On 10 October the next new coalition presented coalition agreement “Confidence in the future”. In view of the many spearheads in this agreement and the 2018 financing plan, we dedicate a newsletter to the proposed short-term tax changes (2018) and the longer period (2019-2021). We will not treat all changes, but mainly those relevant for SMEs.
For 2018 the changes are very concise, but the impact on your fiscal position for the following years is significant. We therefore propose to go over this document in detail at our next meeting to discuss, among others, where any actions are advisable.
Financing plan 2018 – Day of the King’s speech
Tax credit and rates
The changes in rates, tax brackets and tax credit compared to 2017 have been indicated in the tables below:
|Tax credit||Situation 2018||Situation 2017|
|Maximum general tax credit below retirement age||€ 2.265||€ 2.254|
|Maximum general tax credit above retirement age||€ 1.157||€ 1.151|
|Tax reduction percentage general tax credit||4,683%||4,787%|
|Minimum general tax credit||€ 0||€ 0|
|Maximum tax relief for people receiving income from employment||€ 3.249||€ 3.223|
|Tax reduction percentage tax relief for people receiving income from employment||3,60%||3,60%|
|Minimum tax relief for people receiving income from employment||€0||€ 0|
|Accrual rate tax relief for people receiving income from employment||28,067%||28,317%|
|Maximum income-independent combination discount||€ 2.801||€ 2.778|
|Young disabled person’s tax credit||€ 728||€ 722|
|Elderly person’s tax credit||€ 1.418 / € 72||€ 1.292 / € 71|
|Single elderly person’s tax credit||€ 423||€ 438|
|Bracket limits box 1||2018||2017|
|End of first bracket||€ 20.142||€ 19.982|
|End of second bracket born before 1 January 1946||€ 34.404||€ 34.130|
|End of second bracket born after 1 January 1946||€ 33.994||€ 33.791|
|End of third bracket||€ 68.507||€ 67.072|
|Combined income tax rates / tax on wages and premium for national insurance||2018||2017|
|Rate first bracket below retirement age||36,55%||36,55%|
|Rate first bracket above retirement age||18,65%||18,65%|
|Rate second bracket below retirement age||40,85%||40,80%|
|Rate second bracket above retirement age||22,95%||22,90%|
|Rate third bracket||40,85%||40,80%|
|Rate fourth bracket||51,95%||52,00%|
Extension multiplier donations deduction
From 1 January 2018 the increased donations deduction in income tax and company tax for donations to cultural institutions will expire. This temporary stimulation regulation will, however, be extended by a year.
Capital sum insurance timeframe
The timeframes to be eligible for exemption for home ownership capital sum insurance (KEW), a home ownership savings account (SEW) or a home ownership investment right (BEW) expired in their entirety from 1 April 2017. This means that the requirement for annual premiums having to be paid for at least 15 years (KEW) or for amounts to be deposited (SEW or BEW) no longer applies. What suffices for the application of the high exemption is that the annual premium payment or deposit took place in a range of 1:10 and that the payment is used for (partial) payment of the home ownership debt.
Research and development tax rebate
A withholding agent who wishes to apply the research and development tax rebate is obliged to pass on the time spent and costs and expenses incurred to the Netherlands Enterprise Agency (RVO) per issued research and development declaration. In view of the administrative easing of the tax and premium burden, this message will be stated for all research and development declarations in one calendar year.
Donations regarding change of matrimony property regime
The cabinet proposes a legal arrangement to determine whether undergoing or changing a matrimony property regime leads to a donation between the spouses. The basic assumption is that realising a similar authorisation to the combined capital does not lead to levy. Gift tax is owed if the share of the least affluent becomes higher than 50% in the total in capital, or if the share of the most affluent in the total capital increases. The amount that is subsequently obtained will be regarded as a donation. If the shift in capital occurs upon death, inheritance tax is owed. The arrangement also applies to cohabitants with a notarial partnership contract. If the marriage or notarial partnership contract is concluded with the main objective of avoiding gift or inheritance tax, each capital shift between the spouses will be regarded as a donation. The burden of proof that this concerns a fiscal motive lies with the inspector.
Digitalising notarial deeds
A number of measures are proposed as part of digitalisation of the registration of notarial deeds. The tax authorities will gain digital access to wills or similar deeds in cases of the death of the divisor after the deed has already been taken to the general depository of notarial deeds. In addition, the tax authorities will also receive any annexes to the notarial deeds electronically.
Wage and income tax
To be able to ease the tax and premium burden of € 6 billion, a two-bracket system will be introduced in income tax with a basic rate of 36.93% up to an income generated from work and home of approximately € 68,600 and a top rate of 49.5% for the surplus. For pensioners there will soon be three brackets; this is related to the national insurance contribution.
The maximum amounts of the general tax credit and tax relief for people receiving income from employment will be increased. The same applies to the elderly person’s tax credit. In addition, a gradual income-related cutback will be introduced in the last-mentioned tax credit instead of the current income limit. In addition, the accrual of income-dependent combination discount will be changed. This is offset by the payment of tax relief for people receiving income from employment and the income-dependent combination discount for the least-earning partner is cut back, as is already the case for general tax credit.
