Budget day: Tax Plan for 2022

On 21 September 2021 (Budget Day), the government presented the 2022 Tax plan. We will go into this in more detail below, with thanks to Ton Mertens, who has already put things into words beautifully.

As expected, the resigned cabinet has announced small changes. In this e-mail, we have outlined the main plans that could be interesting for you. Please note that the legislative proposals mentioned have yet to be approved by Parliament. They are therefore still subject to amendment.

1. Wage and income tax rates

In wage and income tax (box 1), a two-bracket system has effectively been in place since 2020, with a basic rate of 37.10% and a top rate of 49.50%. The basic rate will be reduced to 37.07% in 2022 (2021: 37.10%). The top rate remains 49.50% but will start from an income of € 69,398 in 2022 (2021: € 68,507).

2. Companies – General

2.1 Corporate income tax (CIT) rates
There are also two taxable income brackets in the CIT. A lower CIT rate of 15% applies to the first income bracket. The lower tax bracket will be extended to € 395,000 in 2022 (in 2021: € 245,000). The excess of the taxable income will still be taxed against the CIT rate of 25%.

2.2 Tax treatment of stock option rights
Now, employee stock options are subject to wage tax at the moment the employee exercises them. The exercise of the options could lead to liquidity problems, for example because the employee is bound by sales restrictions. In that case, the employee must pay the tax from their own resources. To address these concerns, the government has proposed to shift the taxation date to the moment the employee can trade the shares. If the shares are immediately marketable at the moment the options are exercised, the taxation date will be the same as under current legislation and nothing will change. If the shares are not marketable at the moment of exercise, employees can choose to be taxed immediately rather than at the later moment when the shares become marketable.

2.3 Limitation of crediting dividend tax and gambling tax
Currently, companies can fully credit withholding taxes (dividend tax and gambling tax). This means, among other things, that there is a full right to a refund of withholding tax withheld if a company does not owe any CIT in a particular year, for example because of a loss suffered. With effect from 1 January 2022, the crediting of withholding tax will be limited up to the amount of CIT due before the set-off in a particular year. Withholding tax that cannot be credited in a year can be carried forward to future years.

2.4 Loss settlement CIT
On Budget Day last year, the government has announced a change to the loss compensation rule in the corporate income tax (CIT). We mention this again, because the new loss settlement rules will most likely come into force on 1 January 2022.

Under the current loss compensation rule, tax losses can be carried back one year and carried forward six years. That means that you can offset a loss against positive income from the previous year and the next six years. The government has proposed both an extension and a limitation of the loss compensation rule. The extension means that losses can be carried forward indefinitely over time. The limitation relates to the amount of the losses to be offset. The proposed limitation means in short that losses up to the amount of € 1 million can be fully offset against the taxable profit in a certain year. If the amount of losses exceeds the amount of € 1 million, the set-off of those losses will only take place up to an amount of € 1 million plus an amount of 50% of the taxable profit of that year after that profit has been reduced by € 1 million.

2.5 Excessive borrowing from own company
The bill on the Excessive Borrowing from Own Companies Act was presented before Budget Day. The bill aims to limit the excessive borrowing of the private shareholder from his own BV. In the case of a substantial interest holder who borrows more than € 500,000 from their company, it is proposed to tax the excess as income derived from a substantial interest (tax rate 26,9%). The measure will apply for the first time for the year 2023. Each substantial interest holder who has borrowed more than € 500,000 from his own company will have to review his position.

3. Companies – COVID-19

3.1 Grants for fixed costs untaxed
Companies affected by the corona crisis have been able to claim certain grants, such as the Fixed Costs Grant Scheme (TVL). It is proposed that these grants should not be subject to income tax or corporate income tax. This had already been arranged in a policy decision, but it will now be enshrined in the law with retroactive effect to 1 January 2021.

3.2 Work-related costs scheme (WKR)
The WKR allows employers to give their employees allowances and benefits in kind free of tax. For 2021, the so-called free space is 3% up to an amount of € 400,000 of the wage bill of the employees, and 1.18% above that amount. The percentage in the first bracket used to be 1.7%, but has been increased to 3% due to the corona crisis. In 2022, the regular rate of 1.7 will apply.

3.3 Home-working allowance
As a results of the new norm of hybrid working, the government would like to offer the possibility to employers to provide a tax-free (tax-free of wage taxes) home-working allowance to the employees. The exemption applies to a fixed amount of up to € 2 per day worked from home. The idea is that the amount of € 2 will cover the expenses incurred by the employee for like extra water and electricity consumption, heating, coffee, tea, and toilet paper. The employer and employee can agree on how many days they will work at the office and at home and agree on a combination allowance (home-working allowance and travel allowance) based on this division.

If you have any questions, please do not hesitate to contact us.