On Budget Day (Prinsjesdag, 19 September 2023) the Dutch Cabinet presented the new tax plans. Although the outlines of the proposed legislation had already been announced earlier this year, the Tax Plan contained a number of surprises. Some expected plans were not included, and some unexpected plans were. With an outgoing Cabinet and elections scheduled for November, certain plans were omitted or postponed. Additionally, the ensuing parliamentary debate has led to a number of striking amendments to the Cabinet’s proposed plans. In this article, we list a number of the measures that are of particular relevance to an international audience.
Please note: most of the topics mentioned below have yet to be (fully) discussed and approved by the Dutch House of Representatives and the Senate. The measures may therefore be subject to change. Unless specifically noted otherwise, the information below concerns the Cabinet’s proposed plans. Be sure to discuss the consequences of the proposed legislation with your Baker Tilly tax advisor.
UPDATE: The 2024 Tax Plan has been approved by the Dutch House of Representatives and now awaits debate and approval by the Dutch Senate. A number of important amendments have been approved, including significant changes to the 30%-ruling for expats and a lower threshold for the Act on excessive borrowing as of 2024. Your Baker Tilly advisor would be happy to discuss the latest state of affairs with you.
Further update 20 December 2023: The Dutch Senate has now also approved the 2024 Tax Plan. However, a number of topics will receive further attention in early 2024, including the changes to Box 2, Box 3 and the 30%-ruling. More information is expected in the 2024 Spring Memorandum.
Measures for everyone
The tax rates and brackets in box 1 (income from work and own home) of the Dutch Personal Income Tax (PIT) are to be adjusted. The lower tax rate (including premiums) will increase from 36.93% to 36.97%. The threshold for the highest tax rate (49,5%) will increase from € 73,032 to € 75,625; this is a lower increase than expected based on inflation.
Box 3: income from savings and investments
In 2021, the box 3-system was deemed to be unlawful by the Dutch Supreme Court from 2017 onwards. What followed was bridging legislation, in expectance of a whole new system to be introduced in the near future. The new system was postponed several times, and is now expected to enter into force in 2027. A number of tweaks to the current bridging legislation have been proposed, in an attempt to bring the taxation of a notional yield more in line with the actual yield. This includes for example the defiscalisation of mutual receivables and debts between partners. However, recent developments may yet affect the legality of the bridging legislation.
For now, it is important to note that the suggested increase of the box 3 tax rate from 32% to 34% has been further amended by the House of Representatives, and is expected to be 36% in 2024.
Businesses subject to Personal Income Tax
The expedited reduction of the self-employment deduction for PIT-entrepreneurs (e.g., sole proprietors and certain partnerships) is to be continued. This means the deduction in 2024 will amount to € 3,750, gradually decreasing to € 900 in 2027. Additionally, the SME-profit exemption for PIT-entrepreneurs will be lowered from 14% to 12,7%.
An unexpected proposal was the restriction of the amortisation of real estate in own use by PIT-entrepreneurs. This will be restricted to 100% of the WOZ- value (was 50%). Transitional law may apply to recently commissioned buildings.
Corporate income tax
Surprisingly, no adjustments to the Corporate Income Tax (CIT) rates were proposed. Equally surprising was the fact that the gift deduction for legal entities donating to charity, which was expected to be curtailed, will be abolished altogether in 2024. However, a gift from a legal entity will not be considered to be a deemed distribution to the shareholder (so no dividend tax and/or personal income tax due).
The fiscal qualification of limited partnerships (CV) and funds on joint account (FGR) are set to change. Currently, both forms of legal entity can be ‘open’ (non-transparent for tax purposes) or ‘closed’ (transparent for tax purposes). As of 2025, FGRs may still be ‘open’, but only under stricter conditions than currently apply. All CVs will be qualified as transparent. An ‘open’ CV will be deemed to have transferred its assets to its participants. This transfer may lead to a settlement for CIT and PIT purposes as of 1 January 2025.
Transitional law will apply in 2024, covering the substantial shareholding settlement, a share transfer and possible real estate transfer tax. Conditions apply. Alternatively, a payment deferral for corporate income tax may be possible for a period of 10 years if the transitional law is not applied in 2024.
Foreign legal entities are considered either transparent or non-transparent for Dutch tax purposes. Foreign legal entities comparable to a Dutch legal entity follow the same qualification as the comparable Dutch legal entity. Foreign legal entities that are not comparable to Dutch legal entities are either considered non-transparent (if they are located in the Netherlands), or they follow the foreign qualification (if they are located abroad).
The Dutch legal forms exempted investment institution (VBI) and fiscal investment institution (FBI) are currently exempt from CIT. The conditions for exemption will be tightened as of 2025. For example, an FBI will no longer be allowed to invest in Dutch real estate. Under conditions, it may be possible in 2024 to transfer Dutch real estate from an FBI without real estate transfer tax being due.
