Further to the several tax proposals released by the Dutch government on Budget Day last month (see our Tax Alert of 20 September 2018), on 15 October the Dutch State Secretary of Finance sent a letter to the Dutch parliament containing a reconsideration of certain tax law proposals (the 'Letter'). In the Letter the government proposes to maintain the Dutch dividend withholding tax ('DWT'). The budgetary yield of not abolishing the DWT (€ 1.9 billion per year) will benefit business enterprises, primarily through a further reduction of the corporate income tax rate. Below we will summarise the key items addressed in the Letter.
1. No abolition of Dutch dividend withholding tax and postponed introduction of conditional withholding tax on dividends to low tax jurisdictions
Main reconsideration in the Letter is to maintain the DWT. Although the proposed abolition of the DWT was an important measure aimed at enhancing the Dutch investment climate, the Dutch government has decided to maintain the DWT and to instead improve its investment climate through other measures. As the DWT and the proposed conditional withholding tax on dividends to low tax jurisdictions are substantively interrelated with each other, the Dutch government first wants to review and examine the integration of both taxes and the consequences thereof. As a result thereof, the introduction of the conditional withholding tax on dividends (initially proposed to be introduced as per 2020) is postponed. The proposed conditional withholding tax on interest and royalty payments is not interrelated with the DWT and the proposed introduction date thereof remains 1 January 2021.
2. Further reduction of corporate income tax rate
To improve the Dutch investment climate, the corporate income tax rates will be further reduced. On Budget Day it was already proposed to gradually reduce these rates from 20% (first EUR 200,000 taxable profit) and 25% to 16% and 22.25% respectively in 2021. It has now been proposed to gradually reduce the rates to 15% and 20.5% respectively in 2021 (the highest-bracket rate remains 25% for 2019).
3. Regime for Fiscal Investment Companies amended
Last month it was also proposed to amend the fiscal investment regime for so-called FBI's (Fiscale Beleggingsinstellingen). One of the proposed amendments was that FBI's would no longer be allowed to directly invest in Dutch real estate as per 2020. However, as this amendment was from a budgetary perspective related to the proposed abolition of the DWT, this amendment has been repealed in the Letter in view of the DWT being maintained.
4. Depreciation on self-used buildings – transitional measure
On Budget Day a new rule was proposed, according to which taxpayers are only allowed to depreciate buildings that are self-used (as opposed to buildings held for investment) to the extent the book value of the building is higher than 100% of the so-called WOZ-value of the building (i.e. the value for real estate tax purposes). To mitigate the impact of this proposal for self-used buildings that started being used recently, a transitional measure is proposed in the Letter. Based on this transitional measure, taxpayers are still allowed to depreciate self-used buildings for three years based on the prior regime, provided that the building has been self-used by a taxpayer before 1 January 2019 and the building has not yet been depreciated for three years.
5. Limitation of retroactive effect of changes to Dutch CIT fiscal unity regime
As discussed in our Tax Alert of 11 June 2018, according to a new legislative proposal (further to recent case law of the European Court of Justice), certain specific (anti-abuse) tax rules laid down in the Dutch corporate income tax act and DWT act, should be applied to entities belonging to the Dutch fiscal unity as if the fiscal unity is non-existent. These new rules would in principle enter into force – with retroactive effect – as per 25 October 2017. To mitigate the impact of the proposed measure, its retroactive effect will be limited to 1 January 2018 (as a result of which most taxpayers will not have to take into account these new rules in respect of their 2017 corporate income tax return).
6. 30% reimbursement expat regime – transitional measure
In short, under the 30% reimbursement expat regime, expats that meet certain requirements are allowed to apply for a tax free reimbursement of 30% of their salary. On Budget Day it had been proposed that the term of application of this regime is reduced from 8 to 5 years per employee. This reduced term would apply to existing situations, as well as new situations. However, the Letter now includes a transitional measure for existing situations that otherwise would expire in 2019 or 2020 as result of the reduced term.