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Foreign withholding tax can, under certain conditions, be deducted from Dutch income or corporate tax bills. Although the Netherlands has only a limited number of withholding taxes (see Dutch withholding tax), it is often quite possible that you will be taxed, not only on dividend, but also on interest and royalties, in other countries. Below we give you concise information on foreign withholding taxation in three areas: reductions, off-setting, and exemptions.
Reducing foreign withholding tax
If you receive interest, royalties or dividend from another country (source country), and withholding tax is being withheld, it is worth investigating whether it is possible to be able to reduce the withholding tax on the basis of the applicable treaty (tax treaty). If the Netherlands has a tax treaty with the source land, then perhaps you are entitled to tax that is to be or has been, withheld. A reduction in foreign withholding tax must be settled abroad. If you are on the lookout for somebody abroad to do this for you, we would be only too glad to set our international network to work for you.
Deducting foreign withholding tax
If the Netherlands has a tax treaty with the source land, it can well be that, on the basis of such a treaty, an exemption exists for foreign withholding tax. There are usually two possibilities:
- the withheld tax must be reduced; or
- you look for an exemption beforehand.
If you have received an exemption from withholding tax beforehand, interest, royalties or dividend from another country are then free from withholding tax. If you wish to make use of an exemption from foreign withholding tax, you must arrange this abroad. Our international network can again do this for you.
An exemption from foreign withholding tax
If foreign withholding tax has been charged on your income, then maybe the possibility exists to off-set it or to apply a cost deduction. If the costs come under an object exemption, such as a participation exemption, then it is not possible to deduct the withholding tax.
The way in which the deduction in withholding tax is applied depends on both the tax treaty that has been signed and on national regulations and must be in accordance with unilateral treaties. The most common way is to include gross income in the tax base, calculate Dutch tax on this, and subsequently reduce tax due in the Netherlands by the amount of the withheld tax. Since there are many factors that determine how foreign withholding tax should be deducted, the Dutch tax authorities have set up a syllabus. This syllabus describes how the tax authorities deal with the deduction of withholding tax.