Budget Day 2023
This article was published in our HBK newsletter
On Tuesday September 19, the outgoing government Rutte 4 presented its very last Budget Day plan. This year, the Budget Day Plan consists of Tax Plan for 2024, along with 15 separate legislative proposals to prevent any ‘unnecessary’ delays in the treatment of the total Budget Day Plan within the Dutch parliament. So, pay close attention. What do the announced measures mean for your household or business? A sneak peek: not a lot of good news. In the Tax Plan, the government undoes several previous agreements, and taxpayers will be faced with higher tax rates and/or accelerated limitations.
Below, we provide an overview of the key points. If you have any questions after reading our summarize of the Tax Plan 2024 or if you want to determine a razor sharp strategy and for dealing with these measures for your situation, as you know, we are always ready to assist you in any way.
Adjustment of the tax rate in box 1
As per 2024 the basic tax rate in box 1 (including national insurance contributions) will be increased to 36.97% and to 37.05% for 2025. This lower rate will apply to an income up to € 75,624. The maximum tax rate for incomes above that amount remains at 49.5%.
The most important tax credits
Also this year, the labor tax credit will be increased to strengthen the purchasing power of individuals. Working will become more financially rewarding for employees with an income up to €115,000 per year.
Additionally, it will become more attractive for individuals with an income between € 11,000 and € 40,000 per year to increase their working hours.
Furthermore, in 2024, the maximum labor tax credit will be € 5,553 for individuals with an income up to € 39,898. Above this income, the labor tax credit will be reduced by 6.51%.
Every tax payer is entitled to the general tax credit. This tax credit amounts to a maximum of € 3,374 for an income up to € 24,904. In case of a higher incomes this tax credit will be reduced by 6.652% with a minimum amount of nil.
Since 2023, the reduction is determined based on the combined incomes of box 1, box 2, and box 3, rather than solely on income from employment and home ownership (box 1).
Profit exemptions for entrepreneurs
The SME (Small and Medium-sized Enterprises) profit exemption will be reduced from 14% to 12.7%. This exemption lowers the taxable profit. As a result, the entrepreneurs will pay more taxes. According to the Dutch government, this measure contributes to reducing the difference in tax treatment between employees and entrepreneurs in income tax.
Additionally, the self-employed tax deduction (“zelfstandigenaftrek”) will be further reduced. In 2024, the tax deduction will be reduced to only € 3,750. For the years 2025, 2026, and 2027, it will decrease further to € 2,470, € 1,200, and € 900, respectively. It appears that entrepreneurs are the major victims once again.
Limitation of depreciation for property for own use
Depreciation on company buildings is only possible if the book value of the building is higher than the base value. For the income tax, this base value of the investment property is 100% of the WOZ (Valuation of Immovable Property Act) value, while for company buildings for own use, it’s 50% of the WOZ value. As of January 1, 2024, this difference will be eliminated, and for all situations the depreciation is only possible until the base value of 100% of the WOZ value is reached. For the corporate income tax, this difference has already been eliminated since 2019.
Random Depreciation of Business Assets in 2023
For new business assets for which an investment obligation is agreed on in 2023 and which will be used before January 1, 2026, there is a one-time opportunity in 2023 to depreciate them randomly for up to a maximum amount of 50% of the purchase price. Regular depreciation will be applied on the remaining book value in the following years. By depreciating assets randomly (accelerated depreciation), a liquidity advantage can be obtained. This scheme applies to both income tax and corporate income tax. Some business assets are excluded from this scheme, such as buildings, non-zero-emission passenger cars, or assets intended for rental.
Are you planning on making significant investments? If so, do it in 2023 and do not postpone it to the next year as this can give you a liquidity advantage.
Note: This scheme was already announced last year and already came into force as per January 1, 2023. However, it will not be continued in 2024.
Box 2 tax rate
For substantial interest shareholders (shareholders with an interest of at least 5% in a BV – private limited company), income from the BV (such as dividend income) is taxed in box 2.
In 2023, the tax rate is 26.9%. Starting from 2024, two tax brackets will be introduced: 24.5% for an dividend income up to € 67,000 per taxpayer (€ 134,000 for fiscal partners), and a tax rate of 31% for the exceeding amount.
Do you have the intention to take out dividend income from your own BV? It may be advantageous to do so in 2023 instead of postponing to 2024!
Correction for undesirable outcome in collection of protective assessment in case of excessive lending
In the case of emigration by a substantial interest shareholder, there may be a deemed capital gain for which a protective assessment has been imposed. The collection of this assessment only takes place when there is a selling of the shares, dividend distribution, repayment of capital, or (since the introduction of the excessive lending act) excessive lending in relation to the substantial share interest for which this conservatory assessment has been imposed.
