On 18 September 2018, the Dutch government released its Budget 2019 containing the Tax Plan for 2019, which includes some significant amendments to Dutch tax laws.
The basis of the Tax Plan was laid down in the newly elected government's coalition agreement of October 2017, whereby parties agreed to a comprehensive tax reform in the coming years.
The Tax Plan 2019 contains several important measures that significantly affect Dutch tax legislation. It aims to implement stricter rules, amongst others imposed by EU legislation, yet at the same time maintain a competitive business climate. As a next step, the measures announced yesterday will be discussed in Parliament in the coming weeks and, when approved, new laws will be implemented effective 1 January 2019 (unless otherwise indicated). In this Alert we summarize the most important measures.
Corporate Income Tax - EU Anti Tax Avoidance Directive
This legislative proposal intends to transpose the EU Anti Tax Avoidance Directive I (EU 2016/1164), hereafter “ATAD” into Dutch tax law. Most notably, the legislative proposal implements a general Earnings Stripping Rule and a Controlled Foreign Company rule, both of which apply to fiscal years commencing on or after 1 January 2019. See below under "Read more" for further details.
The current legislative proposal does not contain the introduction of anti-abuse rules targeting hybrid mismatches. Instead, it is indicated that a public internet consultation will be launched in the next months soliciting input on draft legislation for the implementation of these "anti hybrid rules". These rules will seek to neutralize the effect of hybrid mismatches that are due to differences in the qualification of tax systems, where at least one of the parties involved is a corporate taxpayer resident in the EU. These measures are expected to be implemented by 1 January 2020.
With regard to the exit tax provision in the ATAD, the legislative proposal includes limited changes. Existing provisions will be updated to allow for a payment in installments of the exit tax imposed on (i) the migration of Dutch tax resident companies, (ii) the transfer of PEs and (iii) the transfer of Dutch PE assets to a foreign head office.
The implementation of the General Anti Abuse Rule as contained in the ATAD was not considered necessary, as this rule largely overlaps with the existing Dutch concept of fraus legis.
The Dutch Dividend Withholding Tax Act will generally be abolished as of 1 January 2020. Simultaneously, a new Withholding Tax Act ("WTA") will be introduced. This new WTA shows similarities to the current Dividend Withholding Tax Act, although its scope is notably narrower. Most importantly, only dividend payments made to group companies that are tax resident of EU blacklisted jurisdictions and very low-tax jurisdictions (<7%) are under circumstances subject to this new withholding tax at a rate of 23.9% in 2020 (to be reduced to 22.25% in 2021).
The previously announced proposal to introduce a withholding tax on intragroup interest and royalty payments to low-tax jurisdictions and EU blacklisted jurisdictions as per 2021 is expected to be published in the course of 2019. In the explanatory notes pertaining to the WTA, it has been noted that the rates will be the same as the WTA rate.
Other relevant aspects
Other relevant aspects in the 2019 Budget include:
- Reduction of the period for carry forward losses
- Reduction of the corporate income tax rate
- Abolishment of the restriction for holding and financing losses
- Fiscal investment institutions no longer allowed to directly invest in Dutch real estate
- Restrictions to tax depreciation of buildings in own use
- Environmental taxes & Incentives
- Additional Tier 1 capital instruments (AT1 / CoCo bonds)
- Announced further measures against tax avoidance
Personal Income Tax
The proposed income tax measures aim to reduce the tax burden on labour as well as to increase the purchasing power. Most importantly, a two-brackets system will apply to "income from work and dwelling" with effect from 2021, and the tax rate for income from substantial shareholdings will gradually increase. Also, with effect from January 2019, the application period of the 30% ruling for expats will be reduced to 5 years.
As of 2019, the lowest VAT rate will be increased from 6% to 9%. Additionally, the scope of the VAT sports exemption will be extended and the small businesses scheme will be revised.
The most important changes in the procedural tax law concern the chargeability of tax interest, the strengthening of collection measures and the definition of tax offenders.
Join our Breakfast Meeting or contact us for more information
On 25 September 2018 we will be hosting a Breakfast Meeting in which we will address the Tax Plan 2019 in further detail, with ample opportunity for questions and discussion. If you wish to attend this breakfast meeting, please register via the below link: