On September 15, 2020 the Dutch government released its Budget 2021 containing the Tax Plan 2021 with certain amendments to Dutch tax law. We discuss the highlights below:
Corporate income tax
Corporate income tax rate
It is proposed to reduce the Dutch corporate income tax rate for the first bracket from 16.5% to 15% and to increase the length of the bracket from € 200,000 to € 245,000 as per 1 January 2021 and further from € 245,000 to € 395,000 as per January 1, 2022. The resulting Dutch corporate income tax rates are as follows:
|Dutch corporate income tax rates as of January 1, 2021
|€ 0 - € 245,000
|> € 245,000
|Dutch corporate income tax rates as of January 1, 2022
|€ 0 - € 395,000
|> € 395,000
Denial of exemption of negative expenses and gains on certain debts
Interest expenses, related costs and foreign exchange losses relating to debt taken up from an affiliated entity, are not deductible and negative interest expenses and foreign exchange gains are not taxable if the debt is used for a tainted transaction (e.g. capital contribution, purchase of shares) and the taxpayer cannot demonstrate sound business reasons for taking up debt and the tainted transaction. It is proposed that negative interest expenses and foreign exchange gains on these debts will be taxable effective as per January 1, 2021.
Restriction deduction of liquidation loss
Dividends and capital gains realized from qualifying (foreign) subsidiaries and profits from foreign permanent establishments (PEs) are in principle exempted from Dutch corporate income tax. However, in case of a liquidation of the subsidiary or closure of the PE, the loss may be deducted. The government proposes to restrict the deduction of the liquidation loss.
A liquidation loss is only deductible if the liquidation is finalized within a period of 3 calendar years after the decision to dissolve the subsidiary was taken. If a delay occurs, the taxpayer may still deduct the loss if it proves that the delay was not aimed at the deferral or avoidance of Dutch corporate income tax.
The deduction of the liquidation loss is limited to € 5,000,000, unless the following conditions are met:
1. The parent company holds a qualifying interest in the liquidated company. A qualifying interest means a decisive influence, often more than 50% of the votes.
2. The liquidated company is a tax resident of the Netherlands, another EU/EEA state or a state with which the EU has concluded an association agreement and which is appointed by ministerial decree.
The PE closure loss is also restricted in a similar manner as the liquidation loss regime, with the exception of the qualifying interest criterion as that is not relevant in this regard. Furthermore, PE closure losses resulting immovable property or a limited partnership interest that are held as portfolio investments are also not deductible.
Thin cap rules for banks and insurers
The thin cap rules for Dutch tax-resident banks and insurance companies and Dutch branches of foreign banks and insurance companies will be amended for tax years starting on or after January 1, 2021. The required minimum equity ratio (equity / balance sheet total) will be increased from 8% to 9%.
In case the equity ratio (as determined by the Capital Requirements Regulation 2013 for banks and the Solvency II Directive for insurance companies) is less than 9%, the interest deduction is limited by the amount determined by the following formula: (9 minus actual equity ratio) / (100 minus actual equity ratio) * interest costs.
Furthermore, additional Tier 1-capital is disregarded for the calculation of the equity ratio. This amendment is a response to the Dutch Supreme Court’s judgment of May 15, 2020 in which it ruled that additional Tier 1-capital should be taken into account in determining the equity ratio.
Source tax on intragroup interest and royalties to low tax jurisdictions
The already adopted bill regarding the introduction of a source tax on intragroup interest an royalty payments to low tax jurisdictions will become effective as of 1 January 2021. The rate will likely be 25%. See for further details our earlier Alert.
Personal income tax
Box 1: income from work and primary residence
Reduction of allowance for self-employed persons
The allowance for self-employed persons will be reduced to € 6,670 in 2021. Further reduction of the allowance for self-employed persons will ultimately result in an amount of € 3,240 in 2036.
Box 2: income from substantial interest
Increase of tax rate
The tax rate for income from substantial interest will be increased to 26.9%. Currently, the tax rate is 26.25%.
Box 3: income from savings and investment
Change in Box 3 regime
Box 3 income is a deemed return on the sum of a taxpayer’s net wealth, meaning his or her savings and investments minus liabilities. The deemed return increases if the sum of net wealth increases.
