20 Dec Rutte III Coalition Agreement: reforming the tax system
We would like to inform you about the tax measures announced in the Coalition Agreement for the Rutte III Cabinet. The Coalition Agreement contains many proposals that have an impact on the business owner / director and major shareholder (DMS). Due to the large volume of new policies that have been announced we have only included a selection of the most salient of these proposals in this newsletter. The planned implementation periods for the relevant proposals are stated in so far as is known.
In broad terms, with regard to CT it has been decided on the one hand to reduce the tax rates and, on the other hand to broaden the tax basis (the amount on which tax is paid).
• Between 2019 and 2021, the CT rate will be gradually reduced from 20% to 16% for the first band and from 25% to 21% for the second band. The previously announced lowering of the first band from € 200,000 to € 350,000 has been scrapped. The threshold for the first band will therefore be € 200,000, even after 2017;
• In 2019 a generic interest deduction restriction (‘earnings stripping measure’) will be introduced with a threshold of € 1 million in interest and no ‘group escape’. A few existing, specific interest deduction restrictions are being abolished.
• The period for carrying forward losses will be reduced from a maximum of nine years to a maximum of six years.
• From 2019, the depreciation for a building in own use will be limited to a maximum of 100% of the WOZ value – Valuation of Immovable Property Act value – for enterprises subject to CT (this was 50% of the WOZ value).
• The effective tax rate for the innovation box will be increased from 5% to 7% from 2018.
• Fiscal investment institutions will no longer be permitted to invest directly in real estate.
The proposals for IT have arisen for the most part from the decision on the one hand to reduce the tax on labour and on the other hand to increase the VAT on consumption and the environmental taxes.
• From 2019 a dual band system will be introduced for Box 1, with a basic rate of 36.93% and a top rate of 49.50% (from € 68,507 upwards).
• From 2020 the mortgage interest relief will be phased out in four steps of 3% to the basic rate of 36.93%. In addition, the relief due to no or very little mortgage debt will be gradually abolished and the notional rental value will be reduced.
• In connection with the introduction of the dual band system, other allowable deductions in Box 1 will also be phased out, including the self-employed persons’ relief. It is still unclear how this phasing out will actually be implemented.
• Due to the reduction in the CT rate, the Box 2 rate will be increased to 27.40% in 2020 and to 28.50% from 2021. This means that the cumulative (total) CT and IT charge will remain largely the same as in 2016.
• The notional Box 3 return is being amended. The saving element will be based on more recent figures which means that the notional return will be more up to date (looking at one-and-a-half years to six months back rather than using a five-year average). In addition, the tax-free allowance will be increased to € 30,000 per person and the Cabinet has indicated that it will be further considering an investment yield tax based on actual return.
Finally, we would also like to draw your attention to the following proposals.
• In 2019 the low VAT rate will be increased from 6% to 9%.
• Dividend tax will be abolished in 2019. There will be a withholding tax on dividends, interest and royalties to low tax jurisdictions.
• The Assessment of Employment Relationships (Deregulation) Act (Wet DBA) is being replaced by new legislation. After the introduction of the new legislation the current enforcement moratorium will be phased out.
• The current Customary Salary Scheme (for directors and major shareholders) is to be evaluated and amended when necessary.
• The duration of the 30% rule will be reduced from eight to five years.