On September 17, 2019, the Dutch government released the Budget 2020 containing its Tax Plan 2020 with certain amendments to Dutch tax law. Please find the highlights below of the changes that will have effect as per January 1, 2020:
1. Corporate income tax
Reduction of tax rates
The corporate income tax rate is currently 19% for the first €200,000 of profit and 25% for profit exceeding €200,000. The legislative proposal includes a reduction of the rates as follows:
Interest deduction limitations
Minimum equity rule for banks and insurers
A new interest deduction limitation will be introduced that targets Dutch tax-resident banks and insurance companies or Dutch branches of foreign banks and insurance companies, insofar as they are not sufficiently capitalized with equity.
In case the leverage ratio (equity / balance sheet total) of banks as calculated under the Capital Requirements Regulation 2013 is less than 8%, interest deduction is limited by the following formula:
(8 less actual leverage ratio) / (100 less actual leverage ratio) * interest costs = non-deductible interest
For insurance companies, the leverage ratio in the above formula is replaced by the ratio between equity and the total assets to be calculated on the basis of the rules of the Solvency II directive.
Non-deductible interest decision
In 2019, the Netherlands introduced the 30% EBITDA rule (see our tax alert regarding the 2019 Tax Plan for more information). The tax plan 2020 states that the tax inspector must make a formal decision when determining the amount of interest that is not deductible under the 30% EBITDA rule and available for being carried forward.
New requirements for the application of the Dutch tonnage tax regime
On July 26, 2019, the European Commission ("EC") approved the prolongation of the Dutch tonnage tax regime, a state aid measure, until December 31, 2028. However, the approval was granted under the condition that the Netherlands adds new requirements to its existing tonnage tax regime to bring it more in line with the EC's 'Maritime Guidelines' and case practice. Therefore, the Netherlands introduced three amendments:
- Time/foreign charter cap: introduction of a 75% cap on non-EU/EEA flagged vessels held by the taxpayer on the basis of time/voyager charter compared to the annual total of the net day tonnages of all qualifying vessels of the taxpayer for the Dutch tonnage tax regime;
- Flag entry level: introduction of a flag entry level for newly acquired or managed ships. The main rule is that every activity brought under the tonnage tax regime should be performed with an EU/EEA flagged vessel. However, there are existing exemptions to this main rule. To apply the exemptions, the Netherlands introduced new requirements: at least one of the ships must be EU/EEA flagged to apply for the existing exemptions. This will be examined every time a new vessel is added to the fleet of the taxpayer that applies the tonnage tax regime and will now also apply to ship management companies. This rule applies to vessels added on or after January 1, 2020, but a grandfathering rule applies and provides for a postponement of these rules for existing situations until December 31, 2019;
- Ancillary activities cap: ancillary activities for the category exploitation of vessels for the transportation of persons and goods overseas are capped at 50% of the total turnover per vessel. This is an expansion of the categories for which a correction must be made to the initially qualifying profits for the tonnage tax regime, to exempt non-transport related activities.
Meeting substance requirements – no absolute safe harbor
In light of recent EU case law (see regarding dividend payments and interest payments), the safe harbor rule in the anti-abuse provision for outbound dividends and capital gains will be amended. Meeting the substance requirements by non-resident interposed holding companies (see our earlier tax alert) will no longer provide a safe harbor. Despite meeting the substance requirements, the Dutch tax authorities may still challenge the structure as abusive if they can prove that the motive for interposing the non-resident company was the avoidance of Dutch dividend tax or personal income tax, and in addition that the structure was not established for valid commercial reasons that reflect economic reality.
Expansion of permanent establishment definition
In order to avoid double non-taxation, the domestic definition of permanent establishment for corporate income tax, personal income tax and wage withholding tax will be brought in line with those of the applicable tax treaties concluded by the Netherlands. If no tax treaty is concluded, the Netherlands will apply the definition as given in the latest version of the OECD Model Tax Convention.
2. Personal income tax
Box 1 – Two-bracket income tax system
The proposed tax rates for income from work (Box 1) will be lowered and limited to a base rate of 37.10% for income up to €68,507 and a top rate of 49.5% for income exceeding €68,507.
Box 1 – Deductions
Certain deductible expenses will only be deductible against a maximum rate of 46% (instead of the top rate). These expenses concern: alimony payments, specific healthcare expenses, weekend expenditure for handicapped individuals, educational expenses, charity donations, self-employed deductions, the deduction for small and medium-sized enterprises and the exemption for the business use scheme.
Box 1 – Mortgage interest deduction
This limitation of income tax deductions is in line with the mortgage interest deduction. The maximum deduction for mortgage interest is 46%. It is proposed that the mortgage interest deductions will be further limited in future years by 3% per year to the base rate in 2023.
Box 1 – General levy rebate
The general levy rebate will be increased by €78 in 2020 and by €2 in 2021. The maximum general levy rebate in 2020 will be €2,711 and then €2,801 in 2021.
Box 1 – Labor levy rebate
The labor levy rebate will also be increased in three steps. The maximum labor levy rate in 2020 will be €3,819.
Box 2 - Increase of Tax Rate
Box 2 – Increase of tax rate
The tax rate for income from substantial interest will be increased to 26.25%. The government proposes a further increase to 26.9% in 2021.
Wage withholding tax
Increase in work-related costs budget
The work-related costs budget will be increased. For the first €400,000, the budget will be increased to 1.7% of the fiscal wage (instead of 1.2%). For the amount exceeding €400,000, the budget remains 1.2% of the fiscal wage.
Voluntary disclosure scheme
The voluntary disclosure scheme will be abolished for income from substantial interest. This means that there is a no waiver of the applicable penalty and interest on any undeclared income. In addition, the distinction between foreign income and domestic income will be abolished.
The so-called "quick fixes" will be implemented in national laws in all member states. This is a part of the "Action Plan on VAT – Towards a single EU VAT area" regulation, which aims at making EU VAT simpler for businesses to use, while combatting serious VAT fraud. The quick fixes include the following four changes:
- Simplified treatment for call-off stock
- Uniform rules to simplify chain transactions
- Mandatory VAT identification numbers to apply the zero VAT rate
- Simplified proof of intra-Community supplies
Change in VAT rate for certain products
The 9% (low) VAT rate will be adopted in Dutch VAT law for the delivery of books, newspapers and magazines supplies by electronic means.
4. Real estate transfer tax
The Dutch government proposes to increase the standard rate of the real estate transfer tax from 6% to 7% as of January 1, 2021. The standard tax rate applies to the transfer of non-residential properties and this includes office buildings, commercial premises and land intended for residential construction and hotels and guesthouses. The reduced tax rate of 2% will still be applicable to transfer of residential properties.
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