REALWorld Law

Taxes

Taxation of distributions

Are additional taxes incurred if any income generated from a real estate investment is transferred to the shareholders or partners in the relevant vehicle and can these be reduced or offset in any way?

Angola

Angola

The distribution of dividends to shareholders is subject to the investment income tax where one or more of the following conditions are met:

  • When the income is paid by a person or entity with residence in Angola
  • When the income is paid through a permanent establishment in Angola
  • When the beneficiary of the income is an Angolan resident
  • When the income is distributed to a permanent establishment in Angola

Payment of dividends is subject to withholding tax at a rate of 10%. If the company which pays dividends is a foreign resident without permanent establishment in Angola the beneficiary will be responsible for the tax payment.

If dividends are paid regarding shares admitted to negotiation in a regulated market, a reduced tax rate of 5% is applied (this reduced rate is only applicable until November 2019).

Dividends distributed by a resident company to another resident company in respect of a minimum participation of 25% held for more than one year are exempt from withholding tax.

The investment income tax is not deductible for corporate income tax purposes.

Dividends received by collective investment undertakings are taxable under the corporate income tax at a rate of 7.5% or 15%, depending on the nature of the CIU.

Australia

Australia

Australian resident investors are taxed at their tax rates on distributions (dividends) received from a company and credits (referred to as 'franking credits') may be available to Australian resident investors for the tax already paid by the company on the profits from which the distributions are paid. Due to the availability of the credits, effectively, Australian resident investors pay tax in respect of the distributions on the difference between their tax rate and the 30 percent tax already paid by the company.

Payments of fully franked dividends (that is, dividends paid out of profits which have already been subject to taxation in Australia) from a company to non-Australian resident investors are not subject to further Australian income or withholding tax. Payments of unfranked dividends (that is, dividends which have not been subject to taxation in Australia) from a company to non-Australian resident investors are generally subject to Australian withholding tax of 30 percent. This withholding tax rate may decrease (between 0 percent and 15 percent) where the non-resident investor resides in a country with which Australia has a double tax agreement.

For flow through or tax-transparent entities (such as certain trusts and partnerships), Australian resident investors are taxed at their marginal tax rates in respect of income received by the entity. Non-Australian resident investors are subject to Australian withholding taxes in respect of certain distributions (such as, dividends and interest) and are taxed at their individual tax rates (up to 45 percent) in respect of other taxable distributions. For trusts, the Australian trustee generally withholds the tax payable from distributions made to non-resident investors. As discussed above in respect of dividends, the rate of Australian withholding tax may be lowered in respect of distributions of dividends and interest where the non-Australian resident investor resides in a country with which Australia has a double tax agreement. Recent changes allow distributions from managed investment trusts to non-Australian resident investors who reside in an effective information exchange country (such as the US, UK etc) of rental income and capital gains to be taxed at 15 percent (from 1 July 2012 and onwards). Otherwise, a 30 percent tax rate applies.

The flow through entity itself is generally not subject to taxation.

Belgium

Belgium

Dividend distributions

As a general rule, dividends paid by Belgian companies to corporate entities are subject to a 30 percent withholding tax.

Under the EU Parent-Subsidiary Directive, as implemented in Belgium, no withholding tax is payable on dividends paid by a Belgian company to another EU company, provided that:

  • The latter has held 10 percent of the share capital of the Belgian company for an uninterrupted period of 12 months
  • The EU company receiving the dividend is a tax resident in the relevant EU member state in accordance with that member state’s domestic tax law, and
  • The company receiving the dividend is subject to corporate income tax in its EU member state of residence without benefiting from a regime that deviates from the normal tax regime

This regime also applies to dividends paid by a Belgian company to a parent company resident in a country with which Belgium has signed a bilateral tax treaty or any other agreement which provides for the exchange of information between the two countries.

Where the minimum holding period of 12 months has not yet expired, the distributor of the dividends must provisionally retain the withholding tax theoretically due on the dividends and the beneficiary must sign a declaration that the participation will be held for at least 12 months. If the beneficiary does not comply with this declaration, the withholding tax must be paid to the tax authorities. If the declaration is complied with, the amount withheld can be paid to the shareholder.

The withholding tax rate may also be reduced under an applicable double-taxation treaty if the dividends are paid to foreign companies, or also under domestic legal provisions in some cases. Domestic law also provides for reduced rates in specific circumstances (eg 15 percent on dividends distributed by regulated real estate companies (B-REITs) and specialized real estate investment funds (B-REIFs) which invest at least 60 percent of their real estate directly or indirectly in immovable property located in the EEA that is exclusively or mainly used or destined for residential care units adapted to healthcare).

Small companies

Domestic law provides for reduced withholding tax rates which may apply to the distribution of dividends (other than share buybacks or liquidation dividends) related to newly registered shares that were issued after 1 July 2013. These rates apply provided that the following conditions are satisfied:

  • The new shares have been issued in exchange for a new cash contribution.
  • These newly issued shares are registered shares.
  • The capital contribution is made on or after 1 July 2013.
  • The company receiving the contribution qualifies as a small company (see below).
  • The newly issued shares are fully paid-up and are not preference shares, and
  • The shareholder has, at all times since the contribution, retained full ownership of the registered shares (although certain exceptions relax this retention requirement).

The reduced withholding tax rates will only apply to dividends paid out at the time of the profit distribution related to the second financial year following that of the contribution.. Any such dividend distributions will be subject to a 20 percent withholding tax rate. Dividend distributions paid out at the time of the profit distribution related to the third or subsequent financial years following the financial year of the contribution, will be subject to a 15 percent withholding tax rate.

