Dutch Budget Day 2023 – Tax plan 2024

On 19 September 2023 (Budget Day), the Dutch (interim) government announced – among others – its Tax Plan Package for 2024 (and following years). The 2024 Tax Plan Package consists of the 2024 Tax Plan, several proposed Tax Bills and the other tax measures 2024 (overige fiscale maatregelen 2024). In this tax alert we have summarised the most important tax measures.

As a preliminary remark, please note that the after 18 months in power, the Dutch four-party coalition government collapsed and elections will be held in November 2023. The effective date of the announced tax measures is not final yet (i.e., the measures need to be approved by the Dutch Upper and Lower Houses (‘de Eerste en Tweede Kamer’) and published in the Dutch Government Gazette. However, it is to be expected that the tax measures described below will be implemented in the Dutch tax laws.

1. Dutch corporate income tax

Rates
In 2023, the general corporate income tax (“CIT”) rate is 25.8%, with a reduced rate of 19% applying up to and including a taxable profit of EUR 200,000. It is yet unclear whether these rates and bracket limits will be adjusted for the year 2024.

Tax Qualification Policy for Legal Forms Act
Differences in the qualification of legal forms between different foreign tax systems can lead to hybrid mismatches. The Tax Qualification Policy for Legal Forms Adjustment Act (in Dutch: “Wet fiscaal kwalificatiebeleid rechtsvormen”) aims to prevent these mismatches by tackling the cause, the qualification differences. In essence, this concerns the additional methods of qualifying foreign legal forms and the abolition of the transparent tax treatment of the ‘open CV’ as per 2025.

Strengthening the approach to dividend stripping
Dividend stripping involves fraud where dividend WHT is reclaimed or offset twice – which is already illegal. A number of measures are being introduced to strengthen the approach to dividend stripping. Among others, the bill proposes to adjust the burden of proof to improve the inspector’s position. Also, an ‘efficiency margin measure’ to legislate a registration date is introduced for shares traded on a regulated market so it can be determined who is entitled to the dividend.

Pillar Two Implementation
The draft bill Minimum Taxation Act 2024, also referred to as Pillar Two, introduces a minimum effective tax rate of 15 per cent per jurisdiction for large international enterprises with annual turnovers exceeding EUR 750 million.

Adjustments to FBI Regime
The bill for the Adjustment of the Fiscal Investment Institution Act aims to adjust the scheme for the fiscal investment institution (in Dutch: FBI) in the Dutch CIT Act. As from January 1, 2025 it will no longer be possible for an FBI – which is liable to Dutch CIT but where the profits are taxed at a rate of 0 percent – to invest directly in Dutch real estate. The profits of such FBI are then taxed at the regular Dutch CIT rates. An FBI may invest directly in foreign real estate in shares in a regularly taxable subsidiary that has real estate located in the Netherlands.

Exempt investment institutions regime restriction
From 1 January 2025, the regime for tax exempt investment institutions (in Dutch: VBI) will be limited to certain institutions under the Financial Supervision Act (in Dutch: “Wet Financieel Toezicht”). Entities that only invest the private assets of participants, including the assets of one family, will in principle no longer be able to use the VBI regime.

Tightening threshold of earnings stripping measure for property companies with leased property
The earnings stripping measure is a generic interest deduction limitation measure that limits the deductibility of excess net interest expenses. This measure currently provides for the possibility to split up companies, allowing more frequent use of the EUR 1 million threshold. Although this phenomenon had already been recognised when the measure was introduced, the legislator is now taking action. With effect from 1 January 2025, the EUR 1 million threshold will not apply for property companies with leased property (to third parties).

ATAD III
The proposed EU Anti-Tax Avoidance Directive III (‘ATAD III’) targets aggressive tax planning techniques linked to the use of shell companies. ATAD III was initially planned to be implemented into domestic law before 30 June 2023 and applied by EU member states as from 1 January 2024. However, the adoption has not yet taken place (no draft legislation in place).

2. Dutch personal income tax

General:
The Dutch personal income tax (“PIT”) Act 2001 divides income into three sources (“three boxes”):

• box 1 (income from employment);
• box 2 (income from a substantial interest (shareholdings in a company of 5% or more);
• box 3 (income from savings and investments).

Each box has its own rules for determining the tax base, and its own tax rates. Income in Box I is currently taxed at a progressive rate with a maximum of 49.50% (2023). Income in Box II is currently taxed at a flat rate of 26.90% (2023). Box III income is set at a progressive mixed notional yield in a range of 0.36% for savings, 6.17% for ‘other assets’ and 2.57% for debts (with a tax-free equity threshold of EUR 57,000 – EUR 114,000 for a couple). Income in Box III is taxed at a flat rate of 32% (2023).

Amendment taxation Box 1 (income from employment)
As of 2024, Box 1 basic rate shall increase to 36.97% (in 2023: 36.93%), the bracket limit shall increase to EUR 75,624 (in 2023: EUR 73,031).

Amendment taxation Box 2 income (substantial interest taxation)
From 2024 onwards, box 2 rate will be divided into two brackets. The first bracket will tax box 2 income up to EUR 67,000 per person at a rate of 24.5%. The second bracket will apply a rate of 31% to any income exceeding this amount (this measure was previously announced).