Notional rental value
It has been suggested to lower the percentage of notional rental value from 0.75% to 0.60% of the value for the purposes of the Valuation of Immovable Property Act of home ownership. This is partly paid by levying income tax for home owners who have (almost) fully paid their home ownership debt. The deduction due to ‘little or no home ownership debt’ (the so-called Hillen arrangement) that is phased over a 30-year period, will be cut back. This point of the coalition agreement has already been given the necessary attention.
The maximum rate at which deductions in income tax are eligible will be cut back by 3% points annually from 2020 until the basic rate of 36.93% has been reached. This therefore doesn’t only apply to mortgage interest deduction, but also to other income tax deductions such as the self-employed person’s allowance, and presumably also other entrepreneur facilities.
Increase rate box 2
In the context of the suggested decrease of company tax rates, the rate for income from significant importance (box 2) is gradually increased by 3.5% point. In 2020 the rate will then be 27.3% and in 2021 the rate will come to 28.5%. With this the new cabinet intends to preserve the global balance in tax pressure between entrepreneurs in income tax and entrepreneurs in a PLC.
Taxing actual return in box 3
The new cabinet will develop a proposal for a capital gains tax based on actual realised return. Anticipating this, the tax-free allowance is increased to €30,000 (2017: €25,000). In addition, more up-to-date figures are used for the return on the savings portion.
Limiting duration 30% arrangement
The duration of the so-called 30% arrangement for extraterritorial employees is reduced from eight to five years.
Working as a self-employed person
The Deregulation Labour Relations Assessment (DBA) will not be introduced and will be replaced with another arrangement. For the distinction between real self-employed and false self-employed persons the proposal largely comes down to the following:
- For a low rate to be charged, either in combination with a longer duration of the agreement, or in combination with carrying out regular business operations, it is determined for self-employed persons that there is an employment contract. This low rate is set at the wage costs up to 125% of the statutory minimum wage, or the lowest wage scales in collective labour agreements. If the duration of the agreement is at least three months, this is referred to as a ‘longer duration’.
- In a high rate, either in combination with a shorter duration of the agreement, or in combination with not carrying out regular business operations, an ‘opt out’ for tax on wages and the employer insurance is introduced. A rate of more than €75 per hour is considered a high rate. A shorter-term agreement is defined in this framework as shorter than a year.
- In addition, a ‘client declaration’ is introduced for self-employed persons above the ‘low’ rate. With this the client in principle gets certainty in advance of indemnification of tax on wages and employee insurance premiums.
Company tax and dividend tax
Reduction in rate of company tax
In order to preserve a competitive business climate, the intention is to introduce a serious reduction of company tax rates. Both the rate in the first and the second bracket is gradually reduced by in total 4% point (2019: -1% point, 2020: -1.5%; 2021: -1.5%). This brings the regular rate to 21% in 2021. Up to a taxable amount of €200,000 a rate of 16% applies. The previously announced extension of the first rate bracket is then reversed.
Abolition of dividend tax / introduction of withholding tax
The new cabinet wants to in principle abolish the dividend tax as of 1 January 2020. On the other hand, withholding tax on interest and royalties is being introduced in case of movement of funds to countries with very low tax. In addition, they will be a withholding of tax on dividends in misuse situations and in the movement of funds to countries with very low tax rates.
Depreciation of buildings for own use
The depreciation of buildings for own use is limited in the company tax to 100% of the assessment for tax purposes as this currently already applies to investment real estate. Currently, a base value of 50% of the assessment for tax purposes applies to buildings for own use.
Own capital / debt capital
The new government suggests introducing a generic interest deduction limit in the form of an earnings stripping measure. Interest is no longer deductible if the balance of owed and received (group and third party) interest is more than maximum 30% of the gross operating income (EBITDA: earnings before interest, taxes, depreciation and amortisation). The government hereby chooses a fixed franchise of €1 million of which the interest is in any case deductible.
The coalition agreement also notes that some specific interest deduction limitations will be abolished, with the exception of specific interest deduction limitations aimed against profit drainage. We assume that this means that the current anti-profit drainage arrangement will apply alongside the new earnings stripping measure.
Profit that is obtained with innovative activities will be taxed at an effective rate of 5% through the application of the innovation box. The proposal is to increase this effective rate from 5% to 7%.
Fiscal investment institution
In relation to the abolishment of dividend tax, it is suggested to no longer allow direct investments in real estate by fiscal investment institutions.
The option of relieving losses from the previous (financial) years with positive taxable profit from later years is limited to six years. Losses can currently still be calculated forward for nine years.
Sales tax and excise
Increase of low VAT rate
The low rate in VAT will be increased from 6% to 9%. The low VAT rate applies to, among others, food, medicine and books.
If you are curious about the effect of the abovementioned measures for your situation, do not hesitate to contact us.