On Budget Day, September 20, 2016, the Cabinet presented the package of measures for the 2017 Tax Plan to the Lower House. In this memorandum we address the most important changes proposed for payroll tax and social security contributions, the R&D remittance reduction and the basic allowance for foreign taxpayers as set out in the 2017 Tax Plan, the 2017 Other Tax Measures Act and the 2017 Tax Simplification Act. The proposals are intended to take effect on January 1, 2017, unless another date is explicitly stated. The most important bills that have already been adopted and that also take effect as of January 1, 2017 are the Motor Vehicles Memorandum (Implementation) II Act and the Salary Costs (Incentive Allowances) Act. We also address these.

With regard to the most important pension amendment proposals covering self-administered pension plans and the other pension tax measures, we refer to the section on pension plans in our Budget Day memorandum.

Tax rates in the 2017 Tax Plan

The tax rate in the second and third payroll tax and personal income tax brackets is 40.40% in 2016. As of January 1, 2017, the tax rate in both brackets will be increased by 0.40% to 40.80%. The third bracket will also be extended, which means that in 2017 the fourth bracket will start at a taxable income of more than EUR 67,072. As of January 1, 2017 the combined tax rate in the first bracket will be 36.55% (the same as in 2016).

As of January 1, 2017, the tax rates for employees born after January 1, 1946 will be:

Taxable salary more than

but not more than

Tax rate

National Insurance Contributions

-

EUR 19,982

8.90%

27.65%

EUR 19,982

EUR 33,791

13.15%

27.65%

EUR 33,791

EUR 67,072

40.80%

-

EUR 67,072

-

52%

-

The general tax credit

The general tax credit will be increased to EUR 2,254. The amount of the general tax credit is dependent on a person’s income. The higher the income, the lower the general tax credit. For incomes of EUR 66,726 and above, the general tax credit will be nil.

The labor tax credit

The maximum labor tax credit will be increased to EUR 3,223. The amount of the labor tax credit is dependent on a person’s income. The higher the income, the lower the labor tax credit. For incomes of EUR 121,972 and above, the labor tax credit will be nil.

Income-related contributions for health insurance under the Health Insurance Act

As of January 1, 2017, the income-related contributions for health insurance under the Health Insurance Act payable by the employer will be reduced from 6.75% to 6.65%. The maximum contribution base for the Health Insurance Act is EUR 53,697 as of January 1, 2017.

Rescinding of deemed employment relationship of supervisory directors

The deemed employment relationship of supervisory directors will be rescinded as of January 1, 2017. In anticipation of this amendment of the law, approval had already been given that as of May 1, 2016 supervisory directors and the companies that they supervise can jointly elect to not apply the deemed employment relationship to supervisory directors. If parties elect this option, companies no longer have to withhold and remit payroll tax on the remuneration paid to supervisory directors with effect from May 1, 2016, and the supervisory directors are themselves liable for the income-related contributions for healthcare insurance under the Healthcare Insurance Act. As of January 1, 2017 this will apply to all supervisory directors. No employee insurance contributions are payable on the remuneration paid to supervisory directors (this remains unchanged).

As of January 1, 2017 it is still possible for supervisory directors to (continue to) fall under the Payroll Tax Act via the opting-in rules. The opting-in rules can be applied if it is preferable (for example, due to the application of the 30% ruling) to regard the employment relationship with supervisory directors as a deemed employment relationship. This means that payroll tax is withheld and remitted on the remuneration. Typical of the opting-in rules is that supervisory directors must pay the income-related contributions for healthcare insurance under the Healthcare Insurance Act. To take advantage of the opting-in rules, a request must be submitted to the Dutch Tax and Customs Administration.

As a result of the rescinding of the deemed employment relationship of supervisory directors, the net equivalent of the supervisory director’s remuneration may decline (depending on their personal situation), due to the fact that supervisory directors are liable for the income-related contributions for healthcare insurance under the Healthcare Insurance Act themselves, rather than the company.

Taxation on the remuneration of foreign directors and supervisory directors for personal income tax purposes

Based on the tax treaties that the Netherlands has concluded with various countries, it usually is entitled to tax the full remuneration paid to a foreign supervisory director and/or director of a company established in the Netherlands. In order to actually levy personal income tax, a statutory tax base must be present in national legislation. By rescinding the deemed employment relationship as of January 1, 2017, it appeared that in many cases national legislation did not offer a tax base for taxing the full remuneration paid to supervisory directors in the Netherlands. To repair this, it has now been proposed to stipulate that the Netherlands can, also by virtue of national law, tax the full remuneration of directors or supervisory directors who are subject to tax, irrespective of whether this constitutes business income, or salary or income from other activities.

