This is a Thought Leadership Article by PrimeGlobal firm Joanknecht which looks at the key measures of the Dutch government's Tax Plan for 2020.
On Budget Day (‘Prinsjesdag’), September 17th, 2019, the Dutch government presented its Tax Plan 2020. In this special update we highlight the key measures of the tax plan. The measures will enter into force on January 1st, 2020, unless stated otherwise.
Personal income tax
1. Reducing box 1 tax rates
Income from work (box 1) is currently taxed progressively in four tax brackets. A two-bracket system will be introduced, with a basic rate of 37.35% and a top rate of 49.5% for income in excess of EUR 68,507 in 2020.
2. Increasing box 2 tax rate
The box 2 rate is to be increased from 25% to 26.25% in 2020 and to 26.9% in 2021. This measure was already part of the Tax Plan 2019.
Corporate income tax
3. Changing corporate income tax rates
The corporate income tax rate for taxable profits above EUR 200,000 remains 25% in 2020, despite the announcement last year to reduce this rate to 22,55% in 2020. As of 2021 the top rate is going to be reduced, but only to 21.7% instead of to 20.5%.
The low tax rate for the first EUR 200,000 will be reduced to 16.5% in 2020 and to 15% in 2021. This measure was already part of the Tax Plan 2019.
4. Increasing effective tax rate Innovation Box
The effective tax rate of the Innovation Box will be increased from 7% to 9% in 2021.
5. Limitation of deductibility of liquidation losses
The deductibility of liquidation losses will be limited as of 2021. A deduction will only be permitted for participations of more than 25% (material restriction) in companies established in EU/EEA countries (territorial restriction). In non-EU/EEA situations and for participations of 5% up to 25%, the deduction of a liquidation loss will be limited to a maximum amount of EUR 1 million. Furthermore, the liquidation loss can only be considered if the settlement of the participation is completed within three years after cessation (temporal restriction).
Similar measures also apply with regards to the cessation of a permanent establishment.
6. Definition of permanent establishment
A uniform definition of a permanent establishment will be introduced in the Dutch tax law. In case a double tax treaty is applicable, the permanent establishment definition of that tax treaty will apply for domestic tax purposes. For non-tax treaty situations, the definition is in accordance with the OECD Model Tax Convention 2017.
The definition applies to corporate income tax, personal income tax and wage tax.
7. Change of substance in the substantial interest rule
The substantial interest rule in the corporate income tax act will be amended. The current substance criteria will no longer act as a ‘safe harbour’ for foreign companies with a substantial interest in a Dutch company. In case of tax abuse, the tax inspector can levy corporate income tax on dividend and capital gains.
8. New withholding tax on interest and royalties
A new conditional withholding tax is introduced on outbound interest and royalty payments to affiliated entities established in low-tax jurisdictions and in tax abuse situations. The law will enter into force on 1 January 2021. The withholding tax rate will be set at the highest corporate income tax rate (2021: 21.7%).
9. Change of the anti-abuse provision
The anti-abuse provision in the dividend withholding tax will be amended. The current substance criteria will no longer act as a ‘safe harbour’. In case of tax abuse, the tax inspector can levy withholding tax on dividend.
A similar anti-abuse provision will be introduced for the new withholding tax on interest and royalty payments.
Value added tax (VAT)
10. ‘Quick fixes’ EU-trade
The EU-Directive 2018/1910, also known as the ‘Quick fixes’, will be implemented in the Dutch VAT Act. The quick fixes concern the following four changes:
· Harmonisation rules for call-off stock;
· Uniform rules to simplify chain transactions;
· Mandatory VAT identification number for application zero VAT rate;
· Simplified proof of intra-Community supplies.
Real Estate Transfer Tax
11. Increasing tax rate for non-residential real estate
The standard tax rate for the acquisition of Dutch non-residential real estate will be increase from 6% to 7% in 2021. The reduced tax rate of 2% for residential real estate will not be amended.
12. Public register of fraudulent (tax) professionals
The tax authorities is going to publish the negligence penalties imposed on (tax) professionals who deliberately submitted wrong tax returns or facilitated tax evasion. This measure is not limited to tax consultants, but also applies to other professionals, such as accountants, lawyers and notaries. Information about the professional and the imposed penalties will be published on the website of the tax authorities. This information is publicly available for a period of 5 years.
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