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Dividend withholding tax
The Most Favoured Nation clause in the South Africa - Netherlands Tax Treaty is often overlooked, yet provides for a 0% withholding tax rate on dividends from South Africa to the Netherlands. Taxand Netherlands and Taxand South Africa explore the opportunities for multinationals investing into South Africa.
Payment of dividends by South African (SA) companies to non-SA shareholders are in principle subject to dividends tax which is levied at a rate of 15%, unless such rate is reduced by an applicable double tax agreement (DTA). To this end, most DTAs are drafted in such a manner that the rate of dividends tax is reduced to 10% or 5%, depending on the percentage of shares the beneficial owner holds in the SA company. The Netherlands is no exception to this rule.
However, what may have been overlooked is the fact that the Netherlands DTA is unique to any other DTA to which SA is party to and includes a Most Favoured Nation (MFN) clause. Simply put, if SA is party to a DTA with any other country which provides for the complete exemption of dividends from dividends tax, the provisions of such DTA will automatically apply to the Netherlands DTA, with the result that the dividends will similarly be exempt from tax in SA.
Quality tax advice, globally
Multinationals should review their current structures to invest into SA to determine whether they can use the 0% dividend withholding tax rate to a Dutch holding company. It should also be reviewed whether the correct withholding tax was applied on previous dividend distributions to a Dutch holding company in existing structures.
Any structure should meet the anti-abuse rules in the treaty and should therefore be carefully structured and properly managed. Companies should also monitor potential changes to the treaty in the future.