Our annual shipping update summarises the most relevant Netherlands and international tax developments during the past year. This edition of the update provides you with a brief overview of relevant corporate tax, value added tax, wage tax, social security and labour law developments in the Netherlands. It also highlights some relevant EU developments for the shipping sector.
1. Corporate tax
1.1 No general exception to the EU/EEA flag requirement in 2019
One of the conditions for applying the Dutch tonnage tax regime to a vessel that is owned, co-owned or held in bareboat charter is that the vessel flies an EU/EEA flag. A general exception to this flag requirement applies if it has been determined by ministerial regulation that the percentage of net tonnage of self-owned vessels that qualify for the tonnage tax regime and that fly an EU/EEA flag with respect to the total net tonnage of vessels qualifying for the tonnage tax regime in a certain period has not decreased compared to the previous period1. The general exception did not apply in 2016 - 2018 and does also not apply in 2019. This means that vessels added to the fleet during this calendar year have to fly an EU/EEA flag in order to fall within the scope of the tonnage tax regime, unless the taxpayer can invoke one of the other two exceptions to the EU/EEA flag requirement (i.e. the `non-decrease test' or the `60% test'). For vessels that do not fly an EU/EEA flag and that have been added to the fleet during a year in which the general exception applied, the general exception still applies. Since the introduction of the flag requirement in 2006, the general exception to the flag requirement applied for the years 2006, 2007, 2008, 2012, 2014 and 2015. For more information regarding the Dutch tonnage tax regime and the EU/EEA flag requirement, please refer to our Ship Finance in the Netherlands booklet.
1 Please note that the exceptions do not apply to tugs and dredgers.
1.2 Impact Brexit on application of the tonnage tax regime
The Dutch State Secretary of Finance confirmed that in case there is a `no deal' Brexit, the UK and Gibraltar flag will still be considered an EU/EEA flag until the end of the book year 2019. After this period, the UK and Gibraltar flag will most likely no longer be considered an EU/EEA flag. This may have adverse consequences for the application of the tonnage tax regime. This is because the EU/EEA flag ratio of a tax payer's fleet is relevant when determining whether a non EU/EEA flagged vessel that is added to the fleet can benefit from the tonnage tax regime.
1.3 CIT rates 2019 2021
As part of the coalition plans of the Dutch government, the Dutch corporate income tax rate ("CIT rate") will be reduced as follows:
Taxable amount EUR 200,000 > EUR 200,000
2019 19 % 25 %
2020 16,50 % 22,55 %
1.4 Emergency repair measures in the fiscal unity regime
2021 15 % 20,50 %
One of the provisions that is included in the so called "fiscal unity emergency repair measures" is the Dutch participation exemption for low-tax portfolio investment subsidiaries (article 13, paragraph 9 to 15 CITA). This provision lead to a lot of uncertainty for ship owners that make use of the Dutch fiscal unity regime as it was feared that this provision would have severe adverse tax consequences for them (taxation of dividends and capital gains realized within a Dutch fiscal unity). On 2 November 2018, the Dutch government published additional explanations regarding the legislative proposal to implement emergency repair measures in Dutch tax law, however, from which it turns out that this fear was unjust. The legislative proposal for implementing the emergency repair measures has been adopted by the Dutch Lower House on 12 February 2019. For more information on the emergency repair measures in the fiscal unity regime, please refer to our Year End Tax Bulletin 2018.
1.5 Case law
1.5.1 No reliance on tonnage tax decision The Dutch Supreme Court ruled on 9 November 2018 that a tax payer that has been granted a tonnage tax decision cannot assume that the Dutch tonnage tax regime actually applies. This depends on the actual activities of the tax payer. The tonnage tax decision only prescribes that `profit from shipping' (`winst uit zeescheepvaart') has to be determined on the basis of the Dutch tonnage tax regime. A logical decision from the Dutch Supreme Court in our view.
2. State Aid
2.1 Old Spanish tax lease scheme may constitute unjustified State Aid
The European Court of Justice ruled that the General Court of the European Union has applied wrong criteria when it ruled that the old Spanish tax lease scheme does not constitute unjustified State Aid. As a result the case is referred back to the General Court. As there is no final ruling yet the old Spanish tax lease scheme may still constitute unjustified State Aid. For more information about this case, we refer to the press release by the European Court of Justice.
3. Value added tax
As announced in the previous shipping update, the amendment of the zero VAT rate in regard of seagoing vessels has taken effect per 1 January 2019. In short, the zero VAT rate is no longer solely dependent on the technical qualification of the vessel for which the supply or service is performed, but is also dependent on the actual use of said vessel. In this respect, the following additional conditions have to be met for the zero VAT rate to apply, aside from the qualification of the benefitting vessels as seagoing vessel in the first place.
1. The seagoing vessel concerned is factually used for at least 70% for the purpose of navigating the high seas, in this respect the seas outside the Dutch 12-miles zones. In order to test this 70% norm, in principle, the data of the preceding full year is leading. However, if so desired, the data of period of the 5 preceding full years can be used as well. An exception is made for lifeboats and salvage vessels as for these types of vessels it is sufficient that its use takes place for at least 90% at any sea (so including the Dutch 12-miles zone).