It is proposed to increase the tax-free allowance to € 50,000 per person (previously: € 30,846). In addition, it is proposed to adjust the tax bracket limits, with the second tax bracket starting at € 50,000 and the third tax bracket at € 950,000. The Box 3-tax rate will be increased from 30% to 31%.
Startups & Innovation
Increased tax rate for Dutch Innovation Box
To stimulate innovation activities, the Netherlands has an innovation box regime that allows for a lower effective tax rate for profits derived from qualifying intangible assets. Currently, profits derived from qualifying intangible assets are taxed at an effective corporate income tax rate of approximately 7%. The legislative proposal provides an increase of this effective corporate income tax rate to approximately 9%. Since the legislative proposal also includes a reversal of the reduction of the Dutch corporate income tax rate (25% instead of the initial 21.7%), the tax benefit from the innovation box remains substantial.
Real estate transfer tax
It is proposed to increase the real estate transfer tax rate from 6% to 8%. The lower tax rate of 2% that is currently applicable with respect to the acquisition of residential property will no longer apply unless the residential property that is acquired will be occupied by and will serve as the main residence of the acquirer. Residential property that is acquired by an investor or residential property that serves as a second home (e.g. a vacation house) will also become subject to the 8% tax rate while it currently still qualifies for the lower tax rate. It is also proposed to introduce a special, temporary exemption for “starters”. A person is considered a “starter” if the person who acquires the real estate is an adult under the age of 35, this person has not applied the “starters exemption” before and the residential property will serve as the main residence of this person. The proposed “starters exemption” will end per January 1, 2026.
Further, it is proposed to include an obligation in the law to file a tax return if a taxpayer claims that an exemption from real estate transfer tax can be applied. In the current system it is not necessary in some cases to file a tax return. It is proposed to change this and to make every claim for an exemption subject to filing of a tax return to provide the Dutch tax authorities with the relevant information and to enable the authorities to investigate if the application of the exemption was correct. In most cases, the reporting to the tax authorities will be dealt with by the civil law notary who will register the notarial deed of transfer of the real estate assets with the Dutch tax authorities. For the transfer of shares in a real estate company, however, a separate tax return form should be filed with the Dutch tax authorities.
Landlords who rent out more than 50 residential properties in the social housing sector (rent controlled) are taxed with landlord levy. It is proposed that the tax rate of the landlord levy will be decreased from 0.562% to 0.526%. The proposed reduction of the tax rate is intended to compensate landlords for the proposed rent decrease for low-income tenants of social housing.
Postponement new cross-border e-commerce VAT rules to July 1, 2021
In light of e-commerce it was envisaged by EU Member states to implement new rules as per January 1, 2021. The new legislation embraces the destination principle, leading to an increase of VAT revenues by EU Member States where private persons are residing. These new VAT rules will impact EU VAT compliance for both market players and platforms that operate in this part of the “digital economy”. Due to the COVID-19 pandemic, and feedback from both businesses and national tax authorities, the European Commission decided to postpone the implementation of the new legislation with six months. It seems that some EU Member States such as The Netherlands and Germany are lobbying for further postponement to January 1, 2022. Another important element included in the e-commerce package is the abolishment of the current VAT exemption for goods in small consignment of a value of up to € 22.
Legislative proposal CO2 tax for industry
As of 2021 a national tax on CO2 emissions to stimulate the CO2 emissions reduction will be introduced. The tax will be levied on top of the EU-ETS scheme and critics may say it is an overkill. The Dutch government views the EU-ETS scheme as insufficient to achieve the ambitious goals from the 2019 climate agreement. Companies that emit carbon dioxide (CO2) and Nitrous oxide (N2O) in the course of industrial production will have to pay the CO2 tax based on their emissions. Greenhouse horticulture, centralized heating plants for urban areas, electricity plants that do not use industrial waste gasses and some specific building such as hospitals, universities and Schiphol airport are excluded – at least for now.