A company is ‘small’, if it stays below at least two of the following three thresholds during two consecutive financial years:

  • Average number of employees (yearly): 50
  • Annual turnover (excluding VAT): €9 million
  • Total balance sheet: €4.5 million

In the case of a group of affiliated companies (eg a holding company with operating subsidiaries), the above criteria must be applied to the group as a whole. A company may in such a case still opt to apply these criteria on a stand-alone basis, but the annual turnover and total balance sheet amounts are then increased by 20 percent.

Companies qualifying as small companies may set up a liquidation reserve in order to be able to distribute dividends at a reduced rate. Such a reserve can be formed through a requalification of (part of) the profits after tax as a liquidation reserve. This requalification is subject to a separately assessed tax of 10 percent. If the liquidation reserve is distributed before the company is liquidated or within five years of the creation of the reserve, an additional withholding tax of 20 percent will be due (effectively bringing the total tax to 30 percent). If the distribution takes place after more than five years from the creation of the reserve, a withholding tax of 5 percent will be due (effectively bringing the total tax to 15 percent). No withholding tax is due if the liquidation reserve is distributed upon liquidation of the company.

Bosnia-Herzegovina

Bosnia-Herzegovina

Foreign investors are entitled to invest, and reinvest, their profits in the economy of Bosnia and Herzegovina in the same way as residents of Bosnia and Herzegovina, under the applicable laws and regulations.

Income generated by an investment can be distributed to the foreign investor. Withholding tax of 10% is payable in both the Republika Srpska and in the Federation of Bosnia and Herzegovina (the FBiH), although in the FBiH withholding tax on dividends paid by a company is payable at 5%.

Canada

Canada

Distributions from a Corporation

Shareholders must include taxable dividends received on shares of a corporation in income.

If the shareholder is a corporation resident in Canada it will generally be entitled to deduct a corresponding amount from its taxable income. In some circumstances it may be subject to a refundable 38 1/3% tax on dividends received, and be entitled to a refund of that tax as it pays certain taxable dividends to its shareholders.

Dividends paid to an individual or trust that is resident in Canada are subject to a gross-up and dividend tax credit intended to offset corporate tax paid by the corporation.

Dividends paid by a resident Canadian corporation to a non-resident are subject to 25% withholding tax on the gross amount of the dividend, unless an applicable bilateral income tax treaty, if any, provides a lower rate.

A shareholder who receives a distribution from a corporation as a reduction of capital on the shareholder’s shares generally will not be taxable on the receipt. The shareholder will be required to reduce the shareholder’s adjusted cost base (ACB) of the shares by the amount of the distribution, and will be deemed to realize a capital gain equal to the amount, if any, by which the ACB thereby becomes negative. The shareholder would in that case be required to include one-half of the capital gain in income, to be taxed at normal rates.

Distributions from a REIT

Where a REIT distributes income to a beneficiary, generally the REIT will be entitled to deduct the amount of the distribution from its income, and the beneficiary will be required to include the amount in its income.

The beneficiary, if a Canadian resident, will generally be subject to income tax on the amount at normal rates. If a non-resident, the beneficiary will be subject to 25% withholding tax on the gross amount of the income distribution, unless an applicable bilateral income tax treaty, if any, provides a lower rate.

The above assumes that the trust satisfies the technical requirements set out in the Act to qualify as a REIT.

China

China

Withholding tax of 10% is payable where the distributions are to be transferred to offshore shareholders. This may be reduced where the offshore country has a tax treaty with the PRC.

Croatia

Croatia

Foreign investors are entitled to invest, and reinvest, their profits into the economy of Croatia in the same way as residents of Croatia. Income generated by an investment can be freely transferred to a foreign investor. Income from a participation in profit is not subject to income tax, or to withholding tax, if it is transferred abroad to a foreign investor.

Czech Republic

Czech Republic

In the case of an indirect investment through a partnership, ie if an investor has invested through a partnership in the Czech Republic, the relevant income is considered to be the partner's personal income and a tax rate of 15% applies.

When investing through a company, the income of the company may be distributed in the form of dividends to shareholders. Capital income taxation rules apply.

Denmark

Denmark

In general, partnerships, limited partnerships and participants in joint ownership are transparent for Danish tax purposes. Consequently, the partners are taxed directly. Shareholders may be subject to taxation on dividends distributed by a corporate vehicle. Tax may be eliminated or reduced either by the EU Parent-Subsidiary Directive or an applicable tax treaty.

Rates

For individual shareholders the rate of taxation on dividends is progressive.

Dividends are currently taxed at a rate of 27% for income up to DKK 54,000. Income exceeding DKK 54,000 is taxed at a rate of 42%. The threshold is adjusted annually.

For corporate shareholders dividends received on "subsidiary shares" and "group shares" are generally tax-exempt, whereas dividends received on "portfolio shares" are taxed at the corporate tax rate of 22%. However, such dividends on "portfolio shares" in unlisted companies are only included in the taxable income to the extent of 70% of the dividends received. The effective tax rate on such dividend payments is consequently reduced from 22% to 15.40%.

Subsidiary shares are shares where 1) the corporate shareholder holds at least 10% of the nominal capital share of the company and 2) the company is Danish or the company is foreign and the EU Parent-Subsidiary Directive applies or the subsidiary is resident in a country that has concluded a tax treaty or a tax information agreement with Denmark.

Group shares are shares where the shareholder and the company are subject to mandatory Danish tax consolidation or voluntary Danish international tax consolidation (or qualify for the latter but have not elected to be subject to such treatment).

Portfolio shares are shares that do not qualify as subsidiary shares or group shares, ie generally where the corporate shareholder holds less than 10% of the nominal capital share of the company.

