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28 september 2018 | Door: Jasper Gorter
Every third Tuesday of September, the new Budget and Tax plans for the Netherlands are presented. A brief explanation of the most notable measures for international business in the area of taxation is provided below.
With effect from 1 January 2019 the duration of the 30% scheme for employees from outside the Netherlands is being reduced from eight to five years. There will be no transitional arrangements, which means all current schemes will also be shortened by three years. All current decisions by the tax authorities relating to the scheme that are valid up to and including 1 January 2022 will lapse with effect from 1 January 2019. As a result, the tax-favourable scheme under which such employees can choose to be treated as foreign taxpayers for a portion of their income will also be discontinued from 1 January 2019.
The Netherlands introduced the 30% scheme to attract foreign workers with specific skills that are in short supply on the Dutch labour market. In short, this scheme allows the employer to pay out 30% of the taxable wage free of tax to employees who are recruited from abroad.
In addition, the employees concerned can also opt to be treated as foreign taxpayers for a portion of their income. This means that they will be regarded as foreign taxpayers for the purposes of income from substantial shareholdings (box 2) and income from savings and investments (box 3). As a result, they will pay less or no tax in the Netherlands on their income from box 2 and box 3.
Tuition fees for international schools also fall under the specific exemptions, meaning that these costs may be paid to the employee on a tax-free basis for the entire duration of the 30% scheme.
Under the government’s new plans a transitional arrangement will apply to international school tuition fees. If costs for the 2018/2019 academic year are incurred after 1 January 2019 but within the original scheme duration, they may still be paid out or reimbursed free of tax.
Are you planning to pay a bonus to an employee recruited from abroad who will no longer be able to make use of the 30% scheme from 1 January 2019? If so, pay out this bonus, as well as all the holiday pay that has been accrued up to the end of December 2018, this year. In this way you will still be able to make part of the payment on a tax-free basis.
The Netherlands has amended the national legislation governing protective assessments on several occasions as a result of Supreme Court judgments. Consequently, the Dutch government has a right to tax annuities and pensions that have been accrued over certain periods, but not those accrued over other periods. To calculate the protective assessment, it is therefore necessary, first of all, to identify which expenses, claims and contributions were accrued in which period so that the expenses, claims and contributions that the Netherlands is entitled to tax can be determined. We refer to this as compartmentalisation. This system of allocation is now being codified in law.
The EU Anti Tax Avoidance Directive (ATAD1) sets out a range of measures with the aim of combating tax avoidance. One of these is the earnings stripping rule: a general limitation of the deduction of interest. This new measure therefore applies to all loans and takes effect from 1 January 2019.
For the purposes of the earnings stripping rule, interest income first has to be offset against interest expenses to determine the interest owed. If the net amount of interest owed is more than € 1 million, the deductibility of the balance of interest is limited to a maximum of 30% of the gross operating profit, or a maximum of € 1 million if this is higher than 30% of the gross operating profit. The portion of the interest that cannot be deducted in one year can be carried forward to subsequent years without limitation.
The majority of SMEs will be unaffected by this limitation of the deduction of interest, due to the interest threshold of € 1 million that has been set. Even in the case of a high average interest rate of 6%, the business would need to have more than € 16 million in outstanding loans with no offsettable claims to end up above the interest threshold.
Taxpayers who live outside the Netherlands but work here are eligible – subject to certain conditions – for the same deductions and tax credits as Dutch residents. These individuals are then regarded as qualifying foreign taxpayers. For income tax purposes, qualifying foreign taxpayers are entitled to the same tax advantages as domestic taxpayers.
Tax credits are made up of a contribution component and a tax component. These tax credits are settled through payroll in the Netherlands.
The contribution component is linked to the question of where a person is covered by social insurance. At present there are no changes in this area.
However, changes are being made to the tax component of tax credits. From 1 January 2019, under certain conditions, only the tax component of the employed person’s tax credit may be applied for wage tax purposes in the case of foreign taxpayers. This means that the employer can no longer take the tax component of other tax credits into account, namely the general tax credit, the young disabled person’s tax credit, the elderly person’s tax credit and the single-parent’s tax credit. If a taxpayer is entitled to the tax component of these tax credits, e.g. because he is a qualifying foreign taxpayer, he can claim this back through his income tax return.
If it has become apparent in a previous year that the taxpayer is a qualifying foreign taxpayer, he can receive the tax component of the tax credits in advance by means of a provisional income tax assessment, instead of only receiving them once the tax year has ended. It is also possible to obtain an automatic provisional assessment, to avoid the administrative burden associated with annual applications. We can apply for this provisional assessment for you.
From 2019, on the basis of European law, non-qualifying foreign taxpayers who live in another EU Member State, an EEA country, Switzerland or on Bonaire, Sint Eustatius or Saba, will always be entitled to the tax component of the employed person’s tax credit and the income-dependent combination tax credit.
From 2019 foreign taxpayers who are not residents of one of the above countries will only retain an entitlement to the tax credits if they run a business via a permanent establishment in the Netherlands. The tax treaty must also contain a clause prohibiting discrimination against permanent establishments.