The government recently presented its plans for 2019. The economy is currently in excellent shape while employment has been growing in recent years. The present government is also in a better position financewise than the last government and they claim that this is reflected in the latest budget and proposed fiscal measures. This newsletter is devoted to the most notable tax legislation that has been proposed.  

 

Introduction of two-band tax system

A two-band system will gradually be introduced over the next few years, such that probably in 2021 there will be a basic rate of 37.05% plus a top rate of 49.5% on incomes in excess of €68,507.

In 2019 the box 1 rates will be as follows:

 

Taxable income from    To     Income tax    National insurance contribution rate   Total 
 -    € 20,384     9.00%    27.65%    36.65%
€ 20,384    € 34,300    10.45%    27.65%    38.10%
€ 34,300    € 68,507    38.10%    -    38.10%
€ 68,507    -    51.75%    -    51.75%

 

 

Increase in tax credits

The tax credits will gradually rise from 2019. The general tax credit, for example, will be about €365 more than it is now from 2021. The maximum general tax credit in 2019 will be €2,477.
The maximum employed person's tax credit will gradually rise with € 365 over the next few years up to 2021. The maximum employed person's tax credit in 2019 will be €3,399. 

 

Reduction in deductions

From 2019 deductions from income tax in the highest tax band will take place at a rate of 51.75%. From 2020 a large number of deductions will be further reduced.

 

 Year   Maximum deduction in the highest tax band 
 2019    51,75%
 2020    46%
 2021    43%
 2022    40%
 2023    37,05%

 

 The deduction limits will apply to:

  • Mortgage interest
  • Deduction of maintenance obligations (alimony)
  • Deduction of certain medical expenses
  • Deduction of weekend expenses for the disabled
  • Deduction of training and education costs
  • Deduction of listed building expenses
  • Deduction of donations 
  • Entrepreneurs deduction (including self-employed person’s deduction, new business deduction, business discontinuation deduction, etc.)
  • SME profit exemption
  • Business use exemption

 

 

VAT rate to rise

The lower VAT rate of 6% will be raised to 9% from 1 January 2019. The rate of 9% is applicable on food, non-alcoholic beverages and entrance fees of museums, theatre- and music performances.

 

Sports exemption

The VAT exemption for sports facilities will be widened. This could have adverse consequences for those letting sports facilities because they will no longer be entitled to reclaim the VAT paid. A subsidy scheme for amateur sports clubs will be introduced to help offset this. Sports clubs that are not affected by the VAT change can also benefit from this exemption.

 

Simplification of the small business scheme

From 1 January 2020 the small business scheme (KOR) will change for VAT purposes. If a business-owner based in the Netherlands expects an annual turnover of less than €20,000, he or she may be eligible for exemption from VAT. This exemption may be applied for from 1 June 2019. It the exemption is granted it may be that VAT deducted in the past has to be repaid. The exemption is open not only to sole proprietors but also B.V.s (private limited liability companies under Dutch law), foundations and societies.

 

Reduction in corporation tax rates

The rate for corporation tax will be gradually reduced to 16% in the first band (profits of up to €200,000) and 22.25% in the second band (profits in excess of €200,000) in 2021.

 

Year

 

Taxable amount

 

Rate

 

Taxable amount

 

Rate

2018

 

€ 0 - € 200,000

 

20.0%

 

€ 200,000 and more

 

25.0%

2019

 

€ 0 - € 200,000

 

19.0%

 

€ 200,000 and more

 

24.3%

2020

 

€ 0 - € 200,000

 

17.5%

 

€ 200,000 and more

 

23.9%

2021

 

€ 0 - € 200,000

 

16.0%

 

€ 200,000 and more

 

22.25%

 

Increase in box 2 tax rates

In contrast to the reduction in the rates for corporation tax, box 2 rates will rise. This increase will be implemented in steps:

 

Year

 

Rate

2018

 

25%

2019

 

25%

2020

 

26.25%

2021

 

26.9%

 

Company bicycle

From 2020 there will be a new tax scheme for company bicycles. Further details of this scheme are provided in a separate item on our website.

 

Restriction of loss set-off in corporation tax and box 2 income tax

The loss carry-forward will be cut from 1 January 2019 from nine to six years. The loss carry-back remains one year. From the 2019 tax year losses can be offset against taxable profit up until 2025.

 

Abolition of dividend withholding tax

Dividend tax will be abolished from 2020. There has been a lot of controversy surrounding this proposal but the government has nevertheless decided to push forward with it.
From this date Dutch companies can pay their dividend to every shareholder untaxed.

 

Depreciation of buildings

From 1 January 2019 the depreciation of buildings will be capped for the purposes of corporation tax. Private limited companies (B.V.s) may depreciate the buildings they use up to an amount of 100% of the WOZ value (WOZ: Valuation of Immovable Property Act). Up until 2019 this was 50% of the WOZ value.

 

Change in the 30% facility

The 30% facility for expats (incoming personnel) means that the employer can pay 30% of the employee's salary as a tax-free allowance. The period during which, under certain conditions, expats and incoming personnel will be eligible for this allowance will be reduced from eight to five years. Surprising to note is that this new period also applies to employees who are already making use of the 30% facility. Should this be the case in your organisation then we would like to draw your attention to the separate item on our website.

 

Untaxed remuneration for volunteers

Under certain conditions volunteers could be paid a tax-free sum of up to €150 per month and €1,500 per calendar year in 2018. These amounts will be raised to €170 and €1,700 from 1 January 2019. 

 

Tax levy on high current-account debt of Director/Major Shareholder (DGA)

The government wants to discourage DGAs from maintaining high levels of debt through their own private limited companies (B.V.). A debt of more than €500,000 owed by a DGA to his or her own B.V. might be taxed in box 2. It is not entirely clear whether this rule would apply only to current-account debts or to other debts as well. Previously existing own home debt would appear to be exempted. It is likely that this envisaged step will be worked out in more detail in the Tax Plan 2020.

 

The next step?

The proposed changes to the legislation still have to be approved by the Lower and Upper Houses of Parliament. Only in mid-December will it become clear which measures will be enacted in legislation. We will follow developments closely and, of course, keep you informed!

 

 HBK September 2018