If you invest, there’s a good chance that your portfolio also includes shares in foreign funds or companies. If these funds pay out dividends, withholding tax is often deducted from them. Make sure to include this in your 2017 income tax return!
Withholding tax
This is tax that is deducted at source. In this case, the source is the share. As soon as income (a dividend) is paid out from that share, withholding tax is deducted from that gross income. The shareholder receives the net dividend.
Dividend tax is withheld on dividends paid out by Dutch funds and companies. The rate is 15%. Here’s a quick example:
| Dividend | 1.000 |
| Dividend tax (15%) | 150 |
| Net dividend | 850 |
Set off
The dividend tax withheld is set off against your income tax. It does not matter which of the three tax brackets you fall into for income tax purposes. To the extent that the deductible dividend tax (and other withholding tax) exceeds the income tax you owe, the Tax and Customs Administration will pay you the difference.
Foreign withholding tax
Only Dutch withholding tax may be set off against your income tax. If you receive dividends from your foreign funds, foreign withholding tax is often deducted from them. You may not set this off directly against your income tax.
However, this foreign withholding tax is often taken into account when calculating your income tax. But only the portion that the international double taxation agreement allocates to the source country. To determine this, you should consult the tax treaty between the Netherlands and the source country of the dividend. If no tax treaty has been concluded with the source country, you should refer to the unilateral Dutch scheme (the Double Taxation Prevention Decree, also known as the BVDB).
Suppose you hold German shares in your investment portfolio. If this German company pays a dividend, 25% withholding tax (Kapitalertragsteuer) must be deducted in accordance with German law.
The tax treaty between the Netherlands and Germany permits a maximum withholding tax of 15% on dividend payments to a natural person. If you declare the German withholding tax on your Dutch income tax return, your Dutch income tax will be reduced by this 15%.
The difference between 25% and 15% results in double taxation. However, you can submit a claim to the German tax office (Finanzamt) to reclaim the excess German tax paid.
The Tax and Customs Administration provides information on its website overview on how you can claim back excess withholding tax that has been deducted in various countries. You will, of course, need to take the initiative to follow this up yourself.
VIA
Foreign withholding tax is not part of the pre-filled tax return (the VIA). You must therefore add this set-off item to your income tax return yourself. This could result in a significant benefit for you. You must include the foreign dividends in your tax return, broken down by country. Most securities portfolio managers include the relevant information on their annual statements.