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Dutch dividend withholding tax reduction for South African investments

A lower court in the Dutch city of Breda might have caused some turmoil in the Dutch Treasury department by granting a Dutch company a total dividend withholding tax refund on dividends paid to a shareholder in South-Africa. This is the consequence of two so-called ‘most favored nation’ clauses.

From the court case ruling can be deduced that it is agreed in the Sweden-South Africa tax treaty that Sweden levies 5% dividend withholding tax unless other countries charge a lower rate for dividends paid to South-Africa. (So, Sweden is most favored.) It turns out that a few other countries indeed charge nothing. As a consequence, Sweden charges nothing. Since the Sweden-South Africa tax treaty has been concluded later than the Netherlands-South Africa tax treaty, which has a ‘most favored nation’ clause for future treaties, Dutch companies are also entitled to benefit from a 0% dividend withholding tax, and in this particular case a refund of the tax already withheld.

Of course, this drop in dividend withholding tax rate from 5% to 0% might attract investors who want to structure their South African interests via The Netherlands and vice versa, which might boost both the Dutch and South African economy. A chain reaction need not be feared, since ‘most favored nation’ clauses are relatively rare. Also, doing business in The Netherlands is far less burdensome than setting up shop in Sweden. In short: The Netherlands have suddenly found themselves in a comfortable position, investment-wise.

The tax treaty landscape is always changing and we are always landscaping. For instance, if the European Commission gets its way, the Netherlands-Japan tax might be changed. Find here an overview of recently signed or amended Dutch tax treaties and a list of currently operative treaties. Our international tax specialists can always tell you more.