The power to tax dividends is regulated by Article 10 of the Treaty. The general rule is that dividends are taxed in the state where their recipient is resident. In addition, the Treaty allows the state where the paying company is based to charge a maximum tax of 15% (a withholding tax). The Treaty does not allow withholding tax if the person entitled to the dividends:
The Treaty article does not regulate how the dividends received are taxed in the two states.
When a Belgian company pays a dividend to a Dutch shareholder, a maximum of 15% tax may be withheld under Article 10 of the Treaty (instead of the general rate of 30% under Belgian law). The Belgian company that applies the treaty provision is responsible for this and takes care of the necessary formalities.
On the Dutch side, the shareholder’s dividend income is entered in box 2 of the income tax return (in the case of shareholdings of at least 5%). The rate in box 2 is 24.5% on the first €67,000 and 33% on the excess. The Belgian dividend tax can be offset in the Dutch income tax return.
Note: excessive borrowing
The ‘excessive borrowing’ rule has applied in the Netherlands since 1 January 2023. If a shareholder who is a natural person has large debts to his or her company, part of that debt can be regarded as a fictitious dividend payment for the purposes of box 2 tax. If the debt is greater than €700,000 at the end of 2023, the excess will (notionally) be taxed through box 2. This applies to debts to both domestic and foreign companies. A reduced threshold of €500,000 will apply from the end of 2024.
Conversely, dividends paid by a Dutch company to a Belgian shareholder (majority or otherwise) are subject to 15% dividend tax in the Netherlands on the basis of Article 10 of the Treaty.
The first €833 of dividends received in Belgium are exempt from tax (income year 2024). Dividends over this limit are subject to Belgian personal tax at 30%.
Note: accumulation of tax rates
Unfortunately, a Belgian shareholder of a Dutch company also faces an accumulation of tax rates under the new Treaty. First, the Dutch company’s profits are subject to Dutch corporate tax at 25.8%. The Netherlands then charges 15% dividend tax on the dividend paid. Belgium then charges a further 30% in personal tax on the dividend received by the shareholder (without additional offsetting of Dutch withholding tax). This leads to a total effective tax burden of nearly 56%. Unfortunately, no solution was devised for this during the negotiations leading to the new Treaty.
Under the Treaty, dividends paid by a Dutch company to a Belgian company may in principle also be subject to 15% Dutch dividend tax. In the Netherlands, an exemption from dividend tax applies if the Belgian parent company holds at least a 5% equity stake in the Dutch company which is not a low-taxed investment holding. This is a broader exemption than that prescribed by the Treaty, which specifies equity stakes of at least 10% and an additional retention requirement of 365 days.
For the Belgian company, the dividend it receives is in principle subject to Belgian corporate tax unless the conditions for the exemption of the dividends are met. In Belgium, this exemption for qualifying dividends is called the ‘dividend received deduction’ (DBI-aftrek/régime RDT).
In the reverse case, where a Belgian company pays dividends to a Dutch company, the maximum withholding tax is 15% in accordance with the Treaty, unless the Dutch company holds at least 10% of the capital in the Belgian company for a period of 365 days. Under Belgian national law, an exemption from withholding tax is possible if the Dutch company issues a certificate to the Belgian company in which it undertakes to keep the minimum holding of 10% for at least 365 days.
The dividends received by the Dutch parent company are exempt from Dutch corporate tax under the same conditions as the exemption from dividend tax: at least a 5% equity stake and the Belgian subsidiary may not be a low-taxed investment holding.
A new provision in the Treaty sets out an arrangement for shareholders who emigrate from Belgium to the Netherlands, or vice versa. Under this arrangement, the state from which the shareholder emigrates can continue to charge taxes on dividends received for a maximum of 10 years, but only if there is still a tax claim outstanding on the increase in the value of the shares in the period prior to emigration. In theory, the rate is at most half of the rate that the other state charges on dividends.
For example, if a Dutch shareholder emigrates to Belgium, the Netherlands may continue to charge 15% tax on dividends for 10 years. The Netherlands can only do so on the basis of the Treaty if a protective assessment has been issued at the time of emigration. A protective assessment safeguards the tax claim of the Netherlands on the increase in the value of the shares from the moment of their acquisition until the moment of emigration. When dividends are distributed, the protective assessment for the amount of the distribution is collected. In practice, the new Treaty provision has little effect in the Netherlands. The collection of the protective assessment is done by charging box 2 tax on dividends paid (24.5% or 33%), after offsetting Dutch and foreign withholding tax on dividends.
In the opposite situation, if a Belgian shareholder emigrates to the Netherlands, Belgium will be able to charge 7.5% tax on dividend payments on the basis of the Treaty (half of the Dutch dividend tax). However, the new provision does not yet work in the opposite direction, because Belgium does not (yet) impose a tax claim on the increase in the value of shares when a Belgian shareholder emigrates.
Would you like to know more about taxation of dividends in Belgian, Dutch or cross-border situations? If so, get in touch with one of our tax experts.
