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Netherlands: Corporate tax measures proposed to improve business environment

Netherlands: Corporate tax measures proposed

An October 2018 letter from the Deputy Minister of Finance announces that the government has decided not to repeal the dividend tax (as had been proposed on Budget Day, with repeal set for 2020).

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Instead, the government now proposes to improve the business climate through other corporate tax measures, described below.

Overview of proposed tax measures

Dividend tax, withholding taxes

It appears that the government intends to integrate the current dividend tax with the withholding tax on dividends. The withholding tax would have a higher rate and a broader tax base than the dividend tax. Maintaining the dividend tax would mean that fiscal investment institutions (fiscale beleggingsinstellingen—FBIs) can continue to make use of the remittance reduction for dividend tax purposes. 

Further reduction of corporate income tax rates

Profit up to and including €200,000 is currently subject to a 20% corporate income tax rate. To the extent that profit exceeds this amount, it is currently taxed at 25%. On Budget Day it was proposed to phase in reduced rates of 16% and 22.25%, respectively in 2021.

The October 2018 letter proposes a further reduction of these rates to 15% (for profit up to and including €200,000) and 20.5% (for profit over €200,00) in 2021. However, the previously proposed reduction of the top rate in 2019 (the first step) would be postponed. The letter is not clear about the extent to which the rates would be reduced in 2020. 

Transitional rules limiting depreciation on buildings for corporate income tax purposes

On Budget Day it was proposed that, for corporate income tax purposes as of 2019, it would only be possible to depreciate a building that the taxpayer uses itself up to a maximum of 100% of its WOZ value (the value of immovable property). Transitional rules were announced in the letter of October 2018, to mitigate the effects of this limitation for buildings that have recently been put into use. The transitional rules would mean that if a building has been put into use by the taxpayer before 1 January 2019 and that building has not yet been depreciated for three years, the taxpayer could continue to claim depreciation for the three years under the current regime (thus up to 50% of the WOZ value). 

Direct investment in property by certain investment entities (for corporate income tax purposes)

In the 2019 tax plan, it was proposed that certain Dutch resident fiscal investment institutions would no longer be allowed to invest directly in Dutch property (including any associated rights). This measure was related to the repeal of the dividend tax. Because dividend tax will not be repealed, the reason for this measure would be now redundant. The government thus announced that it would refrain from the proposed amendment of the FBI regime. 

Limiting retroactive application of emergency measures for fiscal unity (for corporate income tax purposes)

In response to EU case law, the government presented the bill on the Fiscal Unity Emergency Repair Act (Wet spoedreparatie fiscale eenheid) to the Lower House in June 2018. The bill stated that the emergency repair measures would, in principle, have retroactive effect to 25 October 2017. This would mean additional uncertainty and administrative costs, including with regard to the 2017 corporate income tax returns. 

The government now proposes to limit the retroactive effect to 1 January 2018. 

Mitigation of announced limit on borrowing from own BV by director-major shareholders

The government previously announced a measure that, as of 1 January 2022, would discourage director-major shareholders from borrowing from their own BV (Dutch limited liability company). It was thereby announced that to the extent that the total balance of payables by their own BV exceeds €500,000, this would be identified as income in Box 2. It was already known that transitional rules would be introduced for existing home acquisition debt. 

In the October 2018 letter, the government announced that new home acquisition debt by a director-major shareholder would also be excepted. On top of the home acquisition debt, an additional cap of €500,000 will apply to the director-major shareholders and their partners jointly. 

Transitional rules for shortened 30% ruling

The 30% ruling is a form of tax relief for certain employees working in the Netherlands and who are recruited from abroad and who possess specific expertise that is not present or that is scarce in the Dutch labor market. Under this tax relief, employers can pay roughly 30% of the salary untaxed. 

The period for which the 30% ruling is granted would be shortened from eight years to five years as of 1 January 2019. The government intends to introduce transitional rules for the group for whom the 30% ruling would end in 2019 or 2020 as a result of this measure. 

R&D remittance deduction increased

The Wages and Salaries Tax and National Insurance Contributions Reduced Remittances Act (Wet vermindering afdracht loonbelasting en premie voor de volksverzekeringen) aims to stimulate research and development (R&D).  In 2018, this remittance reduction is 32% (40% for start-ups) of the payroll costs and the other costs and expenses for R&D activities up to an amount of €350,000 and 14% for the excess. The government now proposes to increase the latter percentage to 16% in 2020. 

Employer social security contributions on labor reduced

To strength the business climate, an amount of €200 million would be made available on a regular basis to reduce employer social security contributions on labor. 

What’s next?

In anticipation of the October 2018 letter, the Lower House had already decided to postpone asking questions about the Withholding Tax Act 2020, the 30% ruling, and the adjustment of the Box 2 rate (the letter does not address this rate). The Deputy Minister has now asked the Lower House to submit these questions by 24 October 2018. The government aims to send the Memorandums of Amendment to the Lower House on 26 October 2018, at which time more details about the new measures would be provided.

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