Main tax measures of the 2021 Tax Plan for international organisations

The measures will apply from 2021, unless stated otherwise. The measures marked with a * have already been included in a previous bill.

Income tax

Box 1 rate

The (combined) basic rate of personal income tax is to be reduced to 37.10 per cent. The top rate will continue to be 49.5 per cent for income above EUR 68,507. The basic rate is to be reduced in steps to 37.03 per cent in 2024. The top rate will not change.

Box 2 rate*

The box 2 rate is to be increased from 26.25 per cent to 26.9 per cent.

Amendments to box 3

Base and rate

The amount of tax-exempt assets is to increase from EUR 30,846 to EUR 50,000 (and for partners from EUR 61,692 to EUR 100,000). In addition, the bracket limits are to be adjusted, with the second bracket starting at EUR 100,000 and the third bracket at EUR 1,000,000, both therefore after deduction of the amounts of tax-exempt assets. The tax rate is to be increased from 30 per cent to 31 per cent. For more information on the amendments, please refer to our box 3 visual.

The practical possibilities for a levy based on an actual return are currently being investigated. This will also include the role of banks in determining the actual returns. There will also be a study into the possibilities of introducing a rebuttal scheme for taxpayers who mainly or exclusively have savings in box 3. The results of both studies will be announced in the spring of 2021, so that they can be used during the formation of the new Dutch government.

(No) knock-on effect on asset and income dependent schemes

As regards the application of the care allowance, child benefit, the childcare allowance and the personal contribution in the context of the Dutch Long-Term Care Act (in Dutch: “Wet langdurige zorg”), it has been stipulated that the current (indexed) asset threshold will continue to apply (EUR 31,340 for 2021). In that regard, the amendments to box 3 will not have any effect on these schemes. However, the amendments to box 3 will affect the combined income that becomes therefore lower. That is generally favourable because a lower combined income will more quickly lead to an entitlement to, amongst others, allowances and the child benefit.

No tax in box 3, but a return is still required

People with assets worth more than EUR 31,340 will, in the future, still have to declare their assets in box 3 in their personal income tax return, even if they no longer have to pay any tax due to the increased level of tax-exempt assets. The Dutch tax authorities are actually going to pass on this information to other government bodies. The inspector will determine the amount by which the net worth of the assets exceeds the threshold of EUR 31,340 in a decision on the tax assessment.

Taxpayers with assets of more than EUR 31,340 who do not declare their box 3 assets on time will receive a reminder, then a second reminder and finally the tax inspector will issue an ex-officio tax assessment.

Further reduction in the self-employed person's allowance

The self-employed person's allowance is to be scaled down more quickly to EUR 6,670 in 2021. The accelerated reduction will take place in unequal steps to EUR 3,240 in 2036.

Tax deductions percentage reduced*

Certain personal income tax deductions are to be deductible to a maximum of 43 per cent in 2021. This applies to, for example, mortgage interest relief, the entrepreneur's allowances (the self-employed person's allowance, the research and development work allowance, the co-working partner's allowance, the starter's allowance in the event of incapacity for work and discontinuation relief), SME profit exemption and the provision of assets exemption.

Increase in employed person’s tax credit

The employed person’s tax credit is to be increased to a maximum of EUR 4,205. The increase as of 2022 will therefore be applied in 2021 due to an accelerated reduction in the self-employed person's allowance.

Excessive debts of a director and major shareholder in his own company*

The Bill relating to excessive loans from a person's own company was submitted earlier this year. As from 2023 holders of a substantial interest will have to pay 26.9 per cent personal income tax on excessive debts (more than EUR 500,000) that they have against their own limited company/companies. The same applies to debts of their relatives by blood or by marriage. Only family house purchase loans are exempt subject to certain conditions.

Replacement of deduction for training costs*

The tax deduction for training costs is to be replaced as of 2022 by the STAP budget (Labour Market Position Stimulus) subsidy scheme which will apply to people who are linked to the Dutch labour market. In 2021 taxpayers will still be able to use the tax deduction for training costs.

Wage tax

Change to work-related expenses budget

The work-related expenses budget has been increased in 2020, in connection with the coronavirus crisis, from 1.7 per cent to 3 per cent for the first EUR 400,000 of the wage bill. For the remaining portion of the wage bill the work-related expenses budget is 1.2 per cent. As from 2021, the work-related expenses budget will be 1.7 per cent for the first EUR 400,000 of the wage bill and 1.18 per cent for the remaining portion of the wage bill. The permanent reduction from 1.2 per cent to 1.18 per cent is a new measure to cover the proposed extension of the specific exemption for training costs.

Specific exemption for training costs

The specific exemption for attending a training course or studies aimed at acquiring income is to be extended to include situations in which the related payment or provision can be regarded as wages from previous work. As a result of this extension, payments of training costs as part of the social plan as well as training budgets that have not yet been used during the period of employment will also be covered by this specific exemption. 