2. The seagoing vessel is fully (100%) operated for commercial purposes. The zero VAT rate is only applicable if the seagoing vessel is or will be used entirely (100%) for either passenger transport against remuneration or the performance of (professional) fishing activities, industrial activities or commercial activities.
It is the entrepreneur who performs a supply of, or a supply or service to, a seagoing vessel that must be able to demonstrate by way of documentation that the conditions mentioned above are met. To this end, the supplier or service provider should take into account the following focus points.
-- Does the seagoing vessel have a valid IMO-number? -- Can the operator provide a usage statement declaring that the seagoing vessel is used for at least 70% for navigating
the high seas (calculated via one of the designated methods) and the seagoing vessel is used entirely for commercial purposes? Or does it concern an salvage vessel for use at sea? -- If one or both questions are answered with `no', then the applicability of the zero VAT rate will have to be demonstrated in an alternative way. -- If both questions can be answered with `yes', in principle, based on the IMO number and the statement of the operator, the zero VAT rate can be applied.
It should be noted that the Ministry of Finance stated that obtaining the aforementioned documentation does not relieve the supplier of all responsibility in the event that, after further investigation, it turns out that the zero VAT rate was applied incorrectly. It will therefore be essential to create a clear `paper trail' in the administration which links the usage statement of each customer for a specific year to all invoices that have been issued to that customer in that year. A more elaborate memo on the amendment of the zero VAT rate for seagoing vessels can be found here.
4. Wage tax / social security / labour law
4.1 Seafarer's wage tax relief (`afdrachtvermindering zeevaart') flag criterion CCV's
For seafarers working aboard a vessel flying the Dutch flag the employer is entitled to tax relief in the form of a reduction on the amount of wage tax and national insurance contributions withheld and to be paid to the tax authorities (40% or 10% depending on the seafarer's country of residence).
4.1.1 Flag criterion CCV's As per 1 January 2019 it is however no longer required for Commercial Cruising Vessels (CCV) to have a Dutch flag in order to qualify for wage tax relief. Further to an investigation by the European Commission, the legislation has been amended in such way that also seafarers working aboard EU/EEA flagged CCV's who are subject to the Dutch employee insurance schemes, may be entitled to the relief, unless: 1. The seafarer's salary is not subject to taxation in the Netherlands, based on a tax treaty or international/interregional
regulation; or 2. The seafarer, when working aboard a vessel providing scheduled passenger services between EU ports, does not have
Due to these additional requirements, in fact only seafarers on EU/EEA flagged CCV's who are tax resident of the Netherlands having a Dutch employer will fall under the enlarged scope of the regulation.
4.1.2 Qualifying activities In order to be entitled to claim the relief, strict conditions must be met. Our experience is that the Dutch tax authorities initiate more and more audits to review the application of this beneficial regulation, especially in offshore shipping situations, since not all types of activities qualify for tax relief. It may be helpful to discuss the application of this regulation upfront with the tax authorities, especially for offshore activities. For a better understanding of the level of compliance in your company, we have a quick scan available.
4.1.3 Impact Brexit The Dutch State Secretary of Finance confirmed that in case there is a `no deal' Brexit, the 40% rate can still be applied to the employment income of UK seafarers during the tax year 2019. After this period, the lower rate of 10% (for non-EU/EEA seafarers) will become applicable if the conditions are met, which will result in a reduction of the wage tax relief that can be claimed.
4.2 New legislation for hiring independent contractors - update
Until 1 May 2016, no wage tax and social security withholding obligations existed for companies who hired independent contractors who were in the possession of a valid statement from the Dutch tax authorities, confirming their self-employed status (so-called "VAR"). As per that date, the VAR-statement was replaced by new legislation, on the basis whereof it has become necessary to determine if an employment relationship exists between parties. The Dutch government introduced guidelines and standard contracts (with mandatory clauses) to give parties more comfort on the status of the relationship with independent contractors. Since companies became hesitant to hire independent contractors and because of the recommendations of an independent committee, the government is currently working on the introduction of additional measures.
These measures will focus on independent contractors who are working against low hourly rates (e.g. introduction of a minimum hourly rate or mandatory employment agreement) and the possibility for contractors with high hourly rates to choose to be no longer subject to wage tax and social insurances. In addition, the government contemplates to introduce a statement (opdrachtgeversverklaring), confirming whether the relationship with an independent contractor qualifies as employment relationship or not, based on a list of questions to be answered by the company in a web based computer program. It is expected that these measures will gradually become effective as from 1 January 2020.
In a recent update (26 November 2018), the government already published more detailed guidance on the relationship of authority definition (gezagsrelatie), which should be taken into account when hiring independent contractors.
