Further to the Dutch measures implemented against tax avoidance, the Dutch State Secretary of Finance annually determines by ministerial regulation which states are designated as low-tax and / or non-cooperative (hereinafter: the Regulation) jurisdictions. Low-tax states are states without profit tax or with a statutory tax rate of less than 9%. Non-cooperative states are states that are included in the EU list of non-cooperative jurisdictions for tax purposes. The State Secretary recently started an internet consultation on an update of this list of low-tax jurisdictions (black-list) which will run until 8 November 2019. Interested parties are invited to provide comments and or input on the states included in the list.
Since January 1, 2019, a new art. 13ab has been included in the Dutch Corporate Income Tax Act 1969 as an additional measure with regard to Controlled Foreign Companies (hereinafter: CFC measure). The CFC measure originates from the first EU anti-tax avoidance directive, relates to a controlled body or permanent establishment in a low-tax or non-cooperative state (designated states). In addition, since 1 July 2019, the Dutch Tax Authorities do no longer provide advance certainty with respect to the tax consequences of transactions with entities established in these designated states. Finally, the government proposes to introduce a conditional withholding tax on interest and royalty payments to entities established in these designated states from January 1, 2021.
List of low tax states
The State Secretary for Finance intends to designate the following countries as low-taxing states for the calendar year 2020 as follows:
Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey, Cayman Islands, Kuwait, Qatar, Turkmenistan, Turks and Caicos Islands, Vanuatu and United Arab Emirates.
Compared to the 2019 list, the above list includes two new states (Barbados and Turkmenistan) whereas two states (Belize and Saudi Arabia) are removed.
- Barbados has reduced its statutory rates of profit tax as of January 1, 2019. The rates vary from 1% to 5.5%, which means that the statutory rates are now lower than 9%.
- In Turkmenistan, the statutory profit tax rates are 2%, 8%, and 20%. In the analysis for the Regulation adopted for the 2019 calendar year, the rate of 8% was incorrectly not regarded as the generally applicable income tax rate.
- In Belize, taxpayers have the option of paying a sales tax instead of a tax on profits. Based on a re-performed analysis, it appears that the generally applicable rate that is charged on sales is at least 1.75%. Based on an assumed average profit margin of 9%, this corresponds to a tax on the profit of 19.44%. The analysis for the Regulation adopted for the 2019 calendar year was based on a turnover rate of 0.75%, which corresponds to a tax on the profit of 8.33%. The rate of 0.75%, however, only applies to a limited number of defined activities (radio, television and newspaper industry, and to the sale of fuel and lubricants) and should therefore not be regarded as the generally applicable statutory rate.
- In Saudi Arabia, entities with foreign shareholders are subject to income tax at a rate of at least 20%. However, the income tax does not apply to every entity established in Saudi Arabia. The income tax is not levied on companies of which all shareholders are residents of Saudi Arabia (or one of the other Gulf states). The latter is charged with Zakat. This is a 2.5% tax on capital (according to a specific definition), including the profit for the year. At the time the 2019 list was established, it was not possible to determine whether the 2.5% tax on capital is generally comparable to a tax of at least 9% on the profit. It was therefore decided to designate Saudi Arabia as a low-tax state with respect to the 2019 calendar year. Based on additional information obtained on the taxation of Zakat from the tax authority of Saudi Arabia, this conclusion should be adjusted. Data (profit and paid Zakat) from companies that only have domestic shareholders show that, on average, the tax levied by Zakat results in a tax burden compared to a tax of more than 13% on the profit. Based on this, it can be concluded that the Zakat tax of 2.5% on capital is generally comparable to a tax of at least 9% on profit.
Please note that notwithstanding the removal of Belize from the list as of 2020 it still appears on the recently updated EU list of non-cooperative jurisdictions making Belize still a non-qualifying jurisdiction for the purpose of the Dutch anti-avoidance measures.
The full text of the internet consultation can be viewed here https://www.internetconsultatie.nl/laagbelastendestaten2020/document/4995