Job-related investment discount 

The Job-related investment discount (in Dutch: Baangerelateerde investeringskorting (BIK)) will be introduced per 2021, although it already applies to investments from 1 October 2020. With this investment discount, both private and corporate entrepreneurs can, under certain conditions, offset part of their investments against their payroll taxes. For investments up to and including five million euros, 3.9 percent of the investment can be deducted from the payroll taxes. For larger investments this is 1.8 percent for the part above five million euro. 

Investments made on or after 1 October 2020 and paid in full in 2020 are not covered by the BIK facility. However, if investments made from 1 October 2020 are partially paid in 2020 and fully paid between 1 January 2021 and 31 December 2022, they may be covered by the BIK facility.

A BIK application can be filed as of 1 September 2021. The Netherlands Enterprise Agency (RVO) must decide on the application within 12 weeks, so that the entrepreneur can cash in the investment discount for the first time later in 2021 (the investment discount is designed as a remittance reduction on payroll taxes). The BIK remittance reduction can be applied to all wage tax to be paid for that calendar year, if necessary by means of corrections to previous wage tax returns for the year.

Due to a possible conflict with EU law, provisions relating to the affiliation of the BIK to the fiscal unity are now temporarily deleted and submitted to the European Commission.

These provisions will only enter into force once approved by the European Commission. In that case, it will be possible for the fiscal unity to apply for the BIK on a date to be determined by a Royal Decree, with retroactive effect to 1 January 2021.

Please read more in our article: How do you take advantage of the Job-related investment discount?

End transition law 30% ruling*

As of 1 January 2019, the duration of the 30% ruling (expat ruling) has been reduced from eight to five years. Transitional law is applicable to employees who would lose the 30% ruling after 1 January 2019 due to this reduced duration. At the end of 2020 this transition law ends. Therefore a substantial group of employees will no longer be eligible for the 30% ruling and will receive a lower net income as of January 2021. As of this date, these employees are also no longer eligible for the special income tax regime for their personal investment income (box 2 and box 3).

Corporate income tax

Tax rate

The previously announced tax rate reduction in the high rate of corporate income tax from 25 to 21.7 percent will not be implemented. However, the corporate income tax rate applicable to the first bracket is still going to be decreased from 16.5 to 15 per cent. This low rate will apply in 2021 for profits up to EUR 245,000 and in 2022 this threshold will be increased to EUR 395,000.

Innovation box

The effective tax rate of the innovation box will be increased from 7 per cent to 9 per cent. This was already announced on the Budget Day of last year.

Amendments to loss set-off regime

The loss settlement rules are adjusted.

The new rules are that from 1 January 2022 onwards, an indefinite loss carry-forward will apply (at this moment, this is six years forward). However, losses (both carry-forward and carry back) can only be fully deducted up to an amount of EUR 1 million in taxable profit. If the profit in a year exceeds EUR 1 million, the losses are only deductible up to 50 percent of the higher taxable profit minus an amount of EUR 1 million.

Example
With a deductible loss of EUR 3 million and a profit in the following year of EUR 4 million , EUR 2.5 million profit can therefore be set off against losses (i.e. EUR 1 million and 50 percent of the remaining EUR 3 million). Corporate income tax is payable on the remaining EUR 1.5 million. The background to the proposed scheme is that larger profitable companies always pay corporate income tax in profit years.

The new scheme also contains transitional law. For the carry-forward of losses, losses incurred in financial years that started on or after 1 January 2013, fall under the new scheme that comes into effect on 1 January 2022. 

The State Secretary promised to adopt a policy of approval for the situation in which the concurrence of the so-called compensatory tax levy test of the measures limiting the interest deduction and the amended loss set-off regime, turns out to be unreasonable.

Coronavirus tax reserve

Companies that expect a loss during 2020 as a consequence of the coronavirus crisis are allowed to create a coronavirus reserve in the corporate income tax return for 2019.This may lead to a liquidity benefit. This is in line with a decision that has already been taken earlier this year. You can read more at Measures to mitigate the impact of coronavirus, under the tax on profit tab.

No proposal to limit deductibility of shareholder fees and royalties

One of the measures previously outlined by the Advisory Committee on the Taxation of Multinationals is a limitation of the deductibility of shareholder fees and royalties. A proposal to this effect was already expected in this Tax Package. However, the government first wants to assess the necessity of this by examining the nature, scope and influence of shareholder costs and royalties. Furthermore, the report of the Advisory Committee also does not suggest that the Netherlands deviates from other EU member states with regard to the deductibility of royalties.

