Yesterday, Dutch Minister of Finance Wopke Hoekstra presented the 2019 Budget Memorandum and the 2019 Tax Plan. The government is focusing on reducing the tax burden on employment, combating tax avoidance and evasion, improving the attractiveness of the Netherlands as a business location and making the tax system greener and more easily enforceable.
A brief explanation of the most notable changes in the area of taxation is provided below.
Please note! The Upper and Lower House still have to vote on these changes.
1. Income tax: introduction of two-band system
From 2021 there will be only two instead of four bands for income tax (for people below state pension age). The basic rate of 37.05% will then apply up to an income of € 68,507. Above this threshold the top rate of 49.5% will apply. In 2019 the current rates of 36.55%, 40.85% and 51.95% will be changing to 36.65%, 38.10% and 51.75%.
Under the new system, from 2021 people of state pension age will continue to be subject to different rates, as is the case now. These new rates will be 19.15%, 37.05% and 49.5%.
2. Box 2 rate rising less sharply than expected
The rate of income tax in box 2 applicable to income from substantial shareholdings will increase to 26.25% in 2020 and 26.9% in 2021. This increase is lower than that previously announced in the coalition agreement (to 27.3% and 28.5% respectively). The current rate is 25%.
3. Employed person’s tax credit
Over the next few years the employed person’s tax credit will be increased incrementally, up to a maximum of € 3,941 in 2021. From 2019 it will be reduced to zero from an income of € 36,344. The aim of this rise in employed person’s tax credit is to make work (or working more) pay.
4. Increase in reduced rate of VAT to 9%
With effect from 1 January 2019 the reduced rate of VAT will increase from 6% to 9%. This rate applies to foods, sporting activities and recreation, for example.
5. Top rate of corporation tax of 22.25%
In the coalition agreement the governing parties agreed to reduce the rate of corporation tax. For taxable amounts (profits) up to € 200,000 the rate of corporation tax will be reduced from 20% to 19%. It will be cut further to 17.5% in 2020 and to 16% in 2021.
However, the rate of corporation tax applied to taxable amounts above the € 200,000 threshold will not be reduced to the previously agreed level of 21%, but will be a maximum of 22.25% in 2021. In 2019 this top rate of corporation tax will be lowered to 24.3%.
6. Reduction in level of depreciation permitted for commercial property
The permitted depreciation of property used by a company for its own purposes is being restricted for purposes of corporation tax. At present such property may be depreciated down to 50% of its WOZ value (value for the purposes of the Valuation of Immovable Property Act). With effect from 1 January 2019 it may not be depreciated below 100% of its WOZ value.
Example: let’s assume that the WOZ value of a property is € 1,000,000 and the book value is € 900,000. Previously, it was possible to depreciate this property down to 50% of its WOZ value, i.e. to € 500,000 in this example. Under the new plans it will no longer be permitted to depreciate it below the WOZ value, which means that no further depreciation is possible in this example.
Please note! This measure only applies to entities subject to corporation tax.
7. Offsetting of losses limited for corporation tax purposes
In 2019 losses for corporation tax purposes may only be carried forward and offset against profits for six years instead of nine. Losses incurred before the 2019 financial year may still be carried forward and offset against positive results for nine years.
8. Abolition of dividend tax and introduction of withholding tax
In spite of the considerable controversy surrounding the issue, dividend tax will be abolished from 1 January 2020. The main reason for abolishing this tax is to increase the attractiveness of the Netherlands as a location for international businesses.
The introduction of a withholding tax on dividends from 1 January 2020 is intended to prevent tax avoidance. This will mean that intercompany dividend payments made to entities in low-tax countries will be taxed. The same will apply in the event of abusive practices, according to the Budget Memorandum.
A withholding tax on interest and royalties will also come into force from 1 January 2021.
9. 7% addition to taxable income for company bicycles
The current scheme for determining the private use of a company bicycle is being simplified by introducing an addition to taxable income based on a fixed percentage with effect from 1 January 2020. This addition will amount to 7% of the recommended retail price set by the manufacturer.
10. Maximum duration of 30% scheme reduced
With effect from 1 January 2019 the duration of the 30% scheme for employees from outside the Netherlands is being reduced from eight to five years. There will be no transitional arrangements, which means all current schemes will also be shortened by three years.
All current decisions by the tax authorities relating to the scheme that are valid up to and including 1 January 2022 will lapse with effect from 1 January 2019. As a result, the tax-favourable scheme under which such employees can choose to be treated as foreign taxpayers for a portion of their income will also be discontinued from 1 January 2019.