The general scope of the treaty
A double tax avoidance treaty was signed between the United States of America and the Kingdom of the Netherlands on December 18, 1992. The new treaty replaced the 1948 income tax convention between the two states which was last amended in 1965.
The scope of the double tax treaty is to avoid double taxation and to prevent fiscal evasion with respect to taxes on income. The treaty concerns business owners in both countries that can benefit from the rules for taxation set forth in this document. The Convention is favorable for U.S. investors in the Netherlands because in most cases it provides for the reduction of the tax costs for investing in the country.
Taxes covered by the treaty
The Convention for the avoidance of double taxation sets forth the taxes to which it applies in particular. For the Netherlands these taxes are:
– the income tax;
– the wages tax;
– the company tax;
– the dividend tax;
In the United States the taxes covered by the Convention are: the Federal income taxes as imposed by the Internal Revenue Code (not including the social security taxes), the excise taxes imposed on insurance premiums paid to foreign insurers. The two countries have the obligation to inform one another of any changes in their taxation laws.
For the purpose of the double tax treaty between the Netherlands and the U.S. a permanent establishment is a fixed place of business from where the economic activities of an enterprise are carried out. It can be a branch in the Netherlands, an office, factory or workshop. The same applies for the United States.
The Convention also has provisions regarding the taxation of income. They apply to income derived from real property, business profits, associated enterprise, dividends, branch tax, interest, royalties, capital gains, independent personal services, director’s fees, pensions and other income.
The experts at our accounting firm in the Netherlands can give you more information about the tax deductions allowed by the Convention and the methods of elimination of double taxation.
If you need audit services in the Netherlands or other accounting services, please contact our accounting firm in the Netherlands.