Withholding

Generally, a company resident in Denmark must withhold tax at a rate of 27 percent when it declares dividends to non-resident shareholders. The withholding obligation applies to the declaration of dividends to all types of shareholders, whether individuals or companies, resident in Denmark or abroad. When the withholding tax rate exceeds the final tax rate applicable to the foreign company shareholder, the shareholder is entitled to claim a refund of the tax withheld in excess of the final rate. The statute of limitations on such claims for refund of dividend withholding tax is three years.

Dividends paid to a corporate shareholder abroad are exempt from withholding tax if the following conditions are met:

  • If the corporate shareholder holds subsidiary shares, dividends will be exempt from withholding tax if Danish taxation of the dividends will be reduced or waived under the EU Parent-Subsidiary Directive, a tax treaty or a tax information agreement. Additionally, it is a condition that the corporate shareholder is treated as the beneficial owner of the dividends.
  • If the corporate shareholder holds group shares, dividends will be exempt from withholding tax if the shareholder is resident in the EU/EEA and Danish taxation of the dividends would have been reduced or waived under the EU Parent-Subsidiary Directive, a tax treaty or a tax information agreement had the shares been subsidiary shares.

Certain additional exemptions and certain restrictions apply to such corporate shareholders.

France

France

Direct investment through a permanent establishment

The partners in French transparent entities do not benefit from a reduced rate of withholding tax if tax treaties do not provide for this.

Direct investment without a permanent establishment

Not applicable.

Indirect investment through a corporate entity

Dividends paid to an individual

Resident

Dividends are subject to a progressive scale of income tax, after a flat-rate reduction of 40% has been applied when possible. However, before the progressive scale of income tax is applied, these dividends are usually subject to a mandatory deduction at source of 21% when taxable income exceeds €50,000 (for single people) and €75,000 (for couples).

Previous to the introduction of the PFU, dividends were subject to a progressive scale of income tax, after a flat-rate reduction of 40% has been applied when possible. As from 1 January 2018, individual taxpayers may still elect for dividends to be taxed to the progressive income tax rate. However, please note that:

  • This election is global for all capital gains, interests and dividend income received within the fiscal year and it is thus not possible to combine the PFU and individual income tax at a progressive rate, and
  • When the PFU applies, the 40% rebate as well as the deduction of 6.8% out of the 17.20% social contributions are not applicable

Non-resident

Tax rates depend on the applicable tax treaties. The French standard withholding tax rate on dividend distributions is aligned to the PFU rate (12.8%). The rate is 75% for dividends paid on a bank account located in a Non-Cooperative State or paid or accrued to persons established or domiciled in such a Non-Cooperative State.

Under certain conditions, the same rules apply (including the application of double tax treaty) to the shareholders of tax transparent partnerships.

Dividends paid to companies

Resident

Unless the participation exemption on dividends applies, dividends arising in France paid to corporate shareholders are included in taxable income for corporate income tax purposes.

Under the French participation exemption regime, 95% (99% in certain circumstances) of the dividend is tax-exempt. The participation exemption is available if resident parent companies opt for it to apply to dividends received from their resident and non-resident subsidiaries. The parent company may benefit from the participation exemption if:

  • The parent company holds a participation in the subsidiary equal to at least 5% of its share capital, and

  • Has held – or commits to holding – the participation for at least two years.

Dividends paid to a transparent entity by a company which is subject to corporate tax are declared at the level of the entity but taxed at the level of the shareholder.

Non-resident

Dividends arising in France distributed to non-resident shareholders are subject to a final withholding tax at the rate of 30%, unless a treaty provides for a lower rate. Please note that the Finance Law for 2018 provides for a decrease of the withholding tax rate from 30% to 28% applicable to dividend distributions as from 1 January 2020 and to 25% for dividend distributed as from 1 January 2025.

Subject to certain conditions, the withholding tax is reduced to nil for dividends paid by a French resident company to a qualifying EU parent company if the parent company holds at least a 10% participation in the French subsidiary for at least two years (or 5% when the EU parent company cannot offset the withholding tax in its country of residency). The rate is 75% for dividends paid on a bank account located in a Non-Cooperative State or paid or accrued to persons established or domiciled in such a Non-Cooperative State.

Indirect investment through a partnership

The partners in French transparent entities do not benefit from a reduced rate of withholding tax if tax treaties do not provide for this.

Germany

Germany

Dividends distributed to shareholders by a German corporate investment vehicle are subject to a 25 percent withholding tax plus solidarity surcharge, leading to a total tax rate of 26.375 percent.

Under the EU Parent-Subsidiary Directive, no withholding tax is payable on dividends paid by a German company to another EU corporation, where the latter has held 10 percent of the shares in the former for an uninterrupted period of 12 months preceding the distribution of dividends. However, under the German Income Tax Act, corporations distributing dividends are obliged to retain withholding tax of 25 percent plus solidarity surcharge) even if the conditions of the EU Parent-Subsidiary Directive are met. This obligation does not apply if the shareholder provides an exemption certificate to the distributing company. If withholding tax is retained, the shareholder can make a claim for a refund.

In the case of non-EU shareholders, under nearly all German double taxation treaties, dividends distributed by a German corporate vehicle to non-resident shareholders are taxable in both countries (ie in the country in which the shareholder is resident and in Germany). The right of the German tax authorities to levy tax in these cases is limited (mostly to a maximum of 15 percent).

Any directive or treaty benefits are subject to anti-avoidance provisions. A foreign company has no entitlement to a tax relief:

  • If it is owned by persons who would not be entitled to the relief if they received the income directly
  • If the foreign company does not generate its gross income from genuine economic activity in the relevant tax year, and
    • There are no financial or other material reasons for involving the foreign company in relation to this income, or
    • The foreign company does not participate in general economic transactions with a suitable business establishment set up for its business purpose

If a resident corporate shareholder holds the shares as assets, 95% of the dividends received are exempt from corporation tax provided that a 10% stake in the distributing corporation is held as of the beginning of the relevant fiscal year. Special rules apply as regards acquisitions during the fiscal year as well as to stock lending transactions. The withholding tax deducted by the German corporate vehicle will be offset against the assessed tax payable by the resident shareholder or reimbursed, if applicable.

