The 2021 Withholding Tax Act, or the conditional withholding tax on interest and royalty payments, applies since January 1, 2021. The withholding tax will be levied on interest and royalty payments to affiliated entities in designated low-tax jurisdictions and in abuse situations. Until December 2020, the Netherlands did not levy withholding tax on outbound interest and royalty flows. As a result, Dutch companies could be used as a conduit to low-tax jurisdictions. The government intends to counter this form of structuring with the new Withholding Tax Act 2021.
Who is taxable?
If a company is based in a low-tax jurisdiction and receives interest or royalties from an affiliated Dutch party, the company based in the low-tax jurisdiction is subject to tax under the Withholding Tax Act 2021. A country is regarded as a low-tax jurisdiction if its tax on profits is lower than 9% of if the country is on the current EU list of non-cooperative jurisdictions for tax purposes.
The withholding entity
The company with a qualifying holding in the low-taxed subsidiary is the withholding entity for withholding tax purposes. From 1 January 2021 it must declare the interest and royalties paid to this subsidiary and remit the withholding tax The Withholding Tax Act will apply in the same way to a foreign branch of a company (a so-called permanent establishment).
The rate of the withholding tax will be the highest applicable corporation tax rate: 25% from 2021.
Would you like to know what this means for your company or do you have any other question? Please feel free to contact us!