However, with regard to excessive lending, an undesirable situation may arise if a substantial interest shareholder borrows excessively from a newly established (non-Dutch-based) company after emigration. This could also results in the collection of the protective assessment. The proposed correction aims to prevent this undesirable outcome.
Additionally, the deferral will also not be withdrawn if an increase of the debt has not previously led to the withdrawal of the deferral of payment. With these proposed changes, which will be retroactively come into force as per January 1, 2023, substantial interest shareholders who migrated will be treated in the same way as substantial interest shareholders residing in the Netherlands.
Postponement of the introduction of the new box 3 tax system
The outgoing government aims towards taxation of assets based on actual returns of investments with a main rule being: a taxation of the increase of the value of the capital and, for certain exceptions, such as real estate and specific categories of shares, a tax on capital gains. The introduction of this new box 3 tax system is further postponed from 2026 to 2027. Until the implementation of this new system, the box 3 temporarily transitional act introduced in 2023 will continue to be of force. We will keep you updated on all new developments.
Status of procedures on the box 3 recovery act/ transitional act box 3
In one of the ongoing cases before the Dutch Supreme Court regarding the application of the deemed return of investment, the Advocate General has issued an opinion. In this opinion, he indicates that the box 3 recovery act does not offer sufficient compensation for the category “other assets” and that the arbitrariness of the deemed return of investment has, in his view, increased rather than decreased.
He also notes that taxation based on an average investment return will always discriminate a taxpayer with a lower actual return on investments.
The Advocate General suggests to the Dutch Supreme Court to introduce and formulate a tolerance margin between the actual and deemed return of investment. This margin would determine whether the provided compensation is adequate or if taxation should be based on the actual return of investment.
The Dutch Supreme Court has not yet come with a verdict, and it is not guaranteed that they will follow the Advocate General’s recommendation. Due to the uncertainty about the sustainability of the box 3 transitional act, we advise you once again to keep careful records of all income and expenses related to your box 3 assets. It seems increasingly likely that a rebuttal ruling will be introduced, allowing situations with a lower net return of investments will be taxed than is currently determined based on the deemed calculation method.
Adjustments to box 3: refinements and clarifications
Based on the recovery act box 3, assets and liabilities in box 3 are divided into three categories: bank , savings and deposit accounts, other assets, and liabilities, with each category having its own deemed return rate. The outgoing government has proposed the following refinements:
- With retroactive effect from January 1, 2023, the share of a homeowners’ association (VVE) will be part of the category of bank, savings and deposit accounts and no longer part of the category other assets.
- Similarly, the share of funds held in a third-party account with a notary or bailiff will no longer being classified under the category of other assets, but in the category bank, savings and deposit accounts.
- Elimination as part of box 3 of mutual claims and debts between fiscal partners and between parents and minor children. This means that these claims and debts no longer need to be included in the income tax return.
- Clarification of the calculation method for the effective deemed return rate for fiscal partners.
These refinements and clarifications aim to provide greater precision and fairness in the taxation of assets and liabilities in Box 3.
Adjustment of the tax rate of box 3
In contrast to what was agreed on in the tax plan 2023, the tax rate in box 3 will, strangely enough, be increased more rapidly, reaching 34% in 2024. Originally it was agreed on that the tax rate of 34% will come into force in 2025.
No adjustment of the tax-free threshold on assets
Every taxpayer has a tax-free threshold amount on assets in box 3. If the value of assets is lower than the tax-free threshold, no taxes are due. For 2023, the tax-free threshold was € 57,000, and in general this amount is indexed annually. However, to our surprise, the tax plan 2024 proposes not to adjust the tax-free threshold amount on assets for 2024.
Corporate Income tax
Corporate Income tax rates remain unchanged in 2024
After several years of significant fluctuations, there will finally be no adjustments to the corporate income tax rates and tax brackets in 2024. The lowest tax rate of 19% will continue to apply for the first bracket up to €200,000, and above that threshold, the tax rate will remain at 25.8% for 2024.
Energy Investment Allowance (EIA), Environmental Investment Allowance (MIA), and Accelerated Depreciation of Environmental Investments (VAMIL) extended
The EIA, MIA, and VAMIL, which were initially set to end on January 1, 2024, have been extended for an additional 5 years, now remaining in effect until January 1, 2029.
Decrease of deduction percentage EIA from 2024
If you are planning to invest in assets listed on the energy list, it might be advantageous not to wait until next year. Starting from January 1, 2024, the deduction percentage for the energy investment allowance (EIA) will be permanently reduced to 40% (compared to 45.5% in 2023). However, it’s worth noting that the maximum investment amount will not be decreased.
