On Tuesday 20 September 2022 (Budget Day; Prinsjesdag), the Dutch Ministry of Finance published the 2023 Tax Package (Belastingpakket) including the 2023 Tax Plan (Belastingplan).
Certain proposals are relevant to international businesses and their employees.
1. Amendments to relevant tax rates
Corporate income tax rate
For 2023, the standard corporate income tax (‘CIT’) rate will remain 25.8%. However, the proposal includes an increase of the CIT rate of the first bracket of profits from 15% to 19%. It has also been proposed to lower this first bracket from EUR 395,000 to EUR 200,000. As a result of these proposed amendments, the first EUR 200,000 of taxable profits will be taxed at 19% and the remainder at 25.8%.
Income tax rate box 2
The Dutch Income Tax Act (wet op inkomstenbelasting 2001) divides income into three sources, known as “boxes”: box 1 (income from employment), box 2 (income from a substantial interest (in principle 5% or more) in a company’s shares) and box 3 (income from savings and investments, see also section 4 below). Each box has its own set of tax rates. For box 2, one flat rate of 26.9% currently applies to the entire amount of taxable income from a substantial interest. It has been proposed to introduce two brackets in Box 2 as of 2024. Under the proposal, income from a substantial interest up to EUR 67,000 will be taxed at 24.5% and income in excess of that amount will be taxed at 31%.
Real estate transfer tax rate
The general real estate transfer tax rate will be increased from 8% to 10.4% percent. The general rate does not apply to the acquisition of a main residence. This rate increase applies in particular to acquisitions of non-residential buildings and to acquisitions of houses by legal entities and natural persons who do not themselves (other than temporarily) use the houses as their main residence. This measure comes on top of the increase in the coalition agreement from 8% to 9% and the further announced increase in the Spring Memorandum 2022 (Voorjaarsnota 2022) to 10.1% (see our Tax Alert of 23 May 2022).
2. Wage Taxes
Proposed amendments to the customary-wage arrangement (gebruikelijk loon regeling)
As already announced in the Spring Memorandum 2022 (Voorjaarsnota 2022), the Dutch government proposes to amend the customary-wage arrangement as of 1 January 2023. Under the current rules, a director and major shareholder (directeur-grootaandeelhouder) with a substantial interest in a private limited company (i.e. generally an interest of at least 5% of the shares, a separate class of shares or options, together with the interests of affiliated entities/relatives) must take into account a customary wage for the activities performed for Dutch wage tax purposes. The customary wage is set at (at least) the highest of the following amounts:
- 75% of the wage from the most comparable employment relationship;
- the wage of the highest earning employee at the same entity or an affiliated entity;
- EUR 48,000.
A substantial interest holder is not always comparable to a regular employee (e.g. when he or she also performs shareholder activities). It may therefore be difficult to link the wage of the substantial interest holder with the wage from the most comparable employment relationship (see (1) above). In that regard, the customary-wage arrangement currently contains an efficiency margin in order to avoid procedures on small differences between the wage of a director and major shareholder that is at least EUR 48,000 and the wage from the most comparable employment relationship. The efficiency margin provides that the customary wage of the substantial interest holder may be adjusted by 25%, resulting in a customary wage set at 75% of the wage from the most comparable employment relationship (if that is the highest of the three amounts). Although a proposal has not yet been published, the Dutch government indicated that the abolishment of the efficiency margin will be included in the memorandum of amendment to the 2023 Tax Plan. If enacted, this may mean that a substantial interest holder may need to award himself or herself a higher customary wage.
The Dutch government furthermore proposes to abolish a relief for innovative start-ups whereby taxable wages of director and major shareholders for the purposes of the customary-wage arrangement could be set at the statutory minimum wage for a maximum of three calendar years.
Proposed amendments to the 30% payroll tax facility
Under the current 30% payroll tax facility, employees with specific expertise coming from abroad to temporarily work in the Netherlands may, under circumstances, in principle receive up to 30% of their wage exempt from taxation, irrespective of the amount of the wage that the relevant employee receives. The 30% payroll tax facility is intended as compensation for additional costs incurred by foreign employees when coming to work in the Netherlands (such as housing and travel costs). As already announced in the Spring Memorandum 2022 (see our Tax Alert of 23 May 2022), the Dutch government proposed to limit the scope of the 30% payroll tax facility as of 1 January 2024 to the standard (also known as the Balkenende Norm) that follows from the Wet normering topinkomens (Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act), which has been set at EUR 216,000 per year (for 2022). This standard is equivalent to 130% of a minister’s earnings. In light of the entry into force of the amended 30% payroll tax facility, an employer may grant the incoming employee a maximum of EUR 64,800 (i.e. 30% of EUR 216,000) of the wage exempt from taxation per year. It should be noted that the amount of the Balkenende Norm is expected to be higher in 2024, as the amount is linked to the development of contractual payroll costs of the public sector.