Amendments to liquidation loss rule

The deduction of liquidation and cessation losses are adjusted. Insofar as the liquidation loss exceeds EUR 5 million, it can only be considered if the taxpayer has significant authority in the dissolved entity and the dissolved entity is located in the Netherlands, another EU/EEA Member State, or a state with which the EU has concluded a specific association agreement. The liquidation must have been completed within three years after it started, or within three years after the decision to liquidate. This time-related condition applies to all liquidation losses, irrespective of their size. A grandfathering rule applies to liquidations which have been decided on before 1 January 2021. The bill also contains a rule for cessation losses of permanent establishments which is comparable to the change in the liquidation rule. Cessation losses are subject to an exception for two types of investment (immovable property in a third state and shared entitlement to the assets of a business being operated in a third state) as a result of which a cessation loss of more than EUR 5 million can be considered. 

The new scheme also contains several additional changes to ensure that the new conditions cannot be avoided. For example, there is a look-through approach which prevents the rule being circumvented via a (intermediate) holding company. An assessment has to be made as to whether the liquidation loss could also have been taken into account if the taxpayer had directly retained the participation. Read more on the amendment of the liquidation loss regime here. 

The State Secretary promised that when shares are awarded after a demerger, a proportional part of the amount sacrificed for the shares in the demerging legal entity may - subject to conditions - be used for the determination of the so-called sacrificed amount.

No proposal to limit deductibility of shareholder fees and royalties

One of the measures previously outlined by the Advisory Committee on the Taxation of Multinationals is a limitation of the deductibility of shareholder fees and royalties. A proposal to this effect was already expected. However, the government first wants to assess the necessity of this by examining the nature, scope and influence of shareholder costs and royalties. Furthermore, the report of the Advisory Committee also does not suggest that the Netherlands deviates from other EU member states with regard to the deductibility of royalties.

Announced adjustments to arm's length principle

The Dutch government aims to tackle informal capital structures and will present in the spring of 2021 a new legislative proposal to adjust the arm's length principle. The arm's length principle ensures that transactions between group companies take place under ordinary trade conditions. The legislative proposal will limit the downward adjustment of the Dutch taxable amount when this amount is not taxed by the recipient or is taxed at a lower rate. 

Announced investigation on capital deduction

The Dutch government will investigate a further limitation of interest deduction under the earnings stripping measure as well as the introduction of a capital deduction measure. This process is supposed to be budget-neutral. The period in which the investigation will take place is not yet known.

Additional substance requirements for intercompany financing / licensing* 

Some time ago a decree was published that determines that as of 1 January 2021, additional substance requirements will apply to Financial Service Companies (“FSC”). An FSC is a Dutch taxpayer whose activities, for more than 70 per cent, consist of directly or indirectly receiving and paying interest/royalties/rent/leasing installments from foreign group companies. The additional requirements are: 1) EUR 100,000 of payroll expenses and 2) existence of an office space at the disposal of the company for at least 24 months. Failure to meet these requirements will result in the exchange of information with the country from which the payments were made (source state). As a consequence, the source state could deny treaty benefits.

Information exchange on flow-through companies without sufficient substance

The government will examine the possibility of exchanging information with foreign countries for flow-through companies (flow-through dividends) that do not have sufficient substance in the Netherlands. This is also in line with the existing, similar measures for flow-through companies that mainly receive interest or royalties from, and pass them on to, foreign countries.

Announced adjustment of offsetting withholding taxes against corporate income tax 

As of 1 January 2022, the Dutch government aims to limit the offsetting of dividend tax and gambling tax against corporate income tax. This measure will limit the offsetting of withholding taxes to the annual amount of corporation tax due. Withholding taxes that could not be set off will be carried forward for offsetting in the next year.

Alternatives to the fiscal unity regime (group consolidation scheme)

A letter has been sent to the Dutch House of Representatives containing an update on the situation with regard to the difficulties of a new group scheme. The letter contains an overview of the options and problems. The decision on the design of a bill is up to a new government.

Overlap between ATAD II and earnings stripping measure

Currently there is a possible overlap between the ATAD II measures (measures tackling hybrid mismatches) and the earnings stripping measure (limitation on interest deduction). As a result, it may happen that income is taken into account twice, or interest payments are twice not deductible. It is proposed that such interest payments be set off pro rata against dual inclusion income, whether or not in a subsequent year. The overlap with the minimum capital rule for banks and insurers will also be adjusted.

Preventing exemption for specific interest deduction limitation

There is a specific restriction on deduction of costs and currency results regarding internal group debt which is used for a so-called tainted transaction (e.g. purchase of a participation). As positive results (e.g. foreign exchange gains) are also covered by this rule, it is possible that in practice there is an exemption instead of a restriction on deduction. The rule is adjusted so that the exemption cannot be higher than the deduction limitation. The assessment will take place on a loan-by-loan basis.

