On 22 December, the Upper House approved the Tax Plan 2016. After the Tax Plan was passed in the Lower House, the government made several changes using a proposal to amend the bill. This was to ensure that there would be a majority in the Upper House in favour of the Tax Plan 2016. These changes are listed below.
We have listed the most important changes. Certain measures will not be implemented in 2016, but in 2017. We also indicate this below. We have categorised the proposed changes in the law into individuals, companies and property. We have used bold text for the changes with respect to the proposals on Budget Day.
Change to Box 3 – tax
In 2017, Box 3 will change significantly. The tax-free allowance amount in Box 3 will be € 25,000 (€ 50,000 for tax partners). The notional return is determined based on the following percentages for the taxed assets: 2.9% up to € 75,000, 4.7% between € 75,000 and € 975,000 and 5.5% for higher amounts. These percentages are based on long-term averages for different asset classes. The aforementioned percentages are the current averages. These may change when the new scheme is implemented in 2017. The fixed yield will remain taxed at 30% personal income tax. Just like now, tax partners may freely allocate their assets after deducting the tax-free allowance. However, for the future it means that due to the ascending percentages the allocation may have consequences for the tax owed.
In anticipation of this change, the tax-free allowance per partner increased in 2016 by € 3,000 to € 24,437 (for tax partners € 48,874).
Furthermore, the government called for by the Lower House to make every effort to tax the actual returns in Box 3 in 2017 rather than the fixed yields. To what extent the government will take this step, will probably only become clear on Budget Day 2016.
Change to Box 2 – fixed yield
Box 2 also has a fixed yield for Exempt Investment Institutions (Vrijgestelde beleggingsinstelling – VBI) and for companies not resident in the Netherlands where the assets consist for 50% or more out of portfolio investments. This fixed yield is currently 4%, which results annually in a 1% tax on the value of these investments. This tax is reduced by the annual dividend paid. This fixed yield will be increased to 5.5% in 2017.
Gift tax exemption for own home
On 1 January 2017, an exemption will be introduced for the tax on gifts to persons between 18 and 40 years for their own home for an amount up to € 100,000. If a gift was already given for their own home, the exemption can still be used for the remainder up to € 100,000. If only a part of the exemption is used in any year, the remainder can be used in the following two years.
Tightening of rules for emigration of holder of substantial interest
A protective assessment shall be imposed in the case of the emigration of a substantial interest holder. Currently, this assessment is waived under certain conditions after 10 years and will only be collected when so-called prohibited acts are carried out, such as the paying out of more than 90% of the retained earnings of the company in question. These rules will be tightened considerably. For example, the protective assessment will become effective for an unlimited period. In addition, the protective assessment will be recovered if and insofar a benefit will be gained from the substantial interest in the foreign situation. This means that (partial) recovery will occur on, for example, dividend distribution. This change is retroactive back to the time of the announcement of the Tax Plan (15 September 2015 at 15:15) to prevent anticipatory behaviour. For the record, we note that the old scheme applies to people who emigrated before this time.
Mandatory child maintenance excluded from Box 3
As of 1 January 2015, mandatory child maintenance was again eligible to be included as a debt in Box 3, after being previously excluded. The change will be reversed as of 1 January 2017 so that mandatory child maintenance and other forms of child support will no longer be included as a debt in Box 3.
No longer a minimum valuation rule for surrendering an annuity
Currently, when an annuity insurance policy, annuity savings account or annuity investment account is surrendered, the amount in Box 1 is taxed on at least the amounts of the previously deducted premiums (the minimum valuation rule). In cases where the surrender value is (much) lower, this is a hindrance. This minimum valuation rule is abolished as of 1 January 2016 such that only the lump sum is taxed. In certain cases, a reduction will be granted ex officio for surrenders prior to 1 January 2016.
Changes to own home scheme
Three changes apply to the own home scheme. First, the mortgage interest relief will be permitted again after repayment arrears have been remedied. Second, the double partner exemption for payments of mortgage-linked endowment insurance, own home savings account and own home investment rights can be more broadly applied. Third, the disclosure obligations regarding mortgage loans from your own company or a private individual have been relaxed.
Changes to partner concept
People living together who are conditionally admitted/detained as of 1 January 2016 are no longer eligible as an allowance or tax partner for the period of admittance/detention. Secondly, a stepchild and step-parent will no longer be eligible as an allowance and tax partner.
Changes in income tax and allowances
For income tax, some changes will be made for rates and tax credits. In 2016, the rate for the second and third tax bands (including national insurance contributions) will decrease by 1.6% to 40.4%. The third tax band will be extended, so that the fourth tax band of 52% starts at income greater than € 66,421. The general tax credit will be quickly phased out, so that it will be lower for higher incomes. The employed person’s tax credit will increase to € 3,103, but the reduction threshold will be reduced to an income of € 34,000. The maximum income dependent combination tax credit for employed people with children up to 12 years will rise to € 2,769 and the accrual rate will also increase. The elderly person’s tax credit will be increased to an amount of € 1,187.