The proposed amendment is accompanied by a transitional scheme with a two-year transition period. Based on the proposed transitional scheme, the 30% payroll tax facility will not be capped until 1 January 2026 for incoming employees to whom the 30% payroll tax facility will already be applied over the last wage period of 2022.
Proposed increase of the tax-free travel allowance
In order to keep travel to work affordable, the Dutch government has announced to increase the tax-free travel allowance as per 1 January 2023. Under the current rules, employers may grant their employees a maximum tax-free travel allowance of EUR 0.19 per kilometre over the full travel distance on all business kilometres (including commuting kilometres) travelled by an employee. As of 1 January 2023, the Dutch government has announced an increase of the tax-free threshold for reimbursement of travel expenses of EUR 0.02 per kilometre (i.e. to EUR 0.21 per kilometre). In addition, the Dutch government proposes to further increase the tax-free travel allowance to EUR 0.22 per kilometre as of 1 January 2024.
3. The proposed abolishment of the real estate FII regime (vastgoed fbi-regime)
The Dutch government has announced – probably in response to the report on the evaluation on the Fiscal Investment Institution (FII; fiscale beleggingsinstelling) and Exempt Investment Institution (EII; vrijgestelde beleggingsinstelling) regimes published in June of this year – the introduction of a “real estate measure” in the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969) in the 2024 Tax Plan, on the basis of which FIIs are no longer allowed to directly invest in real estate. As a consequence, the profits of real estate FIIs will, in principle, be taxed at the general corporate income tax rates referred to in section 1 above instead of the 0% rate that the FIIs are currently subject to.
Under the proposed measure, an investment institution may no longer invest in real estate in order to qualify for the FII regime. In this respect, no distinction will be made between real estate located in the Netherlands or abroad. The “financing requirement”, which provides that financing of the investments with debt may not exceed 60% of the book value of the real estate, will also be abolished. In addition, the extensions of the concept of investment of assets which are related to investing in real estate will cease to apply to the FII regime.
The Dutch government foresees that, prior to the real estate measure entering into effect, certain (unlisted) real estate FIIs (such as pension funds) are likely to restructure their investments before 1 January 2024 to mitigate corporate income tax liability for their investment income in certain situations. In that respect, the Dutch government also announced that it will investigate whether flanking (anti-abuse) measures should be introduced in 2023.
The abolishment of the real estate FII regime was proposed earlier in 2018 together with the abolishment of the Dutch dividend withholding tax. The Dutch government then, however, opted not to abolish the real estate FII regime, because it was decided – after significant criticism – that the dividend withholding tax would be maintained.
Income from savings and investments is taxed in box 3 for personal income tax purposes. Currently, the income from savings and investments is based on a notional return that the net assets (qualifying assets minus qualifying debts), referred to as the yield basis (rendementsgrondslag), exceeding a certain tax-free assets threshold (heffingsvrij vermogen), are deemed to generate, regardless of the actual income or capital gains derived from the net assets. As of 2017, the deemed return is calculated on the basis of progressive deemed return percentages, which are annually determined based on relevant market information and investment results. The deemed return is taxed at a flat rate of 31% (2022), but will be raised to 32% in 2023 (it is envisaged that the tax rate will be further raised to 33% in 2024 and to 34% in 2025).
On 24 December 2021, the Dutch Supreme Court ruled that, under circumstances, the current box 3 personal income tax levy violates the European Convention on Human Rights (ECHR) for all taxpayers whose actual returns of savings and investments are lower than the deemed – and taxed – returns. Due to this ruling, the government is forced to (A) amend the box 3 personal income tax and (B) provide remedy, under circumstances, for taxpayers in the situation that (i) a taxpayer filed an objection to their personal income tax assessment for box 3 and (ii) a personal income tax assessment has not yet been imposed on the taxpayer.
Remedy for the years 2017 up to and including 2022
Taxpayers may be remedied for the years in respect of which they filed an objection to their personal income tax assessment for box 3 and for the years in respect of which no personal income tax assessment has been imposed yet on the relevant taxpayer (or has been imposed but has not yet become final), including the years 2021 and 2022. On 28 June 2022, the Dutch State Secretary for Tax Affairs and Tax Administration published a policy decree (beleidsbesluit), which sets forth the box 3 remedy for the years up to and including 2022. This policy decree is converted into the Box 3 Recovery Act, which is included in the 2023 Tax Plan package. The Box 3 Recovery Act sets forth a calculation of the deemed return based on the actual composition of the yield basis. In short, the “new deemed return calculation” is determined by:
- classifying the components of the yield basis as either bank balances (e.g. savings), other investments, or debts;
- determining a deemed return by applying separate deemed return percentages on such bank balances (2021 deemed return percentage: 0.01%), other investments (2021 deemed return percentage: 5.69%) and debts (2021 deemed return percentage: 2.46%);
- calculating an effective deemed return rate by dividing the total deemed return (as determined under (ii)) by the total yield basis (as described above); and
- multiplying that effective deemed return rate (as determined under (iii)) by the excess of the yield basis over the tax-free assets threshold.
