Reduction of corporation tax
The rate of corporation tax will be reduced in three annual stages: As from 2019, the lowest tax bracket in corporation tax (taxable profits up to € 200,000) is taxable at 19% and the highest tax bracket (from € 200,000) is taxable at 24.3%. As at 2020, tax rates will be 17.5% and 23.9% respectively. In 2021 the rates will be 16% and 22.25% respectively. This corporation tax rate reduction will mainly benefit small and medium-sized enterprises. Large enterprises in particular benefit from abolition of the dividend tax.
Tip: Try to bring costs forward by creating a provision and delaying revenues by creating a reinvestment reserve.
Consequences of corporation tax rate adjustment
Due to the tax rate changes in the Corporation Tax Act and Income Tax Act, tax rates in the tax-neutral return regulation will be adjusted.
If, in retrospect, an intangible asset does not comply with rules applicable to the innovation box, then the manner in which corporation tax is calculated also changes due to the proposed reduction of corporation tax.
Box 2 tax rate increase
Along with the reduction of corporation tax rates, it is proposed to adjust the current tax rate of 25% for income from substantial shareholding (i.e. shareholding of 5% or more) to 26.9% in 2021. To satisfy small and medium-sized enterprises, the original adjustment of 28.5% in the coalition agreement has therefore been reduced. The tax rate structure in Box 2 is as follows:
| Tax rate | |
| 2019 | 25.0% |
| 2020 | 26.25% |
| 2021 | 26.9% |
Please note!
There will be no transitional arrangements for profits attained before 2020, but will only be paid out to the director/major shareholder in 2020 or in later years.
Liabilities exceeding € 500,000 taxed
There’s also a downside to the fact that the tax rate in Box 2 does not rise as fast as previously stated in the coalition agreement. As from 2020, the government wants to discourage tax deferral by taxing directors and major shareholders who have a liability in their own B.V. exceeding € 500,000 in Box 2. The exact formulation of this levy will follow in the 2020 Tax Plan.
Tip: The government expects that this will be anticipated, which will already yield € 1.8 billion for the treasury in the coming year. If the current account liability in your business exceeds € 500,000, it would be advisable to let us look for opportunities together to prevent this levy.
New interest deduction restriction
The government wants to introduce a new general interest deduction restriction. Roughly speaking, this measure comes down to the fact that the balance of interest paid and received is deductible up to 30% of the adjusted profit. Adjusted profit is profit before interest, tax, depreciation and other decreases in value. In addition, the interest deduction restriction will have a threshold of € 1 million. In principle, the non-deductible portion may be deferred.
Tip: The legislator envisages that companies will split up so that each individual company itself can make use of the € 1 million threshold. The legislative proposal, however, does not yet contain any specific provisions to counter such a split. But things can still change.
Changes as a result of Anti Tax Avoidance Directive (ATAD) 1
If interest is not deductible as a result of the generic interest deduction restriction, this interest can be carried forward unlimited to the future. To prevent any improper use, an anti-abuse measure has been included in the corporation tax. Provisions have also been included to arrange any concurrence between carried forward interest based on the generic interest deduction restriction and the tax group rules. In addition, the provisions on demergers, mergers, administrative reorganisations or realignments are supplemented for situations where claims exist on carried forward interest based on the generic interest deduction restriction.
Compensation on assistance fund loan of (former) entrepreneurs
An entrepreneur in financial difficulties may appeal to the municipality for general assistance for sufficient means of support. The municipality provides this as an interest-free loan, which is not part of the entrepreneur’s tax income at that point in time. After a year, on the basis of the entrepreneur’s annual income, the municipality decides whether the loan must be repaid in whole or in part. If repayment was not effected, then the amount was added to the entrepreneur’s income. This has led to a higher qualifying income for a number of income-dependent allowances, resulting in recovery issues. With effect from 1 January 2017, these remitted loans are no longer considered to be part of the entrepreneur’s income. However, those who had been disadvantaged by such remission in the years 2014, 2015, 2016 in terms of allowances, are eligible to claim from a compensatory scheme. Allowance entitlement is recalculated based on the qualifying income without assistance fund loan. Previously recovered allowances will therefore lapse. Such recovery (including interest compensation), will be refunded by the Tax and Customs Administration.