However, the current version of these anti-avoidance provisions was reviewed by the European Court of Justice (see case C‑440/17) anddeclared to be not compatible with the EU-Parent-Subsidiary Directive and to infringe the EU freedom of establishment like the former version (see case C‑507/16 and C‑613/16). It is to be expected how the German legislator will react this time.

For:

  • Banks
  • Financial service providers
  • Finance companies
  • Life and health insurance companies, and
  • Pension funds

a participation exemption is only available if the shares are held as fixed assets.

A participation exemption for trade tax purposes requires among other things a minimum participation of 15 percent if the shareholder is resident in Germany for corporation tax purposes.

Dividends distributed by a corporate investment vehicle to a German resident individual are taxable at a rate of 25 percent plus a 5.5 percent solidarity surcharge thereon (ie 26.375 percent).

A shareholder with a lower individual income tax rate than 25 percent can opt for tax to be assessed at this rate in conjunction with the rest of his income. If the shares are business assets of the individual the dividends are 40 percent tax exempt and only 60 percent of the related expenses are tax deductible. The same applies if the shares are held as private assets and the shareholder either holds 25 percent or more of the shares, or at least 1 percent and is an employee of the corporation.

The taxation of income derived from letting real estate in Germany through a partnership depends on the partnership and whether it operates, or is deemed to operate, a trade or business. If the partnership operates, or is deemed to operate, a trade or business, it may perform its activities with or without a permanent establishment in Germany.

There is no additional tax on profit repatriations from the German partnership to foreign investors.

Hong Kong

Hong Kong

Profits may be distributed tax-free as there is no withholding tax on dividends in Hong Kong.

Hungary

Hungary

Dividends paid to shareholders who are not private individuals are not subject to withholding tax.

Dividends paid to non-resident private individuals are taxed according to the rate applicable under the relevant double taxation treaty. If no double taxation treaty applies, withholding tax is payable at the rate of 15%.

Dividends distributed to Hungarian business entities are exempt from tax at source and in the hands of the shareholders.

Ireland

Ireland

Direct investment through a permanent establishment (PE)

Once the profits of the PE have been taxed in Ireland, they can be transferred to a foreign investor without further Irish taxation.

Direct investment without a permanent establishment

Once Irish income tax has been paid the profits can be transferred out of Ireland.

Indirect investment through a corporate entity

Distribution of dividends to shareholders

Corporate vehicles must first pay the appropriate taxes on rental profit and capital gains. They can then distribute profits to the shareholders. A distribution of dividends may be subject to Irish Dividend Withholding Tax (DWT), currently at the rate of 20 percent, although there are numerous exemptions, including dividends paid to:

  • Irish‑resident companies
  • Companies that are tax resident in a country with which Ireland has concluded a double-taxation treaty or which are resident in another EU member state
  • Companies that are tax resident outside the countries covered above but which are ultimately controlled by shareholders who are resident in an EU member state or in a country with which Ireland has concluded a double-taxation treaty
  • Individuals who are tax resident in an EU member state or in a country with which Ireland has concluded a double-taxation treaty
Italy

Italy

Investment via an Italian corporate vehicle

The distribution of dividends to a shareholder in an Italian company is not subject to withholding tax if the shareholder has its registered office in Italy, or if it is a foreign entity with a permanent establishment in Italy. The distribution of dividends to such shareholders is relevant for IRES purposes for an amount equal to 5% of the distributed amounts. If the shareholdings is held by an individual, dividends received starting from 1 January 2018 will be subject to a withholding tax equal to 26% regardless of the shareholding held in the distributing company.1.

If the shareholding is held by a non-resident entity, withholding tax normally applies at the rate of 26 percent.

Nevertheless, if the foreign company is resident in another European country, the withholding tax rate is lowered to 1.2%.

Withholding tax may also be reduced by a tax treaty between Italy and the investor’s home country.

Provided all the requirements of the EU Parent Subsidiary Directive are met (eg a shareholding of at least 10 percent has been held for at least a year etc), no withholding tax will be payable.

Investment via an Italian partnership

In the case of Italian partners, no taxation applies prior to distribution, since the income is taxable at the level of the individual partners.

Non-resident partners are subject to tax in Italy on their share of the partnership’s worldwide income. Non-resident partners must therefore submit a tax return for corporate or individual income tax purposes. In this case, any other income derived from Italy (and not subject to a substitute or final withholding tax) will also be taken into account.

Investment without a permanent establishment in Italy

Once the profits have been taxed in Italy they can be transferred to the foreign parent company without any further taxation.

Proceeds distributed by a real estate investment fund, whose units are held by institutional investors such as asset management companies or pension funds, or by non-institutional investors owning less than 5 percent, are subject to a 26 percent withholding tax distributed by the relevant management company to unit-holders. This is payable as a final withholding tax if the investor is an individual, or as an advance payment of tax if the investor is a corporate entity. Conversely, the mechanism mentioned above is not applied to those real estate investment funds more than 5 percent of whose units are held by non-qualified investors. Such funds are taxed on the basis of a ‘transparency regime’ pursuant to which the income generated by the fund is taxed directly vis-à-vis the unit-holders irrespective of the distribution of the income.

As far as non-resident entities are concerned, if the foreign investor is a specific qualified investor (eg funds, pension funds, other sovereign entities) resident in a ‘white list’ country, no withholding tax is due on the fund’s distributions, otherwise income is subject to a 26 percent withholding tax, potentially reduced by the applicable tax treaty.

