Budget Day 2024: overview of the new tax plans & proposed legislation

On Budget Day (Prinsjesdag, 17 September 2024) the Dutch Cabinet presented the new tax 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 26 November 2024: The House of Representatives recently approved the 2025 Tax Plan with a number of amendments. Your advisor would be happy to discuss whether this affects your tax position. Read more about a number of striking changes here. The Senate is expected to vote on the Tax Plan on 17 December 2024.

Measures for everyone

The tax rates and brackets in Box 1 (income from work and home) of the Dutch Personal Income Tax (PIT) are to be adjusted. In 2024, the tax & social premiums rates led to a combined tax rate of 36.97% in the first as well as the second bracket of Box 1; the excess was taxed at a rate of 49.50%.

In 2025, the combined rate in the first and second bracket will no longer be identical. A combined rate of 35.82% applies to the box 1 income up to € 38,441. Income between € 38,441 and € 76,817 is taxed at 37.48%. The top-rate remains 49.50%, applicable to income over € 76.817.

The tax rate in the higher bracket of Box 2 (income from substantial shareholding) will be lowered from 33% in 2024 to 31% in 2025. The tax rate for the lower bracket remains the same at 24.5%.

Earnings stripping measures

Currently, the deduction of interest may be limited as a result of the earnings stripping measure in the Dutch Corporate Income Tax Act (CITA). Interest may be deducted up to a maximum of € 1 million or 20% of the (tax) EBITDA, whichever is higher. This provision is to be adjusted in two ways:

• A general easing: the maximum of 20% is to be increased to 25%. This will apply to all situations.

• A tightening: the € 1 million minimum is to be abolished for real estate entities whose (corrected) assets consist mainly of real estate rented out to third parties, for at least half of the year. The term ‘mainly’ in this context means ‘70% or more’. This will therefore only affect specific businesses, but the bottom-line effects may be significant.
  

  Read more about the proposed measures and the effects they will have for businesses, here.

Loss compensation & remittance profit exemption

If a receivable on a loss-incurring company is waived (remitted), the cancelling of the debt may lead to a profit arising at the level of the loss-incurring company. This remittance profit is in principle exempted from taxation, but in practice may still lead to taxation as a result of loss relief rules.

To prevent this unintended consequence, the remittance profit exemption is to be amended.

The 2025 Tax Plan also includes reparation legislation regarding loss compensation. This aims to prevent the undesirable situation in which liquidation losses can be deducted at the level of the parent company by using an intermediary holding.

Repurchase facility in dividend taxation

The Dutch Dividend Tax Act contains a provision allowing the repurchase of shares by listed companies to occur without withholding dividend taxes.

It was decided by legislative amendment in 2023, to abolish this provision as of 1 January 2025. However, the 2025 Tax Plan now rescinds this abolishment.

Withholding Tax Act 2021: collaborative group to become qualifying unity

In order to avoid legal uncertainty, the term collaborative group (‘samenwerkende groep’) is to be replaced by the term qualifying unity (‘kwalificerende eenheid’). This is defined as follows: entities that act in unison with as principal objective or one of their principal objectives the avoidance of taxation of one of those entities.

OECD Administrative Guidance, Pillar 2 and GAAR

Minimum Tax Act 2024 ensures that the profits of large multinational groups are taxed at an effective tax rate (ETR) of 15% all over the globe. To calculate this ETR, a (corrected) tax burden is divided by the corrected profit. If the result is lower than 15%, a top-up tax is applied.

The Minimum Tax Act 2021 is the Dutch implementation of the Pillar 2 initiative. This Act was implemented based on a European Directive, in turn based on OECD Model Rules. After the publication of the OECD Model Rules and the European Directive, the OECD published ‘Administrative Guidances’ several times, containing explanations as well as further rules. In aid of worldwide consistency (in as far as possible), these rules are to be included in national legislation.

The Pillar 2 top-up tax is included in the ‘subject-to-tax’-requirement of anti-abuse regulations. Several articles of CITA will be added or amended.

In 2019, the legislator did not deem it necessary to codify the general anti-abuse rule (GAAR) of Article 6 ATAD1 due to the existence of the doctrine of fraus legis. However, it has now been proposed to codify this in CITA after all, as of 1 January 2025.

