary is a qualifying EU company which owns 5,00% or more of the share capital of the Dutch dividend distributing company. This exemption continues to exist but a general anti-abuse provision is added to prevent improper use of an EU parent company. Starting 1 January 2020 the abolition of the dividend tax would be final and general and withholding tax would only be due in abuse situations or in case of payments made to beneficiaries in low taxed jurisdictions. Details on the notions “abuse” and “low taxed” are not yet known.

  It is remarkable that the Dutch Government did not include any proceeds relating to the anti-abuse measures in its annual budget. The Dutch government strongly believes that taxpayers who will fall within the scope of this anti-abuse rule will reorganize themselves in order to prevent the dividend tax.

  We have already pointed out on several occasions (see our article on 31 January 2018), to be careful for structures aimed at realizing tax-free capital gains on Dutch shares via a Belgian holding company. Untill recently and contrary to the rules for dividends received the rules for a capital gain exemption required no minimum participation condition (EUR 2 500 000 or 10,00% acquisition value). The absence of such a participation condition made Belgium attractive for realizing exempt capital gains on shares when compared to our neighboring countries such as the Netherlands and Luxembourg. For large enterprises there was a separate charge of 0,412% on the capital gains realized which charge was recently abolished (Law of 25 December 2017). As of assessment year 2019 (financial years ending on 31 December 2018 or later) Belgian tax law includes a minimum participation requirement for capital gains, just as for dividends, and requires a minimum 10,00% participation or and amounts a minimum acquisition value of EUR 2 500 000.

  France

  The French Parliament decided (Law of 21 December 2017) to reduce the dividend tax on 1 January 2018 (the so-called prélèvement à la source which was set at 30,00%) for non-resident individuals to 12,80% and for foreign companies to 25,00% as of 2022. Note that these rates may be even lower under French double taxation treaties (hereinafter referred to as “DTT”). We have already reported on several occasions on the dividend withholding tax issues for Belgian individuals under the Belgian-French DTT, (see our article of 10 October 2017). Whether the Belgian resident individual in addition to the reduced withholding tax of 12,80% can also benefit from an additional Belgian foreign tax relief (of 15,00% of the net dividend) which would almost abolish all double taxation, is still unclear.

  Note that the French tax authorities still need to disclose the documentation requirements in order to apply the 12,80% rate.

  Frank De Langhe and Werner Heyvaert