Investment via a listed real estate investment company (SIIQ)

Dividends distributed by a SIIQ are subject to withholding tax at the rate of 26% upon distribution. This is payable as a final withholding tax if the investor is an individual, or as in advance if the investor is a corporate entity.

Please note that 2018 Budget Law recently amended the tax treatment provided for dividends received by individuals. In the past, dividends received by individuals were indeed subject to (i) a 26% withholding tax if the participation in the company was not "qualifying" (i.e.ie qualifying shareholdings are those representing more than 20% of the voting rights of 25% of corporate capital of a company, the thresholds are reduced to, respectively, 2% and 5% for listed companies); or (ii) included in the taxable basis for 58,14% of their amount if the participation held was qualifying. According to the 2018 Budget Law this previous tax treatment still applies for distributions of dividends resolved between 1 January 2018 and 31 December 2022 if the distributed dividends have been acrrued during FYs up to 31 December 2017.
Japan

Japan

Even though GK-TKs and TMKs may enjoy the pay-through treatment relating to corporate taxes, a distribution to foreign investors by a GK or a TMK is subject to withholding tax at a rate of 20.42%, however it is also subject to an exemption or reduced tax rates available under applicable tax treaties.

Netherlands

Netherlands

Indirect investment through a Dutch corporate entity

Dutch dividend withholding tax

If the shareholding in a Dutch resident company is held by a non-tax-resident entity or individual, generally a dividend withholding tax, levied at a rate of 15% must be withheld when the dividend distribution is made. Dutch cooperatives are only subject to Dutch dividend withholding tax if they are a so-called 'holding or financing' cooperative. If a company is, in principle, obliged to withhold Dutch dividend withholding tax, the domestic withholding exemption may apply if:

  • the investor is considered an entity for Dutch tax purposes;
  • the investor is tax-resident in an EU country or a country that has concluded a tax treaty with the Netherlands that includes an article on the taxation of dividends, and has an interest of at least 5% of the nominal paid-up share capital in the Dutch company (or any other situation to which the participation exemption would have applied if the investor were a tax-resident of the Netherlands); and
  • inter alia, no anti-abuse provision applies, i.e. the interest in the Dutch company is not held with the principle purpose or one of the principle purposes to avoid dividend withholding tax of another.

In such cases, there should be no withholding tax by virtue of the domestic withholding exemption. 

Dutch dividend withholding tax is levied at a rate of 15%, a relevant tax treaty may, however, reduce such withholding tax to a lower level. Under Dutch tax treaties, withholding tax may be reduced to anywhere between 0% and 15% depending – amongst others – on the shareholder's degree of participation in the company.

Please note that the Multilateral Instrument (MLI) may come into effect (for the Netherlands) on 1 January 2020. This MLI will introduce a so-called principle purpose test (PPT) in all tax treaties covered by the MLI, which may allow the Netherlands to deny tax treaty benefits (e.g. reduction of withholding tax rates) if the structure is  – in short – considered to be artificial and inside the scope of the PPT. The anti-abuse rule in respect of the Dutch domestic dividend withholding exemption is modelled in line with the PPT, therefore it is likely that the Netherlands will take the position that if the domestic anti-abuse rule applies, tax treaty benefits will also be denied in situations involving tax treaties covered by the MLI.

Possible tax credit

If dividend withholding tax is due for a dividend distribution to a non-resident shareholder, this may create a tax credit in the shareholder's country of residence, depending on the applicable tax treaty and/or the applicable domestic legislation in the state of residence of the investor

Taxation at the level of a corporate shareholder

If a Dutch tax-resident shareholder (entity) receives dividends, these are subject to taxation at the level of the shareholder. This may be free of corporate income tax, if the so-called participation exemption applies – that, generally, is where a corporate shareholder owns 5% or more of the nominal paid-up share capital of a company.

A foreign shareholder (entity) of a Dutch company may be subject to Dutch non-resident taxation if the Dutch company is interposed to avoid Dutch personal income tax at the shareholder level (e.g. the person holding the shares in the foreign company, be it directly or indirectly). A tax treaty may mitigate the tax the Netherlands may impose. However, it is possible that under the principle purpose test of the MLI, tax treaty benefits may be denied.

Indirect investment through a partnership

In the case of investment through a tax transparent partnership (under Dutch domestic law), the partners are taxed directly according to their individual circumstances. The income is distributed to the partners and no additional taxation is levied on the partnership.

Nigeria

Nigeria

Withholding taxes apply on the dividends or profits due to shareholders of a company or partners in a partnership, with investments in real estate. The shareholders or partners on the other hand, are subject to payment of personal income tax under the Personal Income Tax Act and may apply the withholding tax deductions made from their incomes as tax credit.

Norway

Norway

Income generated by real estate investments is taxable in Norway at a rate of 22% by the vehicle owning the property. If the investment is made directly the transfer of rental income to foreign investors is not subject to withholding tax in Norway.

If the investment is made through a general or limited Norwegian partnership (ie without using a Norwegian limited company), the foreign investor will be deemed to be carrying on business in Norway through its share in the partnership. The investor will have a taxable presence in Norway, and thus rental income will be taxable. The investor’s share of the partnership’s net income will be subject to tax at a rate of 31.68% (net income is multiplied with an adjustment factor of 1.44 and then taxed at 22%). If the investment is made through a Norwegian limited liability company, the company will be taxed on its net income from the real estate investment at the rate of 22%. Dividends payable to non-resident corporate investors are subject to a withholding tax of 25%, unless the recipient is protected by a tax treaty or is resident in the European Economic Area (EEA basically the EU plus Norway and Iceland). For corporate investors resident in the EEA, no withholding tax applies, as long as the corporate investor is deemed to have an actual establishment for Norwegian tax purposes and carries on genuine economic activities in the EEA (the substance test). For corporate investors resident outside the EEA, the withholding tax rate is 25%, but this is usually reduced to 15% or less depending on their share in the ownership of the Norwegian company and the relevant tax treaty.

