Update to Dutch Tax Plan 2019
On Budget Day, the Dutch government presented its Tax Plan 2019 (a link to Intaxify’s Newsletter on this topic can be found here).
Part of the Tax Plan was reconsidered and the State Secretary of Finance issued a letter on 15 October 2018 with the outcome of these reconsiderations (the letter can be found here). Intaxify lists the key changes now proposed.
1. No abolishment of dividend tax
In the Tax Plan 2019, it was proposed to abolish the “general” dividend withholding tax and replace this with a conditional withholding tax targeting low-taxed structures. It has however now been decided to maintain the dividend withholding tax in its current form.
The implementation of the conditional withholding tax will be postponed as there may be overlap between the current dividend tax and the newly proposed one. The proposals whereby withholding taxes will be introduced on interest and royalties in low-taxed structured will however be maintained (and remain planned to be implemented as per 2021) as they show no overlap with the dividend withholding taxes.
The additional budget that now remains available as a result of maintaining this withholding tax will be used to strengthen the Dutch business climate with the below mentioned measures.
2. Additional reduction corporate tax rates
In the Tax Plan 2019, it was proposed to gradually reduce the general corporate tax rate from 25% to 22,25% (rate per 2021). It has now been proposed to reduce the rate to 20,5% as per 2021. The gradual reduction of the rates will however be postponed for one year, so the 25% rate will remain applicable during 2019 (instead of the 24,3% as proposed in the initial Tax Plan).
The lower bracket rate (applicable to profits up to EUR 200,000) will also further reduce: as per 2021, the rate will be 15% (instead of 16% as proposed in the initial Tax Plan).
3. Transitional rules for depreciation limits on real estate
In the Tax Plan 2019, it was proposed to increase the depreciation limit on real estate from 50% of the WOZ value to 100% of the WOZ value. Transitional rules are now proposed for taxpayers that recently invested in properties (i.e. properties that have been depreciated for less than three years). Under these rules, taxpayers may continue to depreciate their property under the current rules (limit of 50% of the WOZ value) until they completed three years of depreciation.
4. Update to fiscal unity regime following ECJ case law
Following ECJ case law, the Dutch fiscal unity regime was found incompatible with EU law and therefore legislative changes were needed. In the pending legislative proposal on this topic, it was announced that these measures would have retrospective effect to 25 October 2017. In the update to the Tax Plan, it has now been announced that the measures will only have retrospective to 1 January 2018. This measure was included to avoid that taxpayers face issues with their 2017 corporate tax returns as the measures have not been implemented yet.
5. Transitional measures on the 30% ruling for expats
In the Tax Plan 2019, it was proposed to reduce the eight year duration of 30% rulings for expats to five years, while no transitional measures were included. In the update to the Tax Plan, such measures are now proposed for expats whose ruling would otherwise end in 2019 or 2020.
6. Current account measure for substantial shareholders
For substantial shareholders with a current account of more than EUR 500,000 with their company, a new measure was proposed during Budget Day 2018. To discourage excessive current account positions, substantial shareholders with a debt of more than EUR 500,000 to their company will be taxed for the surplus under the tax regime for substantial shareholders (“box 2”). This measure is planned to become effective as per 2022. Some transitional measures for the financing of certain assets (such as the private residence of the shareholder) were however included.
In the update to the Tax Plan, some further transitional measures are proposed. In addition to excluding existing debts used to finance the private residence of the shareholder, also new debts used for the same purpose may be excluded.
7. Dismissal of investment restrictions for FBI’s in real estate
In the Tax Plan 2019, it was proposed that FBI’s would no longer be allowed to invest directly in Dutch real estate as per 2020. This measure corresponded with the abolishment of the Dutch dividend tax. However, since the abolishment of dividend tax was dismissed, the investment restriction could be dismissed as well. This therefore means that FBI’s remain available for direct investments in Dutch real estate.