Extension of the possibility to transfer the payroll tax and social security contributions withholding obligation for group members

Foreign groups can, upon request, transfer the payroll tax and social security contributions withholding obligation for employees who are subject to personal income tax in the Netherlands to a Dutch group entity. This is subject to the condition that the employees are seconded to the Dutch group entity. For the foreign group entity, keeping Dutch payroll records is relatively expensive. For this reason, it has been proposed to extend the current possibility to transfer the payroll tax and social security contributions withholding obligation to a Dutch group entity. The condition that there must be secondment to the Dutch group entity will therefore be canceled. This change will mean that each foreign group entity can transfer the withholding obligation to any Dutch group entity that is prepared to take on the withholding obligation. Both group entities will have to submit a joint request to the Dutch Tax and Customs Administration for this.

Clarification of the Wages and Salaries Tax and National Insurance Contributions Reduced Remittances Act (Wet vermindering afdracht loonbelasting en premies volksverzekeringen; WVA)

The R&D remittance reduction (in Dutch: WBSO) is a tax incentive plan that is designed to compensate part of the salary costs, other costs and expenses for research and development (R&D). For employers, the WBSO reduces the amount of payroll tax and social security contributions payable. The average hourly wage is used to determine the remittance reduction. The hourly wage is determined on the basis of the salary details in the benefit entitlement records of the Employee Insurance Agency (in Dutch: UWV). This is the salary from both current and previous employment. The Act will explicitly lay down that salary for final levy purposes is excluded from the definition of salary for the purposes of the R&D remittance reduction.

After the end of the relevant calendar year, the recipient of an R&D certificate must report the number of R&D hours worked and the costs and expenses incurred to the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland; RVO) before March 31. This is also referred to as the duty of disclosure. If the duty of disclosure is not complied with a penalty will be imposed, which in practice is set at a maximum of EUR 2,500. It has been proposed to include this maximum penalty in the Act.

Modification of normative salary rules for innovative start-ups

As a result of the proposed regulation, the normative salary of a director-major shareholder of an innovative start-up may be set to at least the minimum wage. In order to qualify for this, the start-up must hold an R&D certificate. Another requirement is that the withholding agent was not a withholding agent for payroll tax and social security contributions purposes in one or more of the five preceding calendar years and that for that period an R&D certificate was issued for, at most, two calendar years. This means that the normative salary during a maximum of three calendar years can be set at no less than the minimum wage. After this period, the general rule for determining the normative salary will have to be applied. In accordance with current methodology, the taxable salary can be set at a lower amount than the minimum wage if the withholding agent convincingly demonstrates that the salary in the most comparable employment is lower (for part-time employment, for example).

The minimum wage is determined in line with the following calculation: 12.96 x the monthly minimum wage on January 1 of the relevant year.

Because the minimum wage has been proposed as the starting point for the normative salary of a director-major shareholder of a start-up, the start-up may be liable for lower social security contributions, childcare allowance surcharge, and the income-related contributions for healthcare insurance under the Healthcare Insurance Act. In principle, this is state aid. The reduced normative salary is not allowed to be applied if this results in the minimis cap (this is based on an EU regulation) is exceeded. The scale of the state aid pursuant to the normative salary rules is based on a formula.

The above rules will be canceled as of January 1, 2022, unless these are evaluated positively before that date.

Rescinding of requests for annual salary details

In the absence of missing or incorrect return data, the Dutch Tax and Customs Administration may request the employer for the annual salary data of its employees after the end of a calendar year. During the last few years, improvements have been made to the payroll tax return process so as to ensure the timeliness and accuracy of the payroll tax return data. For this reason it has been proposed to rescind, as of January 1, 2017, the possibility of the Dutch Tax and Customs Administration requesting annual salary details.

Addition to income percentages for private use of company cars

The tax measures for company cars for 2017 through 2020 are worked out in detail in the Motor Vehicles Memorandum (Implementation) Act II.  Only two additions to income categories for company cars are retained: 4% for zero-emissions cars and 22% for all other cars with a motor vehicle registration date on or after January 1, 2017.

For 2017 the CO2 emission standards (indicated in grams per kilometer) for the addition to income for the use of a company car are:

Year

0 gram/km

1-50 gram/km

51-106 gram/km

> 106 gram/km

2016

4%

15%

21%

25%

2017

4%

22%

22%

22%

As of 2019, the part of the list price of fully electric cars that exceeds EUR 50,000 will also fall under the general addition to income percentage of 22%.

Salary Costs (Incentive Allowances) Act : low income benefit to take effect on January 1, 2017

The low income benefit (lage-inkomensvoordeel; LIV) will take effect on January 1, 2017 (the Salary Costs (Incentive Allowances) Act (Wet tegemoetkomingen loondomein; Wtl)).

The qualifying average hourly wage on an annual basis and