Please note!
To qualify for the compensatory scheme, a written request must be submitted to the Tax and Customs Administration with the necessary supporting documents.
Limitation of loss carry-forward in corporation tax
The current time limit for loss carry-forward in corporation tax is nine years. This time limit is being reduced to six years and will apply for the first time to losses in 2019. For a loss suffered in 2018, a limitation period of nine years still applies. In the event that this relates to a split financial year, the limitation of loss compensation takes effect from the financial year beginning in 2019.
Tip: Try to bring forward any losses and record as much as possible in 2018. Then the time limit to offset these losses is still nine years.
Just six years to offset substantial shareholding losses
Currently, substantial shareholding losses can be offset against profits from the previous year (loss carry-back) and profits from nine years after the loss year (loss carry-forward). The loss carry-forward has been cut to six years. A substantial shareholder therefore gets less time to offset the loss.
Tip: If a substantial shareholding no longer exists but there is still an outstanding substantial shareholding loss, under certain conditions this loss can be converted into a tax credit for Box 1.
Investment tax credits are being continued
The energy investment allowance (EIA), environmental investment credit (MIA) and random depreciation environmental investments (Vamil scheme) are being extended for a further period of five (5) years until 1 January 2024. The EIA deduction percentage reduces to 45%. The Minister of Economic Affairs and Climate Policy is responsible for the Energy List.
Allowance for special capital
Tier 1 capital, or core capital, comprises the share capital and retained profits of a company. Supplementary tier 1 capital is so-called hybrid capital instruments with characteristics of both equity capital and borrowed capital. This capital consists of instruments that have an unspecified maturity date and no repayment incentive. Currently compensation, for example interest, to banks and insurance companies for providing such capital, is deductible. The government now wants to put an end to that. Hence the government aims to ensure equal treatment of equity capital and borrowed capital and thus envisages to restrict financing with borrowed capital (including hybrid capital) to ensure a healthy financial sector.
Ban on property investments by fiscal investment institutions (FIIs)
A corporation tax rate of 0% applies for fiscal investment institutions (FIIs). As from 1 January 2020, fiscal investment institutions may no longer invest directly in property. This measure is linked to the abolition of dividend tax. For the time being, dividend tax is being withheld on profit distribution to foreign investors. However, if the dividend tax is abolished, the Netherlands would lose its right to levy tax on results on property located in the Netherlands. With that in mind, the property measure prohibits FIIs from investing directly in property in the Netherlands.
Please note!
Depending on the situation, restructuring could lead to taxable facts in terms of transfer tax, in which existing exemptions are not always the solution either in emerging cases.
Limitation on amortisation of property
Under current legislation, in principle, B.V.s may amortize up to a maximum of 50% of the WOZ value (Valuation of Immovable Property Act) on immovable property if this is used for their businesses. Investment properties may be amortized until the book value is equal to 100% of the WOZ value. The government wants to discontinue this differentiation in corporation tax by setting the amortisation limit of all buildings at 100% of the WOZ value. The measure ensures that the difference between book value and future sale value is smaller, resulting in the taxable profit from selling the building being lower.
Please note!
Amortisation up to 100% of the WOZ value does not detract from the fact that at a lower market value of the business premises, write-downs are permitted to this lower value in use.
Shorter deferment of exit tax for B.V.s
B.V.s (private company with limited liability) and other bodies that are subject to corporation tax are given a shorter deferment for payment of the so-called exit tax. This exit tax is applied if a body, subject to corporation tax, moves its fiscal place of business abroad. Tax authorities currently offer the option to pay the levy on capital gains on transferred component assets arisen in the Netherlands, but as yet unrealized, in ten equal annual instalments. This time limit is shortened to five years. Payment deferment discontinues insofar as capital gains are realised before that time.
Please note!
The shortened payment deferment only applies for tax debts for which the tax authorities have granted deferment of payment on or after 1 January 2019.