4.3 Term of validity 30% ruling reduced
As from 1 January 2019 the maximum term of the 30%-ruling (expat regime) has been reduced from 8 to 5 years. The original legislative proposal did not contain a grandfathering rule for the (foreign) employees who currently profit from a 30% ruling. On 26 October 2018, the Dutch government amended the legislative proposal and inserted a grandfathering rule which will delay the reduction of the term of the 30% ruling from 8 to 5 years until 31 December 2020. The table below gives an overview of the implications hereof (including the maximum and actual duration of 30% rulings granted in the period starting 31 December 2010).
Overview of actual duration 30% rulings
Date of issue 31 December 2010 31 December 2011 31 December 2012 31 December 2013 31 December 2014 31 December 2015 31 December 2016 31 December 2017 31 December 2018
Maximum duration 10 years 10 years 8 years 8 years 8 years 8 years 8 years 8 years 8 years
Date of termination 31 December 2020 31 December 2020 31 December 2020 31 December 2020 31 December 2020 31 December 2020 31 December 2021 31 December 2022 31 December 2023
Actual duration 10 years 9 years 8 years 7 years 6 years 5 years 5 years 5 years 5 years
Reducing the term of the 30% ruling will have a number of adverse consequences for employees who currently benefit from the 30% ruling. When the 30% ruling ends it will no longer be possible for employers to provide these employees with a tax-free allowance for extraterritorial expenses, resulting in a higher tax burden for the employee or if compensated in higher expenses for the employer. Also the favourable partial non-resident status for personal income tax purposes of employees residing in the Netherlands will end.
4.4 Impact Brexit on social security
In case the UK would leave the EU without a deal, the UK will not be considered territory of the EU anymore with immediate effect for application of the European social security Regulations. This may imply for instance that in certain cases the flag principle of the Regulation may be become redundant. At this stage it is not clear yet whether the existing bilateral social security treaty between the UK and the Netherlands can be invoked. Without further regulation it could be that employees will be covered by social security legislation of both countries.
4.5 Social security : case law
4.5.1 The effect of EU Regulation 883/2004 on employees working aboard vessels which are operated and/or flagged outside EU-territory
On 10 January 2019 the Advocate General to the EU Court of Justice rendered his advice in the case of a Latvian resident employee who worked as a steward aboard a vessel flying the flag of the Bahamas in non-EU waters for a Dutch employer. The Dutch authorities were of the opinion that, during the period that the individual was employed with the company in the Netherlands (from 13 August 2013 until 31 December 2013), Dutch social insurance contributions were payable, since article 11 paragraph 3 section e of EU Regulation 883/2004 (the Regulation), on the basis whereof the legislation of the
country of residence would be applicable, did not apply in this particular situation. In his advice the Advocate General confirms that the legislation of the country of residence is applicable in the situation that an EU resident employee is working on a vessel flying a non-EU flag, even when all employment activities were performed outside the EU territory. If the EU Court is going to answer the question in line with the Advocate General's advice, this would imply that the Aldewereld (C-60/93) and Kik jurisprudence would generally no longer have any effect on situations which are covered by the new Regulation.
4.5.2 Application of EU Regulation 883/2004 to third country nationals The EU Court of Justice ruled on 24 January 2019 (C-477/17) in the case of non-European nationals (`third country nationals') who legally stayed and worked on the territory of several EU countries, although they could not be qualified as resident of an EU country. The Court concluded that these employees can claim the protection of the European social security Regulations during the period that they can prove to be staying and working legally in more than one EU country, resulting in the legislation of the country where the employer is located becoming applicable. The fact that their stay in the EU can be interrupted by a stay in the home country, will not exclude them from the protection of the coordination rules on social security.
4.6 Labour law
4.6.1 Case law: Dutch Supreme Court on legal privileges for seafarers On 7 July 2018, the Dutch Supreme Court issued a verdict on privileges for seafarers as described in article 8:211 sub b of the Dutch Civil Code. This article states that claims that arise from a maritime employment contract rank first above all other claims that have privilege granted by any law. The seafarers claimed damages from their employer because the employer had not paid the pension premiums to the merchant shipping pension fund (Koopvaardij) since 2010. The question for the Supreme Court was whether such privileged claim ranked before pledge and mortgage. The Supreme Court answered this question in the affirmative.
4.6.2 Employment and immigration law: increase of inspections The Dutch Labor Inspection (Inspectie SZW) actively investigates river cruise ships, in particular Dutch flagged ships, with regard to the Aliens Working Act (Wet arbeid Vreemdelingen) and Act on Minimum Wages (Wet minimumloon). The Labour Inspection takes the view that, even if these ships are only for a few days in the Netherlands, the Dutch minimum wage has to be paid and a work permit is required for third country nationals working on board of these ships. There are various procedures pending before Dutch courts at this moment on these matters.
Should you require any assisitance in this respect, please contact your trusted advisor at Loyens & Loeff. For more information about the Loyens & Loeff Shipping & Offshore team, click here.
Contacts: Ton Stevens Marcel Buur Clim Verkoijen Wies Verstraaten Patrick Vettenburg
Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices trading under the name `Loyens & Loeff', cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.