In our last newsletter we reported that the Tax Plan for 2018 included few major changes. That is not the case with The Rutte III Coalition Agreement, however, which announces the policy plans for 2018 and the years thereafter. The main priorities in the area of fiscal policy are to make work more profitable, tax pollution more heavily, tackle tax evasion and make the Netherlands more attractive to businesses developing real business activities that create jobs.

Rates

The tax rates paid by private individuals will be reduced over the next few years. It has also been proposed to introduce a two-band system of income tax from 2019. This will comprise a basic rate of 36.93% for an income of up to around €68,600 and a top rate of 49.5% on anything in excess of that. With this measure the Cabinet expects to reduce the tax burden by more than €6 billion.
To offset this from 2020 the tax deductible mortgage interest on an own home will gradually be reduced to 37% by 2024. It is not yet clear whether this limited deduction will also apply to other items (such as charitable giving, or purchasing/redeeming an annuity).

Tax credits

The maximum amounts for the general tax credit and the employed person's tax credit will be raised from 1 January 2019. The same applies to the single elderly person’s tax credit. However, the employed person's tax credit and the income-related combination tax credit will gradually be reduced for the partner earning the least, as is now already the case with the general tax credit.
Notional rental value of an owner-occupier property (eigenwoningforfait)

From 2020 the maximum rate at which deductions from income tax will be eligible will be gradually cut back until the basic tax rate of 36.93% is reached. There is also considerable discussion about whether or not the deduction for little or no debt on an own home should be abolished. This means that if you do not deduct any mortgage interest you also do not have to add the notional rental value. From 2019 this rule will gradually be phased out over a period of 30 years. Your benefit therefore will be smaller every year and will ultimately disappear entirely.

Increase in Box 2 tax rate

Together with the proposed rate reduction in corporation tax, the rate for income from holding a substantial interest (Box 2) will also be gradually raised. The Box 2 rate will be 27.3% in 2020 and even 28.5% in 2021. The combined corporation tax and Box 2 tax burden per year will therefore remain at around 40%. What this does mean however, is that the tax burden on all past profits will increase by 14%!

Box 3

The new Cabinet will, finally, put forward a proposal for an investment yield tax based on the actual return. Before this takes effect, however, the tax-free threshold has been raised to €30,000 in 2019 (€25,000 in 2017).

30% facility

The duration of the 30% facility for incoming staff from abroad will be cut from 8 to 5 years from 1 January 2019. It is not yet clear whether any transitional arrangements will be put in place for this.

The self-employed

Thankfully, the frequently announced Assessment of Employment Relationships (Deregulation) Act (DBA) will not be implemented and is to be replaced by new legislation. We will provide you with further details of this legislation and its impact in our next newsletter.

The WBSO scheme (remittance reduction for R&D)

It is likely that the remittance reduction percentages for the WBSO scheme (Promotion of Research and Development Act (WBSO)) will be reduced from 1 January 2018. This is because the WBSO budget was exceeded in 2016 which now has to be recouped. The WBSO is one of the most import tax incentive schemes for innovation. It enables companies to reduce their wage costs for R&D work, as well as other R&D-related costs and expenditure. It means that these companies pay less payroll tax, while the self-employed have a fixed deduction (R&D deduction).

The R&D remittance reduction was 32% of the total R&D costs and expenses (including wage costs) incurred in 2017 insofar as these amounted to less than €350,000 and 16% over anything more than that. The R&D deduction for business owners subject to income tax rules was €12,522 in 2017. For start-ups and independents the benefit is even slightly more that this.

Next year’s percentages for the R&D remittance reduction will most likely be reduced from 32% to 31%, and from 16% to 14%, respectively.