Change in double tax alleviation for Dutch tax resident directors

When a Dutch resident receives a director’s fee from a non-Dutch company, quite often taxing rights with respect to that income belong to the country where the company is located and double taxation is alleviated by the Netherlands as home country of the director. The obligation for the Netherlands to alleviate double taxation usually finds its origin in a double tax treaty concluded by the Netherlands with the country where the company is located.

Those double tax treaties can contain one of two methods to alleviate double taxation (i.e., either the exemption method or the credit method). However, the Dutch Ministry of Finance decided in 2008 that the Netherlands would accept application of the exemption method (usually the more favorable method) in all cases, regardless of what is stipulated in the applicable double tax treaty.

Now the Dutch Ministry of Finance has retracted that decision from 2008. This means that for director’s fees received by Dutch tax resident directors from 1 January 2023 onwards, double taxation must be alleviated according to the method stipulated in the relevant applicable double tax treaty. In many cases, this will mean applying the credit method instead of the exemption method, which means that the Dutch tax resident director’s income will be taxed at the higher of the Dutch or foreign tax rates. In most cases this will result in a higher overall tax burden. This will be the case for Dutch tax resident directors who receive director’s fees from – amongst others - Belgian tax resident companies.

Do not hesitate to contact our experts or your trusted BDO-advisor if you need any assistance relating to this topic.