Legislative proposal dividend exit tax: now also relevant for SMEs

On 10 July 2020, Bart Snels, a Member of Parliament for the Dutch Green party (the opposition party GroenLinks) proposed legislation which would create a dividend tax liability on the retained earnings (profit reserve) of legal entities, should they leave the Netherlands. Initially, this proposal was aimed at groups with a consolidated turnover of at least € 750 million. However, the proposal was amended on 18 September 2020, removing this threshold. Should this proposal be approved in its current form, it would therefore also be relevant for small and medium-sized enterprises. The legislative proposal has retroactive force to 18 September 2020, 12:00hrs.

Exit tax upon ‘leaving’ the Netherlands

The proposal introduces a notional dividend distribution of the profit reserves of Dutch companies in cases of cross-border restructuring, namely in the following cross-border situations:

  1. Legal merger;
  2. Legal division;
  3. Share merger; and
  4. Transfer of the place of effective management.

The notional dividend distribution only applies in the case of cross-border restructuring involving a move to a so-called ‘qualifying state’. This is a state which:

  1. does not have a source taxation comparable to the Dutch dividend tax; or
  2. does have a source taxation comparable to the Dutch dividend tax, but where the assets of the entity are considered to be paid-up capital (and no taxes are due upon distribution of said capital).

The dividend tax on the notional dividend distribution can be paid immediately, but it would be possible to request a deferment of payment. If a deferment is granted, the dividend tax is only due if and insofar as dividend distributions actually take place, after the cross-border restructuring.

If and insofar as the profit reserves which were accrued in the Netherlands, have not been distributed at the moment of liquidation, the dividend tax is waived.

Foreign legal entities which move to the Netherlands

The legislative proposal will also affect legal entities that were incorporated abroad, but which move to the Netherlands. If such a foreign entity establishes itself in the Netherlands, no dividend tax is due upon the distribution of profit reserves that were accrued abroad.

Relevance for you

This proposal may be of particular relevance to you, if you live abroad and own shares in an entity which is resident in the Netherlands, and that entity is either (a) moved abroad, or (b) otherwise involved in a cross-border restructuring. The proposal may affect a number of other situations, but given the complexity of the legislation, these are outside of the scope of this news article.

How to proceed?

The legislative initiative proposal has yet to go through the full legislative process. Additionally, there is a lot of criticism of the proposal. Considering the retroactive effect to 18 September 2020, it is, however, important that you are aware of this legislation. Our tax advisors can assist you. If you have any questions, please do not hesitate to contact us.