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The Netherlands I May 2025
New Protocol to the Netherlands-German tax treaty
In brief
On 1 May 2025, the Dutch Ministry of Finance published a protocol amending the convention of 12 April 2012 between the Kingdom of the Netherlands and the Federal Republic of Germany for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income as previously amended with protocols of 11 January 2016 and 24 March 2021 (the “Tax Treaty”). The protocol amending the Tax Treaty was concluded on 14 April 2025 (the “2025 Protocol”) by signing the authentic Dutch and German versions. In this Newsletter, we summarise the main changes to the Tax Treaty relevant for the real estate industry.
Key points for real estate investors
General
The two main changes relevant for the real estate industry are, in short, the following:
1. the limitation of taxation of dividends by the source state for payments made by and to investment funds and by REITs is amended; and
2. the provisions dealing with items of income, benefits and capital gains received by or through hybrid and transparent entities are clarified.
Payments of dividends by and to investment funds and by REITs
Under the current Tax Treaty, source country taxation of dividends may be limited to in short 10% if the beneficial owner is an eligible pension fund resident in the Netherlands, or to 5% if the beneficial owner is a company resident in one treaty state that directly owns at least 10% of the capital of the distributing company resident in the other contracting state for at least 365 days. The Tax Treaty currently does not contain specific provisions for dividend payments by or to opaque investment funds or by REITs. The 2025 Protocol introduces a definition of investment fund, which in case of
- Germany concerns investment funds (“Investmentfonds”, often also referred to as public funds) and special investment funds (“Spezial- Investmentfonds”) within the meaning of the German Investmentsteuergesetz, and in case of
- the Netherlands concerns fiscal investment institutions (“fiscale beleggingsinstellingen”) within the meaning of the Dutch corporate income tax act.
The 2025 Protocol clarifies that German investment funds (and pension funds) that are incorporated and effectively managed in Germany are considered resident of Germany for Tax Treaty purposes.
The main amendment in the 2025 Protocol for investment funds relates to the restriction of source state taxation of dividends. In case of dividends paid by or to an opaque investment fund, the source state taxation of dividends may under the Tax Treaty only be limited to 15% and no longer to 5% or 10% as the case may be. A same provision is included in the 2025 Protocol for payments of dividends by a German "REIT-Aktiengesellschaft" within the meaning of the REIT-Gesetz or a company that is subject to Dutch legislation and corresponds for tax purposes in substance to a German REIT-Aktiengesellschaft. Source state taxation of dividends by such REITs may only be limited to 15% and may thus not be further reduced.
Transparent and hybrid entities
The Tax Treaty currently already contains provisions dealing with items of income, benefits and capital gains received by or through hybrid and transparent entities. In short, items of income, benefits and capital gains received through an entity that is transparent under the legislation of either contracting state, are deemed to have been received by a resident of a state to the extent that such item of income is treated as income for purposes of the tax laws of that resident state.
The 2025 Protocol clarifies that transparency means wholly or partially transparent (the latter refers to transparency options for Spezial-Investmentfonds) and further explicitly arranges that if dividends are received by or through a wholly or partially tax-transparent entity and such dividends are treated for tax purposes by a contracting state as income, benefits or capital gains of a resident thereof, that the dividend article of the Tax Treaty (article 10) applies as if that resident had received the dividends directly.
The current provision on items of income, benefits and capital gains received by or through a hybrid entity as included in the current Tax Treaty remains unchanged. To the extent the wording of the Tax Treaty does not provide a solution, also after the 2025 Protocol applies, the contracting states will seek to find solutions pursuant to the provisions for mutual agreement of the Tax Treaty in order to avoid double taxation or taxation which is not in line with the provisions of the Tax Treaty but at the same time to prevent income from being (partially) exempt from tax solely as a result of the application of the Tax Treaty.
Entry into force
The 2025 Protocol still needs to be ratified in Germany and in the Netherlands and enters into force on the last day of the month following the month in which the instruments of ratification are exchanged between both states. The Tax Treaty (including protocol thereto), as amended by the 2025 Protocol, subsequently applies in short with respect to tax periods that commence or taxable events that occur on or after 1 January of the calendar year following the calendar year in which the 2025 Protocol entered into force. As a result, the 2025 Protocol may at the earliest apply as of 1 January 2026.
Our view
The 2025 Protocol changes the limitation of source state taxation of dividends paid (by and) to investment funds. In short, the consequences for dividends distributed by Dutch (limited liability) companies to German investment funds are as follows:
- Dividends distributed to German Investmentfonds (public funds).
Dutch taxation of dividends paid by a Dutch (limited liability) company to German Investmentfonds (public funds) can no longer be limited to 5% as currently possible under the Tax Treaty, but at maximum to 15%: these German funds should be opaque, and dividends distributed to these funds are excluded for the reduction under the Tax Treaty to 5% Dutch taxation once the 2025 Protocol applies.
- Dividends distributed to German Spezial-Investmentfonds that do not apply a transparency option.
Dutch taxation of dividends paid by a Dutch (limited liability) company to German Spezial-Investmentfonds that do not apply a transparency option may also at maximum be limited to 15%, regardless of whether these funds have one or more German investors: these German funds should be opaque from a German tax perspective and dividends distributed to these funds are excluded for the reduction under the Tax Treaty to 5% Dutch taxation.
- Dividends distributed to German Spezial-Investmentfonds that apply a transparency option.
Dutch taxation of dividends paid by a Dutch (limited liability) company to German Spezial-Investmentfonds that apply a transparency option pursuant to which dividends are attributed to the German investor(s), may, however, be reduced under the Tax Treaty to 5% if the relevant conditions are fulfilled and regardless of whether these funds have one or more German investors: the dividend income should be deemed to have been received by the German investor(s) and therefore the transparency provisions of the Tax Treaty (as amended by the 2025 Protocol) should apply. As a result, the dividend article is to be applied at investor level as if the German resident investor(s) had received the dividends directly, and if the relevant conditions are fulfilled, the Dutch taxation of dividends may be limited under the Tax Treaty to 5%.
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