Dutch corporate income tax rate lowered to 21%, abolishment of dividend withholding tax and introduction of a withholding tax on specific interest and royalty payments

On 10 October 2017, the incoming government of the Netherlands presented its plans, including some important corporate tax changes. The main changes are: lowering the headline corporate income tax from 25% to 21%, abolishing dividend withholding tax and introducing a withholding tax on interest and royalty payments made to low‑tax jurisdictions.

Main changes

The headline corporate income tax rate will decrease from 25% to 21%, in three stages: a reduction to 24% in 2019, a reduction to 22.5% in 2020 and a reduction to 21% in 2021.

Dividend withholding tax is withheld by Dutch companies on distributions of profits, at a rate of 15%. The incoming government intends to abolish it per 2020, except in cases of abuse and for dividend payments made to low-tax jurisdictions.

The Netherlands currently does not levy a withholding tax on interest and royalties. The incoming Dutch government announced the introduction of a withholding tax on interest and royalty payments made to low-tax jurisdictions with an aim to discourage the use of letter box companies.

Other important changes are:

  • the effective rate of the innovation box will be increased from 5% to 7%;
  • the new earning stripping interest deduction limitation, which will restrict deduction of net interest expenses to 30% of EBITDA, following the EU Anti‑Tax Avoidance Directive, will have a EUR 1 million threshold and no ‘group escape’;
  • the loss carry forward period is reduced to six years;
  • the term of the favorable 30%-ruling regime for foreign expats that relocate to the Netherlands will be reduced from eight to five years.

Effect and Practical Impact

The reduced corporate income tax rate and the abolishment of dividend taxation should make the Netherlands more attractive for foreign investors.

The tax measures presented by the incoming Dutch government still have to be translated to tax bills and be submitted to Dutch parliament. No further details are available at this stage.