Real estate and RETT

The real estate transfer tax (RETT) will be lowered from 10.4% to 8% for residences (homes). This will enter into force on 1 January 2026. The tax rate for the acquisition of a main residence (‘own home’) remains 2%.

As of 1 January 2025, the RETT confluence exemption for share transactions of a real estate entity will change. In order to prevent 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, 4% RETT will be due on the value of the underlying real estate. An exemption applies if that underlying (new) real estate is used continuously for at least 90% VAT-taxed supplies in the year of acquisition and the following to years.

Additionally, the current legal split exemption for real estate transfer tax purposes does not contain a strict transfer prohibition (to third parties). The conditions will be made stricter. This scheme will likely be aligned with the other reorganisation exemptions for real estate transfer tax purposes. However, a date for entry into force has not been set.

Finally, the introduction of a revision period for services to real estate is set to be introduced. This is aimed to combat the so-called ‘short-stay construction’, whereby a decrease of the VAT burden is achieved by temporarily renting out a property subject to VAT, deducting the input VAT and then engaging in VAT-exempt rental for which no right to deduct input VAT would have existed.

The legislative proposal concerns investments of at least € 30,000, introducing a revision period of 4 years after year of commissioning. The proposed date of entry into force is 1 January 2026.

Other VAT-related changes

A number of other VAT-related changes are expected, either as part of the 2025 Tax Plan or as a result of previously introduced legislation. This includes:

• Abolishment of reduced VAT-rate for art, culture, sports and hotel stays. The tax rate will increase from 9% to 21% for certain supplies, as of 1 January 2026.

• Restriction of the margin scheme for antiques, art and collectors’ items as of 1 January 2025.

• Expansion of the small business scheme (‘KOR’) as of 1 January 2025.

• Change rules regarding the place of supply for virtual events as of 1 January 2025.

30%-ruling to become 27%-ruling

The 30%-ruling for incoming or expatriate employees was changed last year. The maximum tax-free reimbursement was reduced to 30% for the first 20 months, 20% for the second 20% and 10% for the remaining 20 months. Transitional law applies to preexisting cases.

Based on a recent evaluation, this change is to be replaced as of 1 January 2027. Under the proposed new rules, the 30%-ruling is to become a 27%-ruling: the maximum tax-free reimbursement is 27% of the taxable wages for the full duration of the ruling. The minimum wage amounts will be increased to € 50,436 (or € 38,338 for employees younger than 30 with a qualifying Master-degree).

Transitional law applies: employees with a 30%-ruling prior to 2024 maintain their eligibility for a 30% tax-free reimbursement and the applicable minimum wage amounts will not be increased (other than the normal annual indexation).

Please note: the possibility to opt for non-resident taxpayer status was abolished (subject to transitional law) last year. Despite expectations to the contrary, this abolishment has not been undone in the 2025 Tax Plan.

Enforcement of ‘Wet DBA’ for zzp’ers

The ‘Wet DBA’ offers clarity about whether a self-employed person without staff (‘zzp’er’) is in fact a zzp’er or an employee. This distinction is relevant for matters such as taxation, social security and labour law. So far, an enforcement moratorium applied, except for exceptional situations.

However, it has been announced that the Dutch Tax Authorities will start enforcing the Wet DBA again as of 1 January 2025. Although in principle no punitive fines will be issued for 2025, default penalties are however possible.

New model agreements will no longer be reviewed (as of 6 September 2024). Model agreements may still be of added value, but the actual practice (working according to the model agreement) is decisive. Approved model agreements are valid for a maximum of 5 years after approval by the DTA.

It is expected that a new system, the so-called ‘VBAR’ will enter into force in 2026.

Working days abroad: tax leak to be closed

Generally, taxpayers living abroad only face Dutch taxation on days worked in the Netherlands. In a number of cases, tax treaties appoint the right to levy taxes on days worked abroad to the Netherlands, too. However, Dutch national legislation does not always allow for this right to levy to result in an actual levy. An example in of this is a seafarer who lives in Belgium, has a Dutch employer, and performs his/her activities solely outside of the Netherlands.

The 2025 Tax Plan proposes legislation to amend this. In the future this may also apply in cases of changes to tax treaties where certain work-from-home days abroad may be taxed in the Netherlands.

The debate continues

In this article, we have provided a brief overview of a number of upcoming tax 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. The proposals have yet to be approved by the Dutch House of Representatives and the Senate. 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 any developments and 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.