Prinsjesdag = Budget Day 2020
As is tradition, on Prinsjesdag (Budget Day) the Dutch government has presented its tax plans for the coming year. These plans contain measures that aim to help the economy survive through the crisis caused by the Covid-19 outbreak but also more generic tax measures. We lined up what we think are the most important changes so that you know what these plans will mean for you or your business.
Personal Income Tax
It is expected that the median household will see it’s purchase power rise by 0.9%, due to several expected changes in the Personal income tax regulations
Firstly there will be a slight decrease in the lower income tax bracket to 37.10%. This will result in fewer taxes payable for almost everyone. Secondly, the general tax credit will increase by € 82 which mostly supports lower-income households. Moreover, the labour tax credit will be increased, which will benefit the working.
The income-related combination discount (a tax discount that you can be entitled to if you and your partner combine working with caring for children) will first decrease in 2021 but will rise again as from 2022.
Self-employed deduction (zelfstandigenaftrek)
The self-employed deduction, which is a deduction for the income taxes that entrepreneurs can make use of, is already being lowered over the next years by small annual steps. The steps will increase so that by 2036 the self-employed deduction will fall to € 3,240. Currently, the self-employed deduction is € 7,030 which will be decreased to € 6.670 in the fiscal year2021.
Personal income tax deductions
The maximum rate at which certain personal income tax deductions can be made will be 43% in 2021. This applies for example to mortgage interest relief, the entrepreneur’s allowances (e.g. the self-employed deduction), and the SME profit exemption (MKB- winst vrijstelling). This will be decreased further in 2022 and 2023. The maximum rate will be 40% in 2022 and 37% in 2023.
Taxes on savings and investments
As for taxes on savings and investments the tax-free threshold will be € 50,000 which used to be € 31,340, this allows you to have more personal savings without having to worry about taxes. This measure will lower taxes on savings and investments for 1 million people. However, this doesn’t mean that you will not have to declare your savings and investments if they are over € 31,340 but under € 50,000 in your tax return. Even though there won’t be any taxes levied on this, the tax authorities still want to know so that they can share that information with other government institutions. The tax rate on your deemed income from savings and investments above € 50.000 will slightly increase from 30% to 31%. For those who are qualifying partners for taxes, the above amounts are double. Holders of a valid 30% ruling for the entire tax year, you can still choose to be exempted from paying any tax on your savings and investments.
From the 1st of January 2019, the maximum term of the 30% ruling has been reduced from 8 to 5 years. Transitional law applies to employees who would otherwise lose the 30% ruling after 1 January 2019 due to this reduced term. This ends in 2020, so a large number of expat employees will no longer hold a valid 30% ruling document anymore as per 1 January 2021. They will therefore no longer be able to use the 30% ruling benefits, being a deduction of their taxable salary of at maximum 30%, and the special income tax regime granting an exemption on their personal investment income (box 2 and box 3).
The tax rate on income from substantial interests (e.g. if you hold > 5% of the shares of a company)
will go up from 26.25% to 26.9%. Furthermore, a legislative proposal is made for excessive loans between directors-major shareholders and their company. If the proposal is adopted, director-substantial shareholders are going to pay 26.9% income tax on excessive debts (> € 500,000) starting in 2023. Loans made for the purchase of a primary residence are proposed to be exempted. If this may apply to you, it is advisable to look at this thoroughly to avoid having to pay this tax.
Corporate Income Tax
The corporate income tax (CIT) has two brackets, the first with the low rate of 16.5% in 2020 and the second with the higher rate of 25% on all profits above € 200.000 in fiscal year 2020. As per 2021, the lower CIT rate will be reduced to 15% while the higher CIT-rate will remain the same at 25% in contradiction to earlier plans to bring this down to 21.7%. On the other hand, in 2021, the low rate will apply for profits up to € 245,000 and in 2022 it will apply to profits up to € 395,000..
As was already announced last year, the effective tax rate on the profits that are allocated to the innovation box will be increased from 7% to 9%. The budget for the WBSO will also be increased.
The Dutch government is investigating various extra limitations on interest deductions. At this moment it is not yet clear what measures the Dutch government proposes to introduce.
Amendments to loss set-off regime
It has as well been announced by the government that the way losses can be set-off will be changed. At this moment, losses can only be carried forward up to six years, and if not used within this period, they will evaporate. With the new budget, it is proposed that losses can be carried forward indefinitely, but they can only be fully deducted (both forwards and backwards) up to an amount of € 1 million in taxable profits per year.
The rules will also change when the taxable profit in a year is higher than € 1 Million and the losses that can be deducted are also at least € 1 Million. In such cases, the first € 1 Million of losses can be fully deducted, but above this amount, losses can only be deducted from 50% of the remaining taxable profit over € 1 Million. This way, when companies have large profits, surpassing € 1 Million, they will still pay corporate tax even if they have losses to offset these profits entirely.
Offsetting dividend tax and gambling tax
As per 1 January 2022, the government plans to limit the way that Dutch dividend tax and gambling tax can be used to offset the Dutch corporate income tax. The aim is to avoid this leading to an amount refundable. Nevertheless, any excess amount can be rolled forward to next year.
Coronavirus tax reserve
As previously announced, companies that expect a loss during 2020 due to COVID-19 (& prevention measures) can form a so-called “coronavirus reserve” in the corporate income tax return for 2019. This can lead to lower taxes payable for the year and thus a liquidity benefit.
A “job-related investment discount” is proposed which enables businesses to deduct a percentage of their investments made from their payroll tax. This should come into effect as per 2021.
The work-related expenses budget has been increased in 2020 due to the Covid19 situation from 1.7% to 3% for the first € 400,000 of the total wages, and 1.2% for the excess. As of 2021, the expenses budget will be 1.7% for the first € 400,000 of the total wages and 1.18% for the excess.
Transfer tax – buying a house or other real estate
The transfer tax that you normally need to pay if you buy a house will be abolished if you are between 18 and 35 years old and if the house you buy will be your primary residence. The transfer tax rate for people who buy real estate which will not be used as their primary residence (for example with the purpose of renting this out) will go up from 6% to 8%. By taking these measures the Dutch government aims to make it easier for starters on the housing market. If you are in the market for buying a house, you can make use of these new rules by either delaying or bringing forward your purchase. The transfer date (date of the notary deed) is leading.