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.

Corporation tax

To make the Netherlands more attractive to foreign businesses the corporation tax rates will gradually be reduced as follows:

Year Profit up to €200,000 Above that
2018 20% 25%
2019 19% 24%
2020 17.5% 22.5%
2021 16% 21%

The previously announced extension of the first tax band will now not take place. In view of the gradual reduction in corporation tax rates it may be beneficial for your private limited company (B.V.) to bring tax deductible items forward.

Dividend tax

The intention is to abolish dividend tax from 1 January 2020. If you are a director/major shareholder (DMS) this will not have much effect given that the dividend tax is only a levy in advance of the Box 2 levy. The amount that the B.V. previously paid as dividend tax, from now on you will pay with the increased Box 2 levy. Remember to increase your provisional income tax assessment in time when making a dividend payment, particularly in view of the high interest rates charged by the tax authorities!

Depreciation of buildings for your own use

At the moment up to 50% of the WOZ value (value for the purpose of the Valuation of Immovable Property Act (WOZ)) may be depreciated on buildings bought for your own use. In 2019 this will be set at 100% of the WOZ value for private limited companies (B.V.s). Remember to take this into account if you are intending to buy a business property for your own use. The restriction means that a property for own use will become more costly relative to a rented building. The depreciation rules for business owners subject to income tax rules remain unchanged for the time being.

Interest deduction limit

The Corporation Tax Act includes various limits on interest deduction. The legislature introduced these to prevent the tax base from being eroded. A proposal to further tighten up the interest deduction is included in the Tax Plan 2018.
In principle, a B.V. cannot deduct interest on a loan entered into with an 'associated body' - a group company - in order to finance a ‘contaminated’ legal act (from the tax perspective). For example, to acquire at least a third share in another B.V. This restriction on interest deduction can be avoided by demonstrating that both obtaining the loan as well as the legal act concerned were largely (i.e. more than 50%) based on business considerations. This is referred to as the ‘double business motive test’.

A Supreme Court judgement recently stated that this rebuttal is provided where a loan is legally entered into with an associated body which is actually owed to a third party. This was not the judgment that the Ministry of Finance was hoping for. The wording of the legislation will now specifically state that from 1 January 2018 the business motives for taking the loan and the legal act must be demonstrated, even in such a situation.

Innovation Box

Profit which is earned through innovative activities is taxed at the moment by applying the innovation Box at a corporation tax rate of effectively 5%. From 2018 this rate will rise to 7%.

Offset of losses

In principle, losses from previous years can be offset against positive taxable profits in later years for a period of 9 years (loss carry-forward). It is proposed that the 9-year period should be reduced to 6 years for corporation tax purposes. It is not yet clear when this limitation will be introduced or whether any transitional arrangements will be put in place. Based on the plans it appears that the rules on offsetting of losses will remain unchanged for business owners subject to income tax rules.

Turnover tax and excise duties

As you will undoubtedly have heard already: the low VAT rate is expected to rise from 6% to 9% from 1 January 2019. The low rate applies to medicines, foodstuffs and books, among other things. The duty on tobacco will also increase from 2018.