Minimum capital rule for banks and insurers

The generic minimum capital rule for banks and insurers is to be changed in such a way that, as from 2021, additional Tier-1 capital will no longer be included as equity. In addition, the equity capital ratio is to be changed from 8 per cent to 9 per cent. Furthermore, the bank tax rates in 2021 are to be increased on a one-off basis from 0.44 per cent to 0.66 per cent and from 0.22 per cent to 0.33 per cent.

Cash donations are no longer tax deductible*

Cash donations no longer qualify for the deduction scheme for corporate income tax purposes. This is because cash donations are susceptible to fraud and because there are good alternatives to cash donations, such as the bank transfer of the donation amount where the donation can be substantiated by means of a bank statement.

Tax at source

Conditional source tax on interest and royalties*

By the 2021 Bill on source tax - part of the 2020 Tax Plan - a conditional source tax was introduced for outbound interest and royalty payments to related parties that are resident in countries without tax on profits or countries that levy such tax at a nominal rate of lower than 9 per cent, countries included in the EU list of non-cooperative jurisdictions and in tax abusive situations. The tax rate for the source tax will be equal to the highest rate of the corporate income tax, i.e. 25% (2021). The bill will enter into force on 1 January 2021.

DAC6

When to report*

The 30-day period for the reporting of new cross border arrangements starts on 1 January 2021. This means that arrangements that became reportable between 1 July 2020 and 1 January 2021 need to be reported before 31 January 2021. The deadline for reporting ‘historical’ cross border arrangements (arrangements of which the first implementation step occurred between 25 June 2018 and 1 July 2020) is deferred from 31 August 2020 to 28 February 2021. Read more on Dutch DAC6 implementation here.

Transfer tax

Transfer tax exemption for first-time buyers 

Young first-time buyers on the housing market are eligible for a transfer tax exemption from 1 January 2021. Someone will qualify as a first-time buyer if they are 18 years old or older but under the age of 35 when they purchase their first property. The first-time buyer can only use the exemption once. From 1 April 2021, a maximum housing value limit of 400,000 euros will apply, which will be indexed annually. This limit applies to the entire dwelling and not to the value of the part of the dwelling acquired. Only starters who buy a house under 400,000 euros will receive the exemption, while starters who buy a more expensive house will pay 2% transfer tax on the entire amount of the house, just like other house buyers.

Buyers aged 35 and over, and buyers younger than 35 who are no longer eligible for the exemption, will pay the transfer tax at the reduced rate of 2 per cent. One condition for both first-time buyers and buyers aged 35 and over is that they will actually live in the property on a long-term basis. Otherwise, the general transfer tax rate will be applicable.

Increase in the general transfer tax rate

The general transfer tax rate is to be increased from 6 to 8 per cent (an increase to 7 per cent had been previously announced). This applies to commercial and factory premises as well as to homes which the buyer does not use for long-term accommodation, for example holiday homes or buy-to-let properties.

Housing cooperatives are exempted from the increase in the rate of transfer tax from 2 to 8 per cent when they purchase houses from housing corporations. Housing corporations as joint occupants of a complex should be put on an equal footing with the individual purchaser of a complex. Transfers between housing corporations in remediation will, subject to conditions, be exempt from transfer tax as from 1 October 2020.

VAT

E-commerce*

As of 1 July 2021, the VAT treatment and compliance of cross-border supplies of goods to consumers will radically change. In addition, facilitating platforms (such as Amazon, Alibaba) will in principle be deemed to be suppliers. Moreover, the VAT exemption for small consignments (EUR 22) will cease to apply.

COlevy

Bill on a CO₂ levy for industry

A national CO₂ levy is introduced in 2021 for industrial production and waste incineration. This levy is to be introduced alongside the existing system for the pricing of CO₂ at EU level (EU-ETS). The ETS indirect emission costs subsidy scheme ends this year. Companies will be eligible for an exemption (which will decrease over time) on part of their emissions (dispensation rights), so that they can change their operations in order to reduce their CO₂ emissions. There are possibilities for using a surplus of dispensation rights for set-off and transfer purposes. You can find more about the Dutch CO₂ levy for industry and the PwC level playing field assessment published on 15 September 2020 in our article ‘Legislative proposal CO₂ levy for industry’.

Environment

Aviation Tax Act [Wet vliegbelasting]*

The Coalition Agreement states that, as from 2021, a national aviation tax is to be introduced if the European route (adoption of EU harmonized pricing of environmental damage caused by air traffic) does not generate enough effect (or does not do so quickly enough).

In the case of passenger flights departing from the Netherlands, a levy of EUR 7,45 per departing passenger will be imposed. Due to Schiphol's hub function the levy will not be imposed on transit passengers.

The rate of EUR 7,45 Eur be set in December more precisely because it will still be adjusted for inflation.

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