Substantial shareholding: changes to box 2 PIT taxation
A change in the taxation in box 2 of the PIT (income from substantial shareholding, for shareholders with a direct or indirect share of 5% or more in a company) was approved last year. As of 2024, a two-bracket system will be introduced. In 2023, the tax rate was 26.9%. From 2024, box 2-income up to € 67,000 will be taxed at 24.5%, with the excess subject to a rate of 33%. The Tax Plan noted a top rate of 31%, but the House of Representatives subsequently adopted a motion to increase the top rate to 33%.
Also previously adopted, but noteworthy in light of its imminent entry into force, is the Act on excessive borrowing. Shortly put, a substantial shareholder with debts to his own company, or any other companies in which he has a substantial shareholding, will face taxation (in box 2) on the amount in excess of € 700,000. The first year of taxation is 2023, with 31 December 2023 as the reference date for the amount of the debts.
The confluence of these two measures mean it would be wise to discuss your current debts and dividend policies with your tax advisor.
Business succession scheme
A number of changes to the business succession scheme (BOR) were announced over the past years. As of 2024, the BOR will no longer apply to rented real estate, with a few exceptions. Further changes are expected in 2025 and 2026, including changes to the thresholds for exemption. Your Baker Tilly tax advisor would be happy to explain the changes with you in more detail.
Dividend stripping measures and the conditional withholding tax for dividends
Dividend stripping is a process with which dividend taxation is evaded by means of, shortly put, a number of artificial steps. Evading dividend taxation by means of dividend stripping is not permitted, but it has proven difficult to recognise. The Cabinet has therefore proposed a number of changes with regard to the burden of proof. These changes affect offsetting dividend tax in the CIT and PIT, the request needed to recover withheld dividend tax, as well as the withholding exemption in the Dividend Tax Act, as of 2024.
Additionally, a conditional withholding tax for dividends will come into force as of 2024, affecting dividends paid out by a Dutch company to a shareholder in low-taxed jurisdictions and states on the EU list of non-cooperative jurisdictions. This also applies to conduit situations, and may possibly be applicable to distributions to hybrid entities. The withholding tax is equal to the higher CIT rate (25.8%), and possible dividend tax may be offset against the withholding tax.
Employers and personnel
A number of changes will affect employers and personnel, including a decrease of the discretionary margin in the Labour Cost Arrangement and an increase of the tax-free reimbursement of travel expenses. Additionally, the Dutch minimum wage is set to increase further as a result of an amendment in the House of Representatives.
As adopted last year, a cap will be placed on the maximum amount of the tax-free reimbursement under the 30%-ruling for incoming expats with a specific expertise that is scarce in the Netherlands. This change will enter into force on 1 January 2024, with transitional law for employees who applied the 30%-ruling in the last pay period of 2022. The cap means that the maximum tax-free reimbursement will amount to around € 69,900 in 2024. Please note: this cap does not involve a maximum for the wages themselves, and it remains possible, under conditions, to reimburse the actual extraterritorial expenses instead.
Real estate and VAT
Several changes have been proposed with regard to real estate, real estate transfer tax and Dutch VAT. It is noted that a number of previously announced plans were not included in this year’s Tax Plan.
An adjustment as of 1 January 2025 has been proposed to the concurrence exemption for Dutch real estate transfer purposes. This is aimed at preventing an undesirable concurrence of possible non-taxation of Dutch VAT and Dutch real estate transfer tax in the case of a share transfer involving (newly built) real estate or qualifying building sites.
A limitation on interest deduction with regard to rented real estate was expected, but the Tax Plan did not include a proposal on the matter.
Additionally, the current legal split exemption for real estate transfer tax purposes does not contain a strict transfer prohibition (to third parties). This scheme will likely be aligned with the other reorganisation exemptions for real estate transfer tax purposes. This measure was not included in the Tax Plan either, but may well be part of next year’s plans, possibly coming into effect as of 1 January 2025. Likewise, it is expected that a proposal on changes to the rules regarding the VAT revision on so called valuable (renovation / rebuilding) services will be addressed by the next Cabinet.
In conclusion: parliamentary scrutiny continues
In this article, we have provided a brief overview of a number of upcoming fiscal proposals and changes in the Netherlands. A more detailed summary is available (in Dutch).
Please note that most of the measures and proposals mentioned above are currently still being debated in the Dutch House of Representatives. There are also a number of measures on the table that we have not mentioned in this article.
It is possible that the plans may be amended or even stricken off altogether, in the course of the parliamentary debate over the next several weeks. Please be sure to seek professional advice before acting on any of the proposed measures. Our tax advisors would be happy to discuss the potential impact of these measures on your tax position.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
