The Netherlands has singed many double tax conventions over the years, and one of the most important is the one with the United Kingdom. The agreement ensures an effective cooperation in term of taxation between the two countries and has helped both Dutch citizen and companies, as well as UK citizens and companies with activities, respectively operations in the other countries to obtain important tax benefits.
Below, our Dutch accountants summarize the content of the UK – Netherlands double tax treaty and highlight the most important parts of it. We can provide you with various accounting services in the Netherlands.
A double taxation convention
The Netherlands and the United Kingdom have concluded a double taxation convention and protocol for the avoidance of double taxation. The agreement was signed on September 26 2008 and was entered into force on 25 December 2010. The convention has been effective in the United Kingdom from April 1 2011 for corporate tax and from April 6 2011 for income tax and capital gains tax.
The Convention was concluded between the two countries with the purpose of avoiding double taxation for investors who have operational businesses in both of the countries and to prevent fiscal evasion on income taxes and capital gains. UK investors who want to open a Dutch company can benefit from knowing how the treaty works. Our accounting firm in the Netherlands can help you with relevant information about this Convention.
Taxes covered by the double taxation treaty
The double taxation treaty between the Netherlands and the UK covers all the individuals who are residents of one of both countries. The Convention applies to taxes on income and on capital gains imposed by one of the states included in the treaty, irrespective of the manner in which they are levied.
In the Netherlands the treaty applies to the following taxes:
- – the income tax;
- – the wages tax;
- – the company tax;
- – the dividend tax.
In the United Kingdom the taxes for which the treaty applies are:
- – the income tax;
- – the corporate tax;
- – the capital gains tax;
- – the petroleum revenue tax;
- – the additional charge in respect of ring fence trades.
The double taxation treaty also applies for any identical or similar taxes that are imposed by one of the states after the Convention has been signed or taxes that are levied in place of or in addition to existing ones. The two countries need to notify one another if any significant changes take place in their taxation laws.
If you want to know more about taxation in the Netherlands or if you own a company and need to perform audit in the Netherlands, our Dutch accountants can help.
Determining tax residence under the UK – Netherlands double tax treaty
One of the main provisions and first articles of the tax treaty between the Netherlands and the UK refers to residency. This means that in order to benefit from the agreement, a person or company must be a resident of one of the two states. When it comes fiscal residency this means:
- – the person is a citizen or permanent resident of the respective state and pays his/her taxes there,
- – the company is registered or has a management place in the respective country.
Foreign citizens who need information about their tax status in the Netherlands can direct their questions to our accountants.
The permanent establishment status under the UK – Netherlands DTT
One of the most important aspects to consider about taxation of companies under the double tax agreement between the Netherlands and the United Kingdom, refers to permanent establishments which can be set up as:
- – branch offices,
- – places of management,
- – factories and industrial sites,
- – mines, quarries and gas wells,
- – workshops.
The main requirement is for these to be set up in one or the other country for a minimum period of 12 months.
When it comes to their taxation, these will be taxed only in the country they operate. If you need information about the taxes a branch office must pay, our accounting firm in the Netherlands can advise.
Taxation of various incomes
The UK – Netherlands double taxation treaty contains specific provisions for the taxation of various types of incomes. Among these, real estate and other immovable property taxation, business profits, salaries, wages and directors’ fees, as well as interest, dividend and royalties income.
When it comes to real estate ownership, it should be noted that the income tax will be levied solely in the country where the property is located. With respect to immovable property, this also covers income obtained from ownership of agricultural lands and forest land plots. Therefore, UK companies or natural persons owning immovable property in the Netherlands will pay the property tax here.
With respect to the types of incomes that can benefit from the provisions of the agreement are the use and letting or rental of the location.
When it comes to business profits, these will be taxed in the country the company is registered in (the exception being permanent establishment which must pay their taxes in the country they operate). This means that a Dutch company operating independently in the UK will pay the corporate tax in the Netherlands. The same principle applies to British companies. In order avoid double taxation, companies must report the payment of the corporate tax in their home countries to the authorities of the other state.
For example, a UK company with activities in the Netherlands paying taxes in its home country can report their payment to the Dutch Tax Authorities in order to avoid double taxation. This is not the case of subsidiary companies set up by Dutch or British entities and which are treated as domestic business in the state they operate.
The UK – Netherlands DTA also contains provisions on the taxation of associated enterprises which are deemed as companies registered in one of the two states participating the management or control of entities in the other country. These will be taxed in the country they operate with the possibility of obtaining a credit, deduction or relief of the tax paid there in their home country.
Our accounting firm in the Netherlands can provide extensive services to foreign companies operating here.
Double taxation treaty enforceability
For the purpose of the double tax treaty between the Netherlands and the United Kingdom, a resident of one of the states is considered a person or company that is liable to taxation in that state because his domicile, place of management or place of incorporation is in that state. Permanent establishments are considered a fixed place of business, such as a branch, an office, factory, workshop and others. The Convention also sets forth the taxation methods for other types of income, such as income from immovable property, business profits, dividends, interest, royalties or director’s fees.
Reduced rates under the UK – Netherlands DTA
The following reduced rates are available for withholding taxes paid in the Netherlands and UK under the DTA between them:
- – a 10% dividend tax is applicable to dividends in most cases,
- – a 15% tax is applicable to dividends related to income arising from immovable property,
- – interests and royalties do not benefit from reduced rates, and the Netherlands has recently introduced a withholding tax of 21.7% on them.
If you want to know more about taxation in the Netherlands and how this Convention can influence your business in the UK and in the Netherlands, you can contact our accounting firm in the Netherlands.