On Tuesday, September 18, 2018, better known as Prinsjesdag, Minister of Finance Hoekstra presented the Tax Plan for 2019. The Ministry for Finance has based these fiscal plans on 5 concrete goals: reducing the burden on workers, creating an attractive climate for setting up business, making the Netherlands greener, implementing satisfactory enforceability and the tackling of tax avoidance or evasion. You can read all about what these proposed changes could mean for you and/or your company here.
Double-bracket system box 1
The current Dutch income tax system in box 1 is based around 3 brackets. The cabinet wants to simplify this by making the transition to a double-bracket system, with a lower rate of 36.95 per cent and a higher rate of 49.5 per cent. However, the Dutch Tax Authorities are retaining the previous triple-bracket system for those entitled to the basic state AOW pension.
This transition will be made on a step-by-step basis and will be accompanied by a gradual change in tax rates. Specifically, the lower rate will increase from 36.65 per cent in 2019 to 37.05 in 2020. The higher rate, on the contrary, set at 38.10 per cent in 2019, will subsequently drop to 37.8 per cent in 2020 and to 37.05 per cent in 2021. The threshold will stay at € 20,384 throughout this period. This means that you will pay tax at the lower rate on income up to and including this amount. If your income exceeds this threshold, you will be taxed at the higher rate on the remainder of your income. This higher rate applies to income up to and including € 68,507. For taxable income over this threshold, a combined rate of 51.75 per cent will apply in 2019.
Rate increase box 2
As of 2020, the tax rate in box 2 will gradually increase. In 2019, as in 2018, the Tax Authorities intend to levy 25 per cent tax on profits from shares. That rate will see subsequent increases of 26.25 per cent in 2020 and 26.9 per cent in 2021. In order to lessen the pain, the government is planning less tax on profits for entrepreneurs who own more than 5 per cent of the shares in a company.
Economizing on loss carry forward box 2
In addition, the 2019 Tax Plan contains the proposal to shorten the loss carry forward period in box 2 from 9 to 6 years.
General tax credits
The cabinet is also proposing an increase in general tax credits. Consequently, in 2019, the maximum amount of tax credits available to those on incomes up to € 50,000 per year will go up by € 140. In 2020, this will rise by a further € 103. Yet another increase, in 2021, will see the total increase come to € 350. The cabinet is hoping that this will improve buying power.
A measure on rates pertaining to tax base-reducing items
Furthermore, Minister Hoekstra has also made it known that the cabinet wants to phase-out a number of tax base-reducing items. This is not a new proposal, but it is now being speeded up. As a result, as per January 1, 2020, there will be a lower maximum rate for deductible costs related to personal residences, and entrepreneur’s and personalised deductions. As for profit exemption for SME’s, the measure will, however, only apply when the total amount of joint profit, less the entrepreneur’s deduction, is positive. This is also the case for the Posting exemption when the combined result from activities is positive. By 2023, the lower rate for these items will drop to 36.95 per cent.
Decrease in notional ownership value
For private residences valued between € 75,000 and € 1,060,000, the notional ownership value percentage will decrease by .15 of a per cent between now and 2023. Similarly, the notional ownership value percentage for private residences with a value under € 75,000 will decrease on a step-by-step basis, albeit at a lower percentage. Finally, there is a decrease of .24 per cent for residences that come under the deployment scheme and that have a value up to € 1,060,000.
Adjustment to interest tax
In the 2019 Tax Plan, the cabinet is proposing no tax on interest for tax returns filed on time.
Transitional measure 30 per cent ruling
As previously reported, the duration of the 30 per cent ruling will henceforth reduce from 8 to 5 years. This change is not accompanied by a transitional measure. This five year period is thus not just applicable to new appointments from 2019, but also to existing transitional 30 per cent ruling.
Increase in volunteers’ scheme
When organisations wish to appoint volunteers, they do not have to deduct any tax or premiums on indemnification for that voluntary work. That is, nonetheless, only so if this indemnification remains under the set threshold. From 2019 on, this threshold will be increased to € 170 per month and € 1,700 per calendar year.
Increase in labour deduction
From 2019, Dutch tax payers with a yearly income between € 20,000 and € 60,000 will be entitled to an increase in the labour deduction.
Tax credits for foreign tax payers
The government views the inhabitants of the European Union, European Economic Area, BES islands and Switzerland as non-qualifying foreign tax payers. By EU law, these are entitled to a tax share of the labour and income-dependant combination deductions. This also applies to those foreign tax payers who run a company permanently established in the Netherlands. Although the Dutch Tax Authorities has already applied this entitlement, it will officially become law on January 1, 2019.
The rate for the first corporate income tax bracket applies to profits up to and including € 20,000. That rate will be 20 per cent in 2019 and decrease to 16 per cent by 2021. Profits in the second bracket will be gradually taxed less as well. By 2021, the corporate income tax rate for the second tax bracket will drop to 22.5 per cent. That is 1.25 per cent more than the cabinet stated last year.
Abolition of Dividend tax
It is no secret that the Rutte cabinet wants to abolish dividend withholding tax. Whether it happens or not has always been the question. Minister Hoekstra finally had his say on Prinsjesdag 2018: dividend withholding tax is indeed being abolished, but not before 2020. In this way, the Netherlands hopes to remain/become an attractive location for international companies to set up.
Introduction of withholding tax
The abolition of dividend withholding tax will go hand in hand with the introduction of specific withholding taxes. By levying withholding tax on dividends going to jurisdictions with low taxation rates, the governments wants to stop cash flows to tax havens. Additionally, withholding tax will also apply to constructions set up with tax avoidance in mind.
The Dutch VAT system, which contains 3 separate rates, will, from now on, have its lowest rate at 9 per cent instead of 6 per cent. This lower rate is applicable to shopping, as well as to certain services. Besides a small increase at the checkout, this will mainly have administrative consequences for entrepreneurs.
Extension of Dutch VAT-sports exemption
The VAT-sports exemption that the Netherlands has applied up to now will also be granted in the future to non-profit sports associations holding sports-related events for non-members.
The cabinet is also proposing to revise interest tax on inheritance tax interest. Interest tax would thus not be applicable to (current) inheritance tax assessments. That will, however, only be the case when the request to make a provisional and/or actual return is filed on time.
The Dutch government wants to take a more severe approach to environmental pollution by, amongst other things, levying a heavier tax on natural gas. More ecologically-aware tax payers, in contrast, will be rewarded. The cabinet is planning to impose less tax on electricity. Furthermore, landlords who renovate a residence for rental with a view to energy-saving will also benefit from a reduction in tax. Additionally, those going to work by bicycle benefit in the 2019 Tax Plan. The government has simplified the fiscal scheme through which it will be possible in the future to make use of company bicycles.
Do you still have questions about the 2018 Tax Plan or taxation in general? Then do not hesitate to contact us.