Abolition of tax deductions for donations to a charity in the corporate income tax act
Currently, corporations can deduct donations to public benefit organizations (ANBIs) and Social interest-driven organizations (SBBI’s) up to 50% of their taxable profit in their corporate income tax return, with a maximum deduction limitation of € 100,000. However, the Dutch tax office could take the stance that, in the case of larger donations, there was an indirect payment to the shareholder, and as a result he should pay dividend tax in Box 2 on this amount.
The proposal is to abolish this deduction as of January 1, 2024. The aim is to simplify the current system. In return, the amounts of these donations will no longer qualify as distributions to substantial interest shareholders or as income subject to dividend tax.
If the donations are not made directly by the corporation but, for example, by the substantial interest share holder themselves, the charitable deduction in personal income tax will still apply.
To clarify, business expenses, such as those related to sponsoring and advertising for charitable purposes, will remain deductible from taxable profits.
Tax qualification policy for foreign legal forms act
Currently, the tax qualification of foreign legal forms is determined based on a decision, which assesses whether these foreign legal forms share similarities with a Dutch BV, NV, or Foundation. The government intends to replace this decision with new legislative, the tax qualification policy for legal forms act, which will come into effect on January 1, 2025. The qualification of foreign legal forms will continue to be based on the legal form comparison method, but for situations where there is no Dutch legal form equivalent to the foreign legal form, two additional methods will be introduced: the fixed method and the symmetrical method. There will be no transitional provisions for these situations.
30% ruling: restriction starting in 2024
As per January 1, 2024, the application of the 30% ruling will be limited to the WNT (Wet Normering Top-inkomens) norm (“standardization high level income act”) This means that from 2024 and onwards, it will no longer be possible to apply the 30% ruling to incomes exceeding the WNT norm, which is set at € 233,000 for 2024. There is a transitional arrangement for employees who were entitled to the 30% ruling and this 30% ruling was applied in the final wage tax period of 2022. For this group, the restriction of the 30% ruling will only come into force as per January 1, 2026.
Increase in income requirement for the 30% Ruling
A per January 1, 2024, the minimum income requirement for the application of the 30% ruling will be increased. Due to the annual indexation, the threshold will rise to approximately € 46,107, compared to € 41,954 in 2023.
The reduced income requirement for employees younger than 30 years with a qualifying master’s degree will increase to approximately € 35,048. In comparison to this income requirement of € 31,891 in 2023.
Expansion of the free space in the work-related cost scheme (WKR) Expires
The expansion of the free space in the WKR will expire in 2024. In 2023, the free space was increaded to 3% for the first € 400,000. Starting from 2024, a rate of 1.92% will apply to the first € 400,000, and 1.18% is applicable to the amount above € 400,000.
Increase of tax-free reimbursement for travel allowances
Starting from January 1, 2024, the maximum tax-free reimbursement for businesslike kilometers will be raised from € 0.21 per kilometer to € 0.23 per kilometer. This increase is higher er than what was announced in the tax plan 2023. However, it’s important to note that employers are not obligated to apply the maximum tax-free kilometer travel allowance for their employees.
Gift tax and inheritance tax
Adjustment of the business succession scheme (BOR)
The business succession scheme (BOR) is a tax scheme in the Dutch inheritance tax act, with a counterpart being the deferral ruling (DSR) in the Dutch income tax act. Under certain conditions, on request, a part of or the entire business assets can be exempted from gift or inheritance tax and/or income tax when the business is handover to the next generation. The main aim of the BOR and DSR is to prevent the continuity of a business from being jeopardized if there are insufficient fundings available to pay gift or inheritance tax and/or income tax. Several changes are proposed for this scheme that will take effect on January 1, 2025:
- Real estate properties rented out to third parties will no longer qualify for these schemes.
- The efficiency margin for investment assets of 5% will be eliminated.
- Assets that are used both privately and for business will qualify only to the extent they are used in the business.
- A minimum age of 21 for the recipient in the case of the share will be gifted (5% or more) will be introduced.
- The employment requirement in the deferral ruling will be abolished.
- The 100% exemption will be increased to a maximum of € 1.5 million (2023: €1,205,871), and any business equity above that amount will be exempted for 70% (2023: 83%).
Property Transfer tax
Transfer tax and real estate companies
It is proposed that as of January 1, 2025, the exemption from transfer tax in cases of acquiring a substantial share interest (5% or more of the shares) in a real estate company with newly built real estate for VAT purposes will be restricted.
The exemption will only apply if a real estate company is acquired that, for a period of more than 24 months after the purchase, can deduct 90% or more of the VAT on the real estate. If the real estate company can deduct less than 90% of the VAT within these 24 months, the buyer of that substantial share interest will be subject to transfer tax retrospectively. This exemption applies per independent real property.