Poland

Poland

Income may be transferred to shareholders as dividends. Generally, withholding tax on dividends is payable at 19% of the gross dividend payment (regardless of whether the dividends are paid to a company or to an individual and whether the recipient is resident or non-resident).

Exemptions to withholding tax on dividends may apply under Polish law if the EU Parent-Subsidiary Directive applies. Generally, the tax-exemption on dividends paid by a Polish resident company applies if all the following conditions are met:

  • The shareholder in the Polish entity is resident in Poland, another EU country, the European Economic Area or Switzerland
  • The shareholder holds at least 10% of the shares in the Polish company (25% in the case of Switzerland)
  • The shareholding is maintained for an uninterrupted period of two years
  • The shareholder does not benefit from the exemption from income tax on its entire income, irrespective where such income is earned

In the case of non-tax residents (both corporate and individual), the rules on the taxation of dividends may be modified by the provisions of a relevant double-tax treaty.

There is no additional taxation if the profits of a partnership (excluding the profits of limited joint stock partnerships which is subject to a particular regime) are transferred to the partners, since the income of the partnership is treated as the income of the individual partners.

Portugal

Portugal

Income generated by investment can be transferred on the following terms:

Direct investment through a permanent establishment

Once the profits have been taxed in Portugal, income can be transferred to foreign investors without any further taxation. This is because a transfer between a Portuguese PE and its head office is considered to be an internal transfer within the same corporate entity.

Direct investment without a permanent establishment

Any tax paid by the investor in Portugal usually receives a tax credit in its country of residence, under most double-taxation agreements ('DTA') entered into between Portugal and other states.

Indirect investment through a corporate entity

In Portugal tax may have to be withheld on the distribution of dividends to shareholders. Tax withheld (if mandatory) may be provisional for residents and definitive for non-residents. This depends on the investor’s status as follows:

  • Portuguese-resident corporate shareholders

Provisional withholding tax

Distributions of dividends to Portuguese-resident corporate shareholders may be made without withholding tax if the participation exemption regime applies, and such equity was held by the shareholder in the year preceding the distribution. If the shareholder has its registered office in Portugal (ie is a Portuguese corporate entity) or if its management is located on Portuguese territory then it is deemed to be tax resident.

In all other cases a 25 percent withholding tax applies and the amount received as dividends is also taken into account in determining the taxable profits for the accounting period of the Portuguese-resident corporate shareholder.

Definitive taxation

Distributions of dividends to Portuguese-resident corporate shareholders are exempt from IRC if certain conditions are met, notably:

  • The taxpayer holds shares representing at least 10 percent of the share capital or voting rights of the entity distributing the dividends
  • The relevant holding is maintained uninterruptedly for a period of 12 months
  • The taxpayer does not fall within the tax transparency regime
  • The entity distributing the dividends is subject to and not exempt from IRC or any identical tax at a rate not lower than 60 percent of the Portuguese tax (for 2017 this will be 12.6 percent), and
  • The entity distributing profits is not resident in a country, territory or region whose tax regime is deemed to be clearly less onerous

If the conditions are not met, the amount received as dividends is also taken into account in determining the taxable profits for the accounting period of the Portuguese-resident corporate shareholder.

The income of resident taxpayers is subject to IRC at the general rate of 21% (on the Portuguese mainland). A reduced rate of 17% may be applicable to the first €15,000 of taxable income (if the company is recognized as a small or medium-sized company. To be recognized as such, the company must have fewer than 50 employees and its annual turnover or annual balance sheet total must not exceed €10 million).

The income of resident corporate taxpayers is also subject to a municipal surcharge of up to 1.5%, which is levied by many Portuguese municipalities, and a state surcharge of 3% applies to income varying between €1.5 million and €7.5 million. For income between €7.5 million and €35 million the surcharge rises to 5%. Above €35 million the surcharge rises to 9%. Taxable income for IRC purposes is calculated on the basis of the net accounting profit as adjusted for tax purposes.

  • Corporate shareholders not established in Portugal (definitive withholding tax)

Profits distributed by a legal entity which is tax resident in Portugal (provided the entity is subject to and not exempt from taxation and is not a tax transparent entity), are exempt from IRC if the shareholder is resident:

  • In a Member State of the European Union
  • In an EEA country which has agreed to administrative cooperation
  • In a State with whom a DTA has been entered into

Besides the requirements regarding the tax residency of the shareholder further conditions need to be met; notably:

  • The taxpayer must hold shares representing at least 10 percent of the share capital or voting rights of the entity distributing the dividends before the dividends are made available
  • The referred holding must be maintained uninterruptedly during the year preceding the distribution
  • The entity distributing the dividends must not fall within the tax transparency regime
  • The shareholder must be subject to and not exempt from a corporate income tax mentioned in the EU Parent Subsidiary Directive, or to a corporate income tax similar to IRC, at a rate not lower than 60 percent of the Portuguese tax (for 2018 this will be 12.6 percent).

Additionally, profits distributed to a company deemed to be tax resident in Switzerland are exempt from IRC in the terms set out in article 15 of the EU-Switzerland Agreement if:

  • The company to which the profits are distributed holds at least 25 percent of the share capital of the company distributing, for at least two years
  • In the terms set out in the DTAs entered into by Portugal and Switzerland with third countries, the company is not deemed to be tax resident in that third country
  • Both companies are subject and not exempt from Corporate Income Tax and both companies are limited liability companies

If the abovementioned requirements are not met, 25 percent of any dividend paid must be withheld by the Portuguese corporate vehicle except where a DTA is deemed applicable.