Implementation of Parent-Subsidiary Directive
The Parent-Subsidiary Directive (PSD) is amended within the EU, where the anti-abuse provision has been tightened and the PSD must not be used in so-called hybrid mismatches. The change to the PSD will be implemented as of 1 January 2016 in a separate legislative bill. The participation exemption (and the participation settlement regime) will no longer apply to profits from a participating interest where the compensation or payments during the participation are deducted from the profits tax. Even if the compensation can be deducted from the cost price of the participating interest, it will count as taxable income.
The tightening of the anti-abuse provision in the PSD will be implemented by adjusting the so-called foreign substantial interest scheme and the obligation to withhold dividend tax for cooperatives. The terminology in the scheme will be aligned with that of the PSD, where the distinction between the allocation of the substantial interest to the business assets will be abandoned. A determining factor will be whether an artificial construction exists that is not structured according to valid business reasons that reflect the economic reality. In addition, the so-called substance requirements also play a more important role. The obligation to withhold for cooperatives will be further amended to prevent an existing dividend tax claim from being voided, unless a cooperative with real activities or function exists.
Note that these legislative changes are not limited to the EU or EEA, but are global in effect.
Documentation obligations of large multinational companies
As of 1 January 2016, the following documentation obligations will apply to large multinational companies. For companies with a group turnover of more than € 50 million, the Dutch entities must draw up a local file and a group file with information about the intercompany transfer prices. For companies with a group turnover of more than € 750 million where the parent company is established in the Netherlands, it is mandatory that the Dutch tax authorities is provided with an annual country report (country-by-country reporting). In certain cases, Dutch subsidiaries of such a group are required to submit a country report.
Usual criterion for work-related expenses scheme tightened
As of 1 January 2016, the usual criterion for the work-related expenses scheme will be tightened. The usual situation must be that the compensation or benefit will be considered a final component (and not so much its scope as it is considered now). In the determination of this, the nature and the amount of the compensation or provision as well as other compensation and/or benefits are included in the evaluation. A compensation or benefit will be deemed normal if it differs at most 30% from that which would be the case under normal circumstances.
Step-up dividend tax in cross-border mergers and splitting of companies
For cross-border mergers and splitting of companies, the dividend tax is subject to a step-up so that existing (foreign) retained earnings will not be claimed with Dutch dividend tax. This measure goes into effect on 1 January 2016 and must make it more attractive to implement cross-border fusions or splits with a Dutch receiving company.
Benefits from limited partnership interest will be taxed
As of 1 January 2016, having a limited partnership interest will be deemed as the running of a company for foundations, associations and government bodies. This means that current foundations, associations and government bodies that are not subject to taxation will be taxed on their limited partnership interest that runs a company.
Reorganisation exemptions for government bodies that are taxed
As of 1 January 2016, the obligation of government bodies to pay tax will be introduced in the corporation tax scheme. In order to make it possible to reorganise government bodies, a scheme will be introduced in the corporation tax law such that certain reorganisations can be facilitated.
Wage-cost subsidies for specific groups of employees
In 2017, a subsidy will be introduced for employees with low incomes. This low-income benefit will be a maximum of € 2,000 per employee with incomes between 110% and 120% of the minimum wage and € 1,000 for incomes up to 110% of the minimum wage. In 2018, a wage cost advantage will be introduced for older employees and employees with an occupational impairment. The wage cost advantage is a maximum of € 6,000 per employee per year for a maximum period of three years. The current premium reduction scheme for these employees will come to an end.
Merging of “WBSO” and “RDA”
As was previously announced, as of 1 January 2016, the WBSO and RDA will be merged, whereas in actuality the RDA will come to an end. (WBSO is the Dutch acronym for Promotion of Research and Development Act. RDA is the Dutch abbreviation for Research and Development Deduction.) The WBSO application will be broadened for other R&D costs and expenditures in addition to wage costs. The benefit for the first € 350,000 of R&D costs amounts to 32% (40% for starters) and 16% for anything above that. The current ceiling will come to an end. However, the amount of benefit is at most the withholding taxes of the entity subject to taxation. Instead of calculating the actual R&D costs, a flat-rate scheme will be used of € 10 per hour for the first 1,800 R&D hours and € 4 per hour for anything above that.
Ground lease no longer treated favourably
As of 1 January 2016, the taxable amount of the transfer tax will be adjusted for ground leases. Currently, the value of the immovable property is reduced by the present value of the ground rent or fees. In order to deal with ground leases in the same manner as sale and lease backs, the taxable amount is no longer reduced by the present value of the ground rent or fees. This also applies in cases of sub-leasehold or sub-superficiaries.
EU listed buildings deduction
Based on a judgement of the European Court of Justice, the costs for listed buildings in another EU or EEA member state are deductible for income tax purposes, if the property is part of Dutch cultural heritage. This judgement will now be codified. Conditionally, a monument listed as such can also be classified under the Estates Act 1928.
If you have any questions about the above, please do not hesitate to contact us.