21 sep Key measures of the 2019 Tax Plan
On Budget Day (‘Prinsjesdag’), 18 September 2018, the Dutch government presented its Tax Plan 2019. In this special update we highlight the key measures of the tax plan. The measures will enter into force on 1 January 2019, unless stated otherwise.
Personal income tax and Wage tax
- Reducing box 1 tax rates
Income from work (box 1) is currently taxed progressively in four tax brackets. A two bracket system will be gradually introduced, with a basic rate of 37.05% and a top rate of 49.5% for income in excess of EUR 68,507 in 2021. The first step will be made in 2019 by reducing the tax rates in the second and third brackets.
- Increasing box 2 tax rate
The box 2 rate is to be increased from 25% to 26.25% in 2020 and to 26.9% in 2021.
- Limitation of loss carry-forward in box 2
The carry-forward period of losses in box 2 is to be reduced from nine to six years. The loss carry-back period remains one year. Losses incurred before 2019 can still be carried forward for nine years.
- Shortening maximum period of 30% ruling
The 30% ruling is a form of tax relief for employees coming to the Netherlands who are recruited from abroad and who possess specific expertise that is not present or scarce in the Dutch labour market. The maximum period of the 30% ruling is to be reduced from eight to five years. This also applies to employees who already make use of the 30% ruling.
Corporate income tax
- Reducing corporate income tax rates
The corporate income tax rates will be reduced three annual stages. The normal rate will be reduced from 25% to 24.3% in 2019; to 23.9% in 2020 and 22.25% in 2021. The lower rate for taxable profits up to EUR 200,000 will be reduced from 20% to 19% in 2019; to 17.5% in 2020 and 16% in 2021.
- Continuing investment allowances
The possibility to obtain tax relief through the Energy Investment Allowance scheme (EIA), the Arbitrary Depreciation of Environmental Investments (VAMIL) and the Environmental Investment Credit (MIA) will be continued for five years. However, the allowance rate of the EIA will be decreased from 54.5% to 45%.
- Limitation of depreciation on buildings
For corporate income tax purposes, the depreciation on buildings for own use will be limited to 100% of the building’s ‘WOZ value’. This used to be 50% of the ‘WOZ value’.
- Limitation of loss carry-forward
The loss carry-forward in the corporate income tax is to be reduced from nine to six years. The loss carry-back period remains one year. Losses incurred before 2019 can still be carried forward for nine years.
- Discontinuing restrictions on the set off of holding company losses
The setting off of losses of so-called ‘holding and financing companies’ is currently limited. This restriction is to be terminated. The restriction will remain for holding company losses incurred before 2019.
- New generic interest deduction limitation: earning stripping rule (ATAD1)
A new generic interest deduction limitation will be introduced: the earnings stripping rule. The earnings stripping rule makes excess interest expenses (the balance of interest expenses and interest income) deductible only to 30% of the EBITDA. A tax-free allowance applies of EUR 1,000,000. Excess interest expenses can be carried forward in time without limitation.
- Discontinuing specific interest deduction limitations
The specific interest deduction limitations for acquisition holding companies and on excessive participation interest are to be discontinued. This is linked to the introduction of the earnings stripping rule (see above). However, the interest deduction limitation regarding ‘base erosion’ will be continued.
- CFC rule (ATAD1)
A new rule for ‘controlled foreign companies’ (CFC) will be introduced. The CFC rule will apply for Dutch based companies who have an interest of more than 50% in a low-taxed subsidiary or permanent establishment. Certain income components of the CFC will then be attributed to the profit of the Dutch company.
- Exit tax (ATAD1)
When a Dutch based company transfers assets or its tax residence to another country, an exit tax will be imposed. The company has the choice of an immediate payment of this exit tax or a payment in five equal annual instalments. Currently, the payment period is ten years.
- Introducing new withholding tax on dividends, interest and royalties
The current withholding tax on dividends is to be discontinued from 2020. It will be replaced with a conditional withholding tax on dividends, interest and royalty payments to affiliated entities established in low-tax jurisdictions and in tax abuse situations. This measure will be introduced in two steps: first for dividends in 2020 and then for interest and royalty payments in 2021. The withholding tax rate will be set at the highest corporate income tax rate (23.9% in 2020 and 22.25% in 2021).
Value added tax (VAT)
- Increasing reduced VAT rate
The reduced VAT rate is to be increased from 6% to 9%. The reduced VAT rate applies to certain specific goods and services, such as food, water, medicines and books. The 6% rate continues to apply if an advance payment is received before 1 January 2019.
- New VAT E-commerce rules
Businesses that supply digital services to consumers (B2C) in other Member States for less than EUR 10,000 per year will be able to charge their home country’s VAT. Under the current rules, such digital services are subject to VAT in the consumer’s state of residence.
Feel free to contact us, if you need an accountant or tax advisor in the Netherlands or abroad, via Mark-Jan van der Weerden, tax partner, reachable on +31 (0)40 240 9473 or mail email@example.com. We are happy to help you, even outside your borders!