Most of the DTAs entered into by Portugal, following the OECD Model Treaty, establish that the applicable Portuguese withholding tax rate on dividend or profit distributions cannot exceed 15 percent or 10 percent, depending on the percentage of the participation in the corporate vehicle.

Dividends paid to shareholders established in a country, territory or region whose tax regime is deemed to be clearly more favourable will be subject to withholding tax at a rate of 35 percent.

  • Dividends deposited in accounts of fiduciary entities, which act on behalf of undisclosed third parties, will be subject to withholding tax at a rate of 35 percent
Romania

Romania

The method by which income is transferred to a foreign investor depends on the structure of the investment, for example if:

  • The real estate is held directly by the foreign investor, then the rental income or the profit from the sale of the property passes directly to the investor and is subject to tax at a rate of 16 percent for corporate entities or 10 percent for natural persons.
  • The foreign investor held the real estate through a Romanian corporate vehicle – then the income can be transferred in the form of a dividend or as liquidation proceeds. Distributions are subject to either a 5% (for dividends) or 16% (for liquidation proceeds) withholding tax, if the specific exemption criteria (as detailed below) are not met.
  • The Romanian tax legislation provides a tax exemption for dividends received from a Romanian legal entity by a foreign corporate entity which is an EU resident, provided a minimum holding criteria is met (ie 10 percent for at least one year of holding).
  • Withholding tax can also be reduced or eliminated by applying the more favourable provisions of the relevant double-tax treaties (at present, Romania is a party to more than 85 double-tax treaties which usually follow the OECD model), if a valid fiscal residence certificate is made available by the non-resident beneficiary of the income at the point of payment.
Russia

Russia

Dividend distribution from a Russian subsidiary to a foreign parent company is subject to withholding tax at a statutory rate of 15 percent (a relevant double tax treaty may provide for a reduced rate). Interest payable from a Russian legal entity to a foreign lender is generally subject to withholding tax at a statutory rate of 20 percent (a relevant double tax treaty may envisage a reduced rate or exemption). However there is no branch remittance tax in Russia and repatriation of profits from the Russian permanent establishment to the head office is exempt. Thin capitalization rules should be observed while paying interest to a direct or indirect foreign parent company, its affiliates or third parties under certain debt arrangements.

Slovak Republic

Slovak Republic

Indirect investment through a partnership

If the foreign investor has invested through a Slovak partnership (which is treated as transparent for income tax purposes) income will be taxed as part of the partner's personal income.

Indirect investment through a corporation

Income can be transferred by the distribution of dividends to shareholders. As of 1 January 2017, dividends paid to individuals are subject to income tax in cases where the profit shares are paid for the tax period starting as of 1 January 2017 and later. The tax rate 7 percent or 35 percent depends on to whom the dividends are paid. The rate also depends on the location (non-contracting state, contracting state or the Slovak Republic) of the entity paying the dividends.

A dividend received from a taxpayer of a state with which the Slovak Republic did not conclude a Double Tax Avoidance Treaty or a Treaty on Exchange of Information for Tax (non-contracting state) is taxed with a tax rate of 35 percent. Dividends paid to foreign taxpayers of non-contracting states are also subject to taxation. This dividend will be paid to the foreign taxpayer with a deductible tax of 35 percent.

If the recipient of the dividends is a tax resident of a state with which the Slovak Republic has concluded a Double Tax Avoidance Treaty or a Treaty on Exchange of Information for Tax (contracting state), it takes precedence over the Income Tax Act. The right to taxation of dividends is determined on the basis of the provisions of the international treaty.

Under double-tax treaties dividends may be taxed either in the country where the company is based or in the shareholder's country of residence.

Where a Slovak company pays out the dividends (for the tax period starting as of 1 January 2017) to individuals who are residents of another Member State or contracting state, the dividends will be taxed in accordance with the specific Double Tax Avoidance Treaty.

Profit shares paid between legal entities from states other than non-contracting states are exempted from the income tax. That means that dividends paid by a Slovak company to Slovak legal entities or to companies from the contracting states shall not be subject to income tax in Slovakia. Similarly, dividends are not taxed in Slovakia, when Slovak companies received the dividends from the company from the contracting state or from Slovakia.

Spain

Spain

Indirect investment through a corporate entity: distribution of dividends to shareholders

The distribution of dividends to shareholders is subject to Spanish non-resident income tax at the rate of 19 percent, unless the EU Parent-Subsidiary Directive applies (in which case no tax is payable) or an applicable tax treaty reduces the tax to a lower level.

If tax is payable and a tax treaty applies, an equivalent tax credit will be received in the shareholder's country of residence.

Indirect investment through a permanent establishment

If the permanent establishment carries out business activities in Spain and income is transferred abroad, a supplementary tax at the rate of 19% is payable. This does not apply to income obtained in Spain through a permanent establishment by an entity which is tax-resident in another EU member state or in a state with which Spain has signed a tax treaty.

Sweden

Sweden

For corporations, income can be distributed as dividends, in which case withholding tax at the rate of 30 percent may apply to a dividend payment to a foreign shareholder. However, foreign corporate shareholders are normally exempt from withholding tax in Sweden. As a general rule withholding tax is only imposed on dividends distributed to companies resident in tax havens. In addition, the tax rate is often reduced by an applicable tax treaty.

No taxes or other charges are payable on the transfer of income to partners in a partnership. Each partner is taxed on their share of the net income in the partnership, regardless of whether the income is distributed by the partnership or not.

