More and more individuals are getting back into investments, we read in the newspapers. After all, a savings account yields almost nothing; especially if you include inflation. The higher risk associated with investing is, more or less consciously, taken for granted.
Investing has long since ceased to be limited to the Dutch stock exchange, but is often done globally. Those who invest in foreign funds often also run into withheld foreign withholding tax. And that withholding tax can usually (partly) be offset against the income tax due in the Netherlands. In practice, it soon comes down to nice amounts!
The Inland Revenue reports that in the pre-completed return (VIA) the question on foreign investments wrongly refers to the banks' specifications. Unfortunately, they hardly ever provide the country-by-country breakdown of foreign dividends and the withholding tax (whether creditable or not) required for correct processing in the income tax return. Investors have to figure that out for themselves from their bank statements. The foreign withholding tax is also not pre-filled on the VIA. You should take care of this yourself!
Withholding tax is deducted by the fund from distributed dividends. Withholding tax may also come into play for interest or royalties, but those types of income are much less frequently enjoyed from abroad. We therefore leave them aside in this article for convenience.
The withholding tax on Dutch dividends is the dividend tax. Dutch dividend tax is 15% of the dividend paid. This amount is fully creditable against the income tax due. However, the Dutch dividend tax is usually neatly pre-filled on the VIA. REMEMBER: you may not add the foreign withholding tax to the Dutch dividend tax in your income tax return, but must report it in the sections of the return specifically designated for this purpose.
Foreign withholding tax rates differ from country to country. The portion of foreign withholding tax creditable against Dutch income tax also differs from country to country. You should consult the tax treaty with each individual country to determine what portion of the withheld foreign withholding tax you are allowed to credit. In most cases, this is (at most) 15% of the gross dividend received. If you report an excessive amount of foreign withholding tax to be credited, this will usually lead to a correction on your tax return, resulting in a lower amount of tax to be received or a higher amount of tax to be paid than the tax authorities have calculated for you in the online tax return.
Most tax treaties also have a maximum withholding tax rate. Countries that apply a higher withholding tax rate offer the option of claiming back the excess withheld withholding tax. You must then submit forms provided by the tax authority of the relevant country for this purpose in that country. Many investors forgo this often cumbersome and time-consuming task, resulting in hundreds of millions of excess foreign withholding tax withheld not being claimed back every year.