by Karlien Van Melkebeek and Hannelore Durieu
Change in the taxation of foreign directors’ fees for Dutch directors and the consequences for Belgian remuneration
On 1st January 2023 a major change will take place in the Netherlands with consequences for Dutch directors of foreign, in this case Belgian, companies. The tax exemption that currently applies in the Netherlands for the remuneration of foreign directors will soon no longer be applicable. We explain the change below.
Current situation
When a Dutch resident director receives a foreign director’s fees, it is subject to double taxation (in the company’s country and in the Netherlands). By an order in 2008, the Netherlands approved a Dutch reduction on the tax on these foreign directors’ fees, thereby avoiding double taxation. This unilateral decision by the Netherlands meant that, in practice, foreign directors’ fees remained entirely outside of Dutch taxation (the ‘exemption method’).
Situation as of 2023
This order will be repealed on 1st January 2023, changing the way the Netherlands grants relief from double taxation on foreign directors’ fees to the disadvantage of the taxpayer. When calculating Dutch tax in the future, it will only be reduced by what has already been paid abroad (the ‘credit method’). There will be no exemption in the Netherlands any more, which will result in additional higher taxation in many cases.
Example
We can illustrate this with an example: A Dutch resident director has a worldwide income of 100, of which 50 is Dutch income and 50 foreign director’s fees.
Exemption method | Credit method | |
|---|---|---|
Worldwide income | 100 | 100 |
Dutch taxation 49.5% | 49,5 | 49,5 |
Foreign income | 50 | 50 |
Foreign taxation | 20 | 20 |
Avoiding double taxation | 50/100 * 49,5 = 24,75 | 49,5 – 20 = 29,5 |
Total Dutch tax | 49,5 – 24,75 = 24,75 | 29,5 |
Based on this calculation, it is clear that the credit method, which will apply from 1st January 2023, is less favourable than the exemption method currently in force.
If you have questions about the impact of this change on the directors in your organisation, definitely get in touch with one of our specialists.
Karlien Van Melkebeek
Senior Advisor International karlien.vanmelkebeek@vdl.be
Hannelore Durieu
Partner International Tax - Certified Tax Advisor hannelore.durieu@vdl.be
Disclaimer
In our opinions, we rely on current legislation, interpretations and legal doctrine. This does not prevent the administration from disputing them or from changing existing interpretations.
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