What proposals and changes in the area of taxation did Dutch Minister of Finance Wopke Hoekstra pull from his briefcase on the third Tuesday of September 2019? A brief explanation of the ten most important ones is provided below.
1. Introduction of two-band system in 2020
From 2020 there will be only two instead of four bands for income tax for people below state pension age. The basic rate of 37.35% will then apply up to an income of € 68,507. Above this threshold the top rate of 49.5% will apply.
People who have reached state pension age will be subject to an adjusted basic rate of 19.45% up to an income of around € 35,000. In addition, the rate of 37.35% will apply up to an income of € 68,507 and above this the top rate of 49.5%.
As a result of the introduction of the two-band system, the tax levied on income will fall by around 2%.
2. Top rate of corporation tax to remain at 25% in 2020
Contrary to previous agreements, the top rate of corporation tax will remain at 25%. This rate, which applies to profits in excess of € 200,000, will, however, be lowered to 21.7% in 2021.
With effect from 1 January 2020 the lowest rate of corporation tax will be 16.5%. In 2021 this rate, applicable to taxable amounts up to € 200,000, will be reduced further to 15%.
3. Employed person’s tax credit to rise more quickly and self-employed person’s allowance to fall at a faster rate
In anticipation of proposals designed to future-proof the labour market, the employed person’s tax credit will rise more quickly and the self-employed person’s allowance will fall at a faster rate. In 2020 the maximum employed person’s tax credit will amount to € 3,819 (€ 3,399 in 2019) and the maximum self-employed person’s allowance € 7,030 (€ 7,280 in 2019). The self-employed person’s allowance will be reduced to a maximum of € 5,000 by 2028.
4. Four changes to the work-related expenses scheme
Following the evaluation of the work-related expenses scheme (WKR), four changes are being proposed with effect from 1 January 2020.
- An increase in the fixed budget to 1.7% of the total wage bill up to and including € 400,000.
- The reimbursement of the costs associated with a certificate of good conduct will be specifically exempted.
- The final levy under the WKR may be declared in the second tax period instead of in the first tax period of the following calendar year.
- The value of a company’s own products that have been purchased by an employee is measured at the fair value.
5. Reduction in VAT rate for electronic publications
With effect from 1 January 2020 the rate applicable to electronic publications (books, educational information, daily and weekly newspapers, magazines and other periodicals that are published at least three times a year) will be reduced from 21% to 9%.
In addition, access to news websites, such as those offered by daily and weekly newspapers and magazines, will also fall under the reduced rate. However, this is on condition that the content does not consist exclusively or primarily of advertising material, video content or listenable music.
6. Increase in transfer tax on non-residential properties to 7%
With effect from 1 January 2021 the transfer tax on non-residential properties will be raised by 1% to 7%. Such properties include commercial buildings, hotels and guest houses, business premises and land intended for residential construction. The transfer tax on residential properties will remain at 2%.
7. Increase in addition to taxable income for private use of electric cars
With effect from 1 January 2020 the addition to taxable income for the private use of electric cars will increase to 8% (2019 4%) on a maximum of € 45,000. Is the list price more than € 45,000? In that case the normal addition of 22% will apply on the amount above this figure.
In 2021 the addition will rise to 12% on a maximum of € 40,000. If the list price exceeds € 40,000, the addition will be 22% on the amount above this figure. In 2022, 2023 and 2024 the addition will be 16% on € 40,000, and in 2025 17% on € 40,000. Ultimately, by 2026 the addition for electric cars will also amount to 22%.
8. Introduction of withholding tax in 2021
Withholding tax on interest and royalties will be introduced with effect from 1 January 2021. The rate will be linked to the top rate of corporation tax, which will amount to 21.7% in 2021.
9. Abolition of payment discount for corporation tax in 2021
With effect from 1 January 2021 the payment discount for corporation tax will be abolished. From that point on, companies that settle their corporation tax assessment in advance in a single payment will no longer receive a discount.
10. Abolition of study allowance
It is proposed that the study-cost allowance for income tax purposes be abolished. The study allowance will be replaced by the STAP budget subsidy scheme (learning and development budget intended to enhance a person’s labour market position) for people with a link to the Dutch labour market. Further details about the STAP budget subsidy scheme are not yet available. Consequently, the study allowance will not be abolished until after 2020.
What was missing from Minister Hoekstra’s briefcase?
In addition to the top ten most important changes from the 2020 Tax Plan, as outlined above, a number of legislative proposals were missing. These include, for example, a proposal to replace the current Assessment of Employment Relationships Deregulation Act to future-proof the labour market, and a proposal relating to the previously announced change to the tax levied in box 3. A legislative proposal relating to the taxation of excessive loans received by shareholders from their own company, commonly known as the ‘dga’ (director and principal shareholder) tax, will also follow in the fourth quarter.