Thailand

Thailand

The investment vehicle itself would not be subject to additional taxes on the transfer of income generated from real estate to its shareholders or partners. However, it will be required to withhold tax when applicable and appropriate. Generally, the withholding tax rate applicable to the dividend or profit remittances is 10 percent unless otherwise reduced by a relevant double tax agreement. Nonetheless, the withholding tax rate applicable to profit sharing to a foreign company that does not operate business in Thailand is 15 percent. However, the withholding tax may be exempt subject to certain conditions.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

No.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

No.

UK - England and Wales UK - England and Wales

UK - England and Wales

Limited partnerships and limited liability partnerships are generally treated as tax transparent and so partners are taxed directly on any income from the partnership in proportion to the income sharing ratio set out in the partnership agreement. No further UK tax is payable on the distribution of profits from the partnership to the partners.

A “bare” trust (that is the simplest form of trust) is treated as tax transparent and so any beneficiaries are taxed directly on any income to which they are entitled. No further UK tax is payable on the distribution of income to the beneficiaries.

If a non-UK unit trust is structured in an appropriate way, the income will accrue directly to the unit holders and they will be taxed directly. No further UK tax is payable on the distribution of income from the trustees of the unit trust to the unitholders.

Distributions by a UK company to its shareholders are not subject to withholding tax in the UK. If a shareholder has funded the company by way of debt, interest payable to it may be subject to UK withholding tax at a rate of 20%, although this may be reduced if a relevant double-tax treaty applies. Shareholders may be taxed on the receipt of distributions and interest depending on their tax residence and status.

There is a generous UK tax exemption for UK companies receiving dividends and UK resident individuals can usually obtain a tax credit in relation to dividends received which reduces the overall amount of tax they pay on the receipt of distributions.

UK - Scotland

UK - Scotland

Limited partnerships and limited liability partnerships are generally treated as tax transparent and so partners are taxed directly on any income from the partnership in proportion to the income sharing ratio set out in the partnership agreement. No further UK tax is payable on the distribution of profits from the partnership to the partners.

A 'bare' trust (that is the simplest form of trust) is treated as tax transparent and so any beneficiaries are taxed directly on any income to which they are entitled. No further UK tax is payable on the distribution of income to the beneficiaries.

If a non‑UK unit trust is structured in an appropriate way, the income will accrue directly to the unit holders and they will be taxed directly. No further UK tax is payable on the distribution of income from the trustees of the unit trust to the unit-holders.

Distributions by a UK company to its shareholders are not subject to withholding tax in the UK. If a shareholder has funded the company by way of debt, interest payable to it may be subject to UK withholding tax at a rate of 20 percent, although this may be reduced if a relevant double-tax treaty applies. Shareholders may be taxed on the receipt of distributions and interest depending on their tax residence and status.

There is a generous UK tax exemption for UK companies receiving dividends and UK resident individuals can usually obtain a tax credit in relation to dividends received which reduces the overall amount of tax they pay on the receipt of distributions.

Ukraine

Ukraine

Income generated can be distributed to shareholders/participants in the company. A Ukrainian company paying dividends is generally required to pay advance corporate profits tax at the applicable rate (except in specific cases where advance tax should not be paid). Such advance tax can further be credited against corporate profit tax (CPT) due in future periods.

The CPT rate is 18 percent.

A distribution of dividends from a Ukrainian company to a non-resident shareholder is subject to 15 percent withholding tax, unless a relevant double tax treaty provides for a lower rate or an exemption.

United States

United States

US federal income taxes

Disregarded entity

Generally, a limited liability company or other unincorporated business entity that has a single owner is disregarded for US tax purposes. Accordingly, there should be no federal tax consequences to a single owner of a disregarded entity from cash distributions made to him or it by the disregarded entity.

Partnership

Taxable income from the ownership and operation of real property owned by an entity that is classified as a partnership for US tax purposes ‘flows through’ the partnership to the partners, who are subject to tax on their shares of that income, regardless of the amount of cash distributions actually made by the partnership to its partners. Any cash distributions to a partner that exceed the partner’s adjusted tax basis in his or its partnership interest usually generates capital gain as if the partner had sold a portion of his or its partnership interest.

Regular corporation

Dividends paid by a corporation to its shareholders are subject to tax at the shareholder level at rates currently below that applicable to ordinary income. Dividends paid by a US corporation to a shareholder that is itself a corporation subject to tax in the US will generally be eligible for a dividends-received deduction (ranging from 50 percent to 100 percent, depending on the percentage of stock ownership held by the distributee stockholder). In addition to regular corporate income tax, a foreign corporation that has a branch holding US real property in a US trade or business will potentially be subject to two branch level taxes.

Real estate investment trust (REIT)

Distributions made by a REIT to its shareholders will generally be taken into account as ordinary dividend income.

Income tax withholding for foreign investors

Where a foreign person invests in an entity taxed as a partnership, a federal withholding tax of 21% for corporate foreign partners and 37% for non-corporate foreign partners generally is imposed on the foreign partner’s distributive share of taxable income of the partnership that is ‘effectively connected’ with a US trade or business (whether or not such income is distributed). In addition, to the extent a foreign person realizes any fixed, determinable, annual or periodical income (such as interest and dividend income) from a business entity that is not effectively connected with a US trade or business, such income generally is subject to a 30% federal withholding tax.

Withholding taxes may be reduced or eliminated with respect to certain types of income under applicable income tax treaties. Amounts paid as US withholding taxes may be claimed by the foreign person as a credit against its US federal income tax liabilities with respect to the same categories of income.

State and local taxes

Most (but not all) states impose income tax on the net income generated from the ownership and operation of real property owned and business activities conducted within that state. Income taxes may also be imposed at the local (city and county) level.

Zimbabwe

Zimbabwe

The distribution of dividends to shareholders is subject to non-resident withholding tax at the rate of 10 percent for dividends from listed shares and 15 percent for other dividends, unless an applicable tax treaty reduces the tax to a lower level.