Amendment taxation Box 3 income (savings and investments)
The income tax rate for Box 3 income will increase with 2% as from 2023, up to 34% as per 2024 (and in 2025). Furthermore, the tax-free allowance (heffingsvrij vermogen) will remain EUR 57,000 (EUR 114,000 for couples) as per 2024.

Postponement of new box 3 system from 2026 to 2027
The implementation of a new box 3 system, based on actual income, has been postponed from 2026 to 2027. In Dutch case law, the Dutch attorney general has seriously challenged the ‘box 3 interim legislation’.

Depreciation on building owned by businesses
In the Dutch PIT Act 2001, the depreciation for buildings owned by businesses shall become subject to limitation to 100% of the WOZ value. The depreciation up to a maximum of the WOZ value applies to all buildings used as business assets, regardless of whether it is a building for personal use or used as an investment.

Lucrative interest regime
The lucrative interest regime shall be amended. As a result of the Dutch Supreme Court ruling, certain positions may no longer qualify as lucrative interest. Following a recent Dutch Supreme Court decision this year, certain shareholders’ loans seemed to be exempt from consideration when determining the presence of a lucrative interest. The proposed amendment shall also ensure that certain loans would indeed be factored into the company’s share capital for the application of the lucrative interest scheme.

Reinvestment reserve (herinvesteringsreserve)
The forming and use of the reinvestment reserve (HIR) will be allowed in more situations. Such as in the event of partial cessation of business operations due to government intervention.

3. Dutch wage tax Act

Amendments to the 30% payroll tax facility (so-called ‘30%-ruling’)
Subject to certain conditions, employees recruited abroad to be employed with a withholding agent in the Netherlands can use the so-called 30% facility. Under this facility part of the agreed salary is considered a tax-free allowance for extraterritorial expenses, for a maximum of five years. The salary over which the 30% facility can be applied is currently uncapped. Effective from 1 January 2024, the basis for the 30% facility will be capped at the standard applicable under the Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act (2024: EUR 233,000). The flat-rate free allowance will thus be capped at EUR 69,900. For employees to whom the 30% facility applied in the last payroll period of 2022, the cap on the 30% facility basis does not apply until 31 December 2025, as long as those employees continue their employment with the same withholding agent/employer.

Tax-free travel allowance (reiskostenvergoeding)
Accelerated increase in tax-free kilometre allowance from EUR 0.21 to EUR 0.23 per kilometre in 2024. The use of public transport will be further stimulated by tax-free reimbursement or provision of public transport passes for certain business use (also commuting).

4. Withholding taxes

Conditional withholding tax (“WHT”) on dividends
Following the introduction of the conditional WHT on interest and royalties on 1 January 2021, a similar WHT on dividends will be introduced on 1 January 2024. This law has already been approved by the Dutch Parliament and the First Chamber.

Based on the conditional withholding tax on dividends Act (in Dutch: “Wet invoering conditionele bronbelasting op dividenden 2024”), a conditional (or additional) WHT will be levied on:

• Dividend payments to low-tax jurisdictions (in this case, jurisdictions with a statutory profit tax of below 9 per cent);
  dividend payments to jurisdictions which are included in the EU list of non-cooperative countries; and,
• Dividend payments to hybrid entities and in the event of artificial arrangements which are intended to avoid Dutch WHT on dividends (in other words, situations of abuse).

5. Dutch real estate transfer tax Act / VAT

VAT/transfer tax concurrence scheme share transactions involving real estate entities
The so-called concurrence exemption in the Dutch transfer tax act will be amended so that transfer tax (4%) will in any case be levied upon the acquisition of new immovable property in a share deal. In general, the transfer of a building site and newly developed real estate can under circumstances be considered VAT-taxable transfers. In that case, the concurrence exemption provides for an exemption of Dutch real estate transfer tax. Please note that this concurrence exemption does not apply if the immovable property has been used as a business asset and he purchaser can deduct the VAT due in whole or in part (VAT deduction). The date of entry into force is January 1, 2025.

6. Other measures

Limitation of borrowing from self-owned company (wet excessief lenen bij eigen vennootschap)
On 13 September 2022 the Dutch House of Representatives (Tweede Kamer) passed a bill on excessive borrowing from a taxpayer’s own company. In order to avoid the aforementioned deemed dividend distribution, taxpayers may until 31 December 2023 reduce their borrowings from their own company to EUR 700,000 at the maximum to meet this new requirement. Debt incurred for the purchase of a residential house is excluded.

Business succession scheme
In its April 2022 report, the CPB Netherlands Bureau for Economic Policy Analysis concluded that while the business succession regime (bedrijfsopvolgingsregeling, or ‘BOR’) is effective and, in addition, certain components are inefficient from a tax yield perspective. And not all BOR components contribute to the desired continuity of businesses. Given these outcomes the government wants to improve the BOR’s effectiveness and practicability and remove as many perceived bottlenecks as possible. To this end, the 2024 Tax Plan proposes the several measures as of 2025.