If the new deemed return calculation leads to a lower income from savings and investments compared with the income determined on the basis of current legislation, the lower amount will be taxed.
Future box 3 regime
It is intended that as of 1 January 2026, taxation on income from savings and investments will be calculated on the basis of actual returns (instead of on deemed returns). The exact features of the revised regime have yet to be published by the Dutch government. In the intervening period, the Box 3 Bridging Act (Overbruggingswet box 3) will amend the current box 3 regime to comply with the ruling of the Dutch Supreme Court.
The Box 3 Bridging Act introduces temporary emergency amendments to the Dutch regime for savings and investments for the years 2023, 2024 and 2025. The Box 3 Bridging Act is part of the Tax Plan 2023 package and introduces a regime that is similar to the remedy regime under the Box 3 Recovery Act. The taxable income from savings and investments under the Box 3 Bridging Act is determined through the new deemed return calculation (as under the Box 3 Recovery Act). However, an important difference with the Box 3 Recovery Act is that cash will be classified as a bank balance rather than an other investment. In addition, a specific order will be applied for the exemption of green investments. Furthermore, a new provision will be introduced to counter reference date arbitrage with the aim of reducing taxation. Reference date arbitrage could occur, for instance, through a temporary swap of other investments for bank balances or by attracting temporary debt.
5. CO2 levy for industrial production
The CO2 levy for industrial production and waste incarceration has been in force since 1 January 2021. Companies that emit more greenhouse gases than the exempted emission allowance tolerates must pay a CO2 levy on the excess of these emissions. The exempted emission allowance is allocated in the form of tradable dispensation rights. The number of these rights is gradually decreasing in line with the emission reduction target in 2030 as agreed in the Paris Climate Agreement.
The legislative proposal tightens the calculation factors for the dispensation rights from 1 January 2023. This will result in an accelerated reduction of dispensation rights. Given the gradual reduction, the proposed measure is expected to have a limited impact in the short term.
In addition to the tightening of the current CO2 levy for industry, the government proposes to introduce a minimum CO2 price for the industry. Currently, Dutch exempted emission allowances are affected only by the price of greenhouse gas emission allowances within the European Emissions Trading Scheme (EU ETS). The proposal aims to ensure that a minimum price will apply in the Netherlands for the exempted emission space as from 1 January 2023 for the companies concerned.
6. Other measures recently announced
Excessive Borrowing from Own Company bill
On 13 September 2022, the Dutch House of Representatives (Tweede Kamer) passed a bill on excessive borrowing from a taxpayer’s own company. This measure, firstly announced on Budget Day in 2018, intents to combat the deferral of tax for personal income tax purposes in Box 2 and to bring taxation more in line with the time at which the substantial interest holder (or any person related to them) actually has the funds at its disposal. If the Dutch Senate (Eerste Kamer) passes this bill, a substantial interest holder will be taxed in box 2 as of 2023 for the excess if more than EUR 700,000 is borrowed from its own company. In previous proposals of this legislation, this threshold was set at EUR 500,000. For purposes of this bill, “debt” is defined as all civil-law indebtedness and commitments at the end of the calendar year on the basis of nominal value.
Technical modifications in the Dutch Dividend Withholding Tax Act (“DWTA”)
On 23 May 2022, the Dutch government proposed legislation as part of which the following (mostly technical) changes to the DWTA were inclauded. This proposed legislation will be debated by the Dutch House of Representatives (Tweede Kamer) together with the Tax Plan 2023.
- Under the current DWTA, a withholding agent that is a BV or NV may request a tax inspector to determine its paid-up capital for the purposes of the DWTA. The proposed legislation extents this possibility for other entities that are withholding agents for the purposes of the DWTA (e.g. a Dutch holding cooperation).
- The current measure against dividend stripping in the DWTA refers to the term “legal person”. To broaden the scope of this measure, the proposed legislation replaces “legal person” with “entity” as a result of which the measure also applies, for instance, to non-transparent entities without legal personality.
- Dutch dividend withholding tax is levied on the proceeds of shares, profit certificates or fees on a participation loan under the current application of the DWTA. The proposed legislation expands this levy object to include reimbursements made by an entity for received capital contributions. This expansion of the levy object is meant to bring the DWTA more in line with the Dutch corporate income tax where such reimbursements are not deductible from the taxable profit.
The above proposals need to be approved by the Dutch Parliament in order to enter into force. The proposals may be subject to change throughout the legislative procedure. Please bear in mind that the potential impact and implication of the proposals should be assessed carefully on a case-by-case basis.