Netherlands and Bangladesh sign new tax treaty in Dhaka

Dutch State Secretary for Tax Affairs Van Rij and Minister Abdul Hassan Mahmood Ali of Bangladesh put their signatures to a new bilateral tax treaty in Dhaka on 12 March. The aim of the treaty is to avoid double taxation and further Dutch and Bangladeshi economic interests.

Bangladesh is an important Dutch trading partner. The two countries have been partners in sustainable, inclusive and responsible business for many years and Bangladesh has recently made great strides in its development. So much so in fact that it will be considered a middle-income country from 2026. The Netherlands wishes to give further support to the country’s development through this new tax treaty.

Expanded taxing rights

To this end, Bangladesh will be given greater taxing rights under the treaty. The Netherlands adopted a new policy on tax treaties in 2020. Bangladesh is the first low-income developing country with which the Netherlands has since concluded a new treaty giving the source state the right to tax gross payments for technical services. This means Bangladesh is entitled to levy a 10% tax on payments made from Bangladesh to a Dutch service provider for technical services provided in Bangladesh. More source taxation rights are also granted by expanding the provision on permanent establishments in the treaty. This makes it more likely that an enterprise based in one country will have a taxable presence in the other country, for example when it provides services or carries on insurance activities. It has also been agreed that the source state may tax gains from the alienation of shares and comparable interests in businesses consisting largely of real estate.

The treaty also includes arrangements for preventing tax avoidance. These and other provisions in the treaty mean that it satisfies the minimum standards of the OECD/G20 Base Erosion and Profit Shifting Project to combat tax avoidance.

The Netherlands works to enhance the capacity of developing countries to levy taxes by means, for example, of a project involving 23 developing countries including Bangladesh. These efforts have their basis in the sustainable development goals (SDGs). An important SDG target concerns improving the domestic revenue generation capacity of developing countries.

Next steps

Before the treaty can enter into force, the necessary process leading to ratification must be completed in both countries. In the Netherlands, treaties are first submitted to the Council of State for an advisory opinion and then, within four months after signature, submitted to parliament for approval.