The tax will be payable on emissions above a threshold specific to each taxpayer, depending on the amount of dispensation rights allocated to the taxpayer. The rate will start at € 30 per tonne CO2 and will be raised with € 10,56 annually. To allow companies to gradually adjust to the new tax by moving away from greenhouse emitting fuels and to towards renewables, a reduction factor is included in the legislation. This factor decreases over time, thereby lowering the threshold above which the tax has to be paid. The price of emission for will be linked to the EU-ETS' price. Taxpayers will have to pay the price difference between the Dutch emission right's price and the EU-ETS price to the Dutch tax authorities. Furthermore, emissions that are exempt under the EU-ETS scheme are also exempt from this tax.
At this moment, the tax will not result in an acute tax burden due to the fact the reduction factor is relatively high. However, since both the price for emissions increases each year while the reduction factor decreases simultaneously, it is most certainly a tax to account for in the near future. Furthermore, it is likely that the list of taxpayers will be expanded on in the future given the Netherlands' ambitious climate goals. Although the introduction of the CO2 tax may not lead to immediate tax costs, it will add an extra compliance burden to the industry.
Tax laws are increasingly used as a method to steer taxpayer's behavior or to achieve other political goals. This CO2 tax is a clear example of this philosophy and will certainly not be the last.
Change in work-related expenses scheme
As of January 1, 2020, the work-related costs budget was increased to 1.7% of the fiscal wage up to and including € 400,000 (previously: 1.2%) plus 1.2% of the fiscal wage exceeding € 400,000. Due to the corona crisis, the percentage of 1.7% has been temporarily increased to 3% for the year 2020. It is announced that this temporarily measure will be laid down in legislation. On the other hand, it is proposed to lower the percentage of 1.2% to 1.18% as of January 1, 2021. This decrease is – unlike the increase – not temporarily.
Exemption for Corona-related compensation received by entrepreneurs in affected sectors and/or subsidy received for fixed costs
In order to mitigate the impact of the Corona-crisis on businesses, the Dutch government introduced in the last few months a compensation for entrepreneurs in affected sectors which has been followed by a subsidy for fixed costs. The compensation received on the basis of these measures would initially be included in a business' taxable profit but it is proposed that the compensation will be exempted.
Corona-reserve for Dutch corporate income tax
A “corona-reserve” can be created in the corporate income tax return for 2019 for losses arisen in 2020. The purpose of ‘corona reserve’ is to improve the cash position of companies in the short term by effectively speeding up the process of carry back of tax losses. The corona-related losses must be estimated in all reasonableness and cannot be higher than (i) the expected loss in 2020 related to the corona crisis and (ii) the total profits in 2019. It is not possible to form a ‘corona-reserve’ if profits are expected in 2020 or if a loss occurred in 2019. The ‘corona-reserve’ must be reversed in 2020. It is announced that this temporarily measure will be laid down in legislation.
Job related Investment Discount
A Job related Investment Discount (in Dutch: Baanregelateerde investeringskorting “BIK”) is announced. Pursuant to this measure, companies that invest are allowed to deduce a percentage of the investment made with their payroll tax. The Job related Investment Discount applies as from 2021 and is a crisis measure. Details of this measure will follow.
Amendments to loss set-off regime
It is announced that a legislative proposal will be published later this year which includes an indefinite loss carry-forward period (currently the carry-forward period is 6 years). Losses up to € 1,000,000 can be fully offset against profits. Profits that exceed that amount can be offset with past losses to a maximum of 50%. These amendments will come into effect as per January 1, 2022.
No credit for dividend tax and gambling tax
It is announced that the Dutch corporate income tax Act will be amended per 2022 in light of the European Court of Justice's decision in the Sofina Case (C-575/17). The goal is to treat foreign and domestic loss making companies equally, regardless if they are taxpayers for the Dutch corporate income tax. Domestic taxpayers for the Dutch corporate income that had a loss-making year can reclaim dividend withholding tax and gambling tax that has been witheld on their behalf in that year. This option currently does not exist for foreign companies in a comparable position that are not considered taxpayers for the Dutch corporate income tax. From 2022 onwards, tax from these two categories that cannot be offset against Dutch corporate income tax in the same year will be carried forward to next year for both foreign and domestic companies. A policy decision will be published in the near future to prevent a conflict with European law until this measure comes into effect. In this policy decision, Dutch tax inspectors will be able to refund dividend withholding tax and gambling tax to foreign companies when certain conditions are met.