On 17 September 2019, the Dutch government released the Tax Plan for 2020, which includes quite a few significant amendments to Dutch tax laws.
In general, the aim of the tax proposals is to maintain a competitive business climate, while at the same time combatting tax abuse and aligning Dutch tax rules with EU case law and EU Directives. As a next step, the measures announced today will be discussed in Parliament in the coming weeks and, when approved, most of the new rules will be implemented effective 1 January 2020 (unless indicated otherwise). In this Alert we summarize the most important tax proposals.
For the sake of completeness we note that we expect additional tax proposals over the next months. The Tax Plan 2020 for instance mentions that the Dutch liquidation loss regime will be amended effective 1 January 2021. Furthermore, we have recently seen legislative proposals for the implementation of ATAD 2 and the EU Mandatory Disclosure Directive (also known as “DAC6”), which are also set to enter into effect as of 1 January 2020.
We are very happy to share with you in this alert our detailed summary of the proposals in across various areas of the Netherlands tax landscape, and we would be very happy to further discuss any of the proposed changes with you.
Corporate income tax rate cuts - rate still going down but less than previously announced
The Dutch corporate income tax rate for profits that exceed EUR 200,000 will remain 25% in 2020, but this rate will be reduced to 21.7% as of 2021. We note that this is higher than the 20.5% that was announced for 2021 and onwards under the Tax Plan 2019.
Conditional withholding tax on interest and royalties
The Netherlands looks to discourage tax avoidance by introducing a new withholding tax on interest and royalties as of January 1, 2021. The new Withholding Tax Act is applicable to interest and royalty payments made by a Dutch company to a related company if that related company is located in an identified low-taxed jurisdiction, or in a blacklisted jurisdiction. At 21.7%, the proposed withholding tax rate is the same as the Dutch corporate income tax rate applicable to the highest bracket as of 2021.
EU case law infringes multiple safe harbor rules
Three safe harbor rules embedded in anti-abuse rules in both the Dividend Withholding Tax Act and the Corporate Income Tax Act will no longer function as a safe harbor rule. This amendment is prompted by recent EU case law, pursuant to which safe harbor rules do not sufficiently rule out the possibility that tax benefits are granted in abusive cases. Under the proposed amendments, complying with the prescribed substance requirements will no longer guarantee that anti-abuse rules will not apply. Instead, the Dutch Tax Authorities will now be given the opportunity to demonstrate that a particular structure or transaction is abusive even if the substance requirements are satisfied.
Other relevant proposals
Other relevant proposals included the Tax Plan 2020 include:
- Procedural changes to the earning stripping rule
- Amendments to the Netherlands definition of a 'permanent establishment'
- Introduction of an interest deductibility limitation (minimum capital) for banks and insurance companies
- Increase of real estate transfer tax rate for the acquisition of non-residential property will from 6% to 7%
- Amendments to the Tonnage tax regime
- Amendments to the R&D wage tax reduction / innovation box regime – slight rate increase
- Increased substance requirements for Financial Service Companies
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, the two-brackets system announced last year will be accelerated and certain tax credits and levy rebates will go up, while the self-employed person’s allowance will go down. Also, it was announced that a tax bill enabling taxpayers with savings up to approximately EUR 440,000 to not be subject to any box 3 income tax, will be submitted to the Dutch Lower House before the summer of 2020.
Relevant personal income tax measures in the Tax Plan 2020 include:
- Tax rates and credits
- Levy rebate and self-employed person’s allowance
- Cancelation education facility
- No voluntary disclosure for box 2 and box 3 income
- Continuation of the transitional rules for hybrid annuities predating 2001
- Box 3 taxation of savings
A number of Dutch wage tax measures has been proposed, some of which had already been published before. Positive ones for employer and employee are the increase in the so-called ‘free space’ under the Dutch work cost scheme for the total taxable wages up to EUR 400,000, and the continuation (in a limited form) of the tax incentive for environmentally friendly automobiles such as electric cars up to 2026. On the downside however, among other things, the reimbursement and / or provision of administrative penalties, amounts for penal orders and comparable foreign penalties, will mandatorily be considered taxable wages going forward, subject to wage tax payable by the employee.
Other relevant wage tax measures in the 2020 Budget include:
- Free space for Work Costs Scheme
- Work costs scheme items`
- Addition to income for environmentally friendly cars
- Insurance tax exemption for self-insurers
- Indexing the volunteer scheme
- No final levy for administrative penalties
- Definition permanent establishment
- Amended treatment of share options for startups
Reduced VAT rate e-publications
As of 2020, the reduced VAT rate (9%) will be introduced to the supply of e-publications (such as e-books, journals and periodicals) and granting access to news websites.
Quick fixes for intra-Community trade
Awaiting the introduction of a definitive VAT regime for the intra-Community trade in goods, the EU member states agreed on addressing the most urgent bottlenecks in the current regime. As of 2020, three of these so called 'quick fixes' will be implemented into the Dutch VAT Act. A valid and correct VAT identification number will be set as an absolute condition for the zero rate, a harmonised EU regime for call-off stock will be introduced and rules are set for the treatment of intra-Community chain transactions.
Procedural tax law
The most important changes in procedural tax law concern a further restriction of the voluntary disclosure scheme, the publication of negligence penalties to legal service providers (i.e. naming and shaming), a measure to limit tax interest for corporate income and inheritance tax purposes and legal correction and sanctioning powers of the Dutch Tax Authorities with regard to spontaneous tax returns (spontane aangiftes).
Join our Breakfast Meeting or contact us for more information
On September 26, 2019 we will be hosting a Breakfast Meeting in which we will address the Tax Plan 2020 in further detail, with ample opportunity for questions and discussion. If you wish to attend this breakfast meeting, please register via the below link: