When companies in different countries transact with each other, international tax rules often come into play. One of the most common situations involves cross-border loans. For the purpose of this briefing, we’ll use the Netherlands as our example.
A Dutch company (BV) may lend money to a UK company (Ltd) and receive interest payments in return. Without treaty relief, those interest payments could be subject to withholding tax in the UK, adding extra costs to the arrangement.
To reduce this tax burden, the Double Taxation Treaty Passport Scheme (DTTP) exists. It is designed to simplify the process of applying treaty benefits under the UK’s network of double tax agreements, including the treaty with the Netherlands.
How the Scheme Works
1. Loan Arrangement
A Dutch BV makes a loan to a UK Ltd company.
The UK company pays interest to the Dutch lender.
2. Withholding Tax Issue
Normally, the UK could impose a withholding tax (typically 20%) on the interest payments.
However, under the UK–Netherlands double tax treaty, interest payments are often exempt or subject to a reduced rate of withholding tax.
3. The Role of the DTTP
The Double Taxation Treaty Passport Scheme streamlines the process of claiming this exemption.
Once the Dutch lender registers as a treaty passport holder, UK borrowers can apply the treaty rate more easily.
Step 1: Registering as a Passport Holder in the Netherlands
For the Dutch BV to benefit, it must first register with the UK’s HM Revenue & Customs (HMRC) as a treaty passport lender. But before that, the company needs to ensure its Dutch tax residence is formally established and recognised.
Proof of Dutch Residency: The Dutch BV should have a residency certificate issued by the Dutch tax authorities (Belastingdienst).
This certificate confirms the company is resident in the Netherlands for treaty purposes.
Once this documentation is available, we will then on behalf of the Dutch BV, apply to HMRC for treaty passport status.
Step 2: Applying for Passport Status with HMRC in the UK
After the Dutch BV’s status is established:
1. Application to HMRC
We complete the Treaty Passport application form on behalf of the Dutch BV, and submit it to HMRC.
HMRC reviews the application and, if accepted, grants the BV treaty passport lender status.
2. Issuance of Treaty Passport
Once accepted, HMRC issues a treaty passport number to the Dutch BV.
This number is used in dealings with UK borrowers.
3. UK Borrower’s Responsibility
Then when a UK Ltd company borrows from the Dutch BV, we inform HMRC of the arrangement, quoting the Dutch lender’s passport number.
This allows the UK borrower to apply the reduced or nil withholding tax rate directly, without the need for case-by-case treaty relief applications.
Benefits of the Scheme
Simplification: The passport scheme avoids repeated paperwork for every single loan.
Certainty: Both lender and borrower know in advance that interest will be paid gross or at the reduced rate.
Efficiency: Once registered, the Dutch BV can use its passport number for multiple UK borrowers without reapplying each time.
Key Takeaway
For companies investing in the UK via loans, the Double Taxation Treaty Passport Scheme ensures interest payments are not unnecessarily burdened by UK withholding tax.
Step 1: Obtain proof of Dutch tax residency from the Belastingdienst.
Step 2: Apply to HMRC in the UK to become a treaty passport holder.
Step 3: Provide the passport number to UK borrowers so they can pay interest without deduction.
This scheme is particularly useful for investors financing UK property or business operations through structured loans.
The teams here at www.expat-tax-advice.co.uk, or for our property clients around the world, the team at www.property-tax-advice.co.uk, will manage the process for you with HMRC – contact us on …
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