Overview of Tax Developments

Overview of Tax Developments

The cabinet published the Spring Memorandum 2022 on May 20th, along with a Chamber letter outlining the content and schedule of various legislative proposals. The opposition has also put forth proposals. We have summarized some of this for you.

  1. Taxation of director-major shareholders (DGA’s)

The current box 2 rate is 26.9% for income from substantial interest. For 2024, the cabinet proposes a two-tier rate: 25.96% (up to €67,000 of taxable income) and 29.5% for the remainder. With this, the cabinet hopes that DGAs will annually distribute dividends of at least €67,000.

The left wing of the Second Chamber has submitted an initiative legislative proposal with a first bracket up to €58,989 and a rate in the second bracket of 40.59% (!).

When the rate is raised to 26.25% and 26.90%, it will likely also apply to existing profit reserves as of January 1, 2024. Therefore, it may be attractive to convert profit reserves into nominal share capital or agio before January 1, 2024.

The customary salary that a director-major shareholder (“DGA”) must receive from their own company is determined with consideration to the so-called “efficiency margin.” Currently, this allows a DGA’s salary to be set 25% lower than is customary for the nature and duration of the work performed by the DGA. Starting in 2023, this efficiency margin will be reduced to 15%. With this change, the cabinet hopes to collect a higher amount of wage tax from DGAs. However, because the basis cannot be precisely determined, we wonder if this measure will be effective.

  1. Corporate Income Tax

Currently, the first €395,000 of profit for a BV or NV is subject to a 15% corporate income tax (“CIT”). The remainder is subject to 25.8% CIT. Starting in 2023, the threshold for the 15% tax bracket will be lowered to €200,000. This means that companies will be taxed at the higher rate of 25.8% sooner, making it less attractive to spread fiscal profits across multiple companies.

  1. Business Succession Scheme

The cabinet has not announced any fundamental changes to the Business Succession Scheme (“BOR”) in gift and inheritance tax for this year.

However, the opposition has introduced an initiative legislative proposal. It includes a legal fiction for rented real estate, which would qualify as investment assets and therefore fall outside the BOR facilities. In addition, the proposal reduces the gift and inheritance tax exemption under the BOR from 83% to 25% and eliminates the income tax deferral arrangements for gifts or inheritances of substantial interest shares.

  1. Box 3

The previous proposal to gradually increase the tax-free wealth in three steps to €80,000 is being reversed. The tax-free wealth in Box 3 remains at €50,650. Based on the aforementioned measures, it appears that the funding needed to compensate mass objectors will be recovered from wealthy Dutch citizens (through Box 2 and Box 3).

Temporary legislation is being prepared for 2023 and 2024 to adjust the Box 3 imputed returns to the average returns for asset categories in a given year, aligning it more closely with actual returns in that year. From 2025, the intention is to tax actual returns in Box 3.

  1. Real Estate Transfer Tax

Starting in 2023, the general rate of real estate transfer tax will increase from 8% to 10.1%. An earlier increase to 9% had already been announced. The rate for the acquisition of a primary residence remains unchanged at 2%.

  1. Income Tax

The General Tax Credit is being further phased out, potentially resulting in a higher tax burden.

The increase in the untaxed travel allowance is accelerated by one year. Therefore, employers may provide a higher untaxed travel allowance. The current €0.19 per kilometer will increase to €0.21 in 2023, with a likely further increase in 2024.

The income averaging scheme is abolished starting in 2023. This means that the period from 2022 to 2024 is the last period for which income can be averaged. We will check if it is still possible for you to use this scheme.

  1. VAT and Excise Duties

To mitigate the effects of high energy bills, the cabinet has taken additional measures. The reduction of the VAT rate from 21 percent to 9 percent on energy (natural gas, district heating, and electricity) will take effect from July 1, 2022.

Driving will also become more expensive again. The temporary reduction in excise duties runs until the end of 2022. Starting on January 1, 2023, excise duties will return to their previous levels, as of before April 1, 2022.

  1. Owner-Occupied Home

Starting on January 1, 2023, the maximum gift for owner-occupied homes (“jubilee gift”) will be reduced from €106,671 to €27,231. This is also the amount of the one-time increased exemption for gifts from parents to children.

  1. 30% Ruling

The amount of income that expatriates can apply the 30% ruling to is capped at the ‘Balkenende norm,’ an annual salary of €216,000. This measure will be phased in over a period of three years.

  1. Corporate Income Tax (OECD Proposals)

In October 2021, OECD proposals (Pillars 1 and 2) were launched, supported by 137 countries. Pillar 1 establishes a different allocation of profits and taxing rights among countries for approximately 100 of the largest and most profitable multinationals, including the largest digital companies. This allows countries where a multinational has customers or users to impose more profit taxation, even if the multinational is not physically present in that country. The European Commission is expected to propose a directive for the implementation of Pillar 1 before the summer of 2022.

Pillar 2 establishes a global minimum level of taxation. Pillar 2 ensures that multinationals and large domestic groups with a turnover of €750 million or more pay at least 15% in effective tax on their profits. This is achieved through a top-up system. Implementation of Pillar 2 in national legislation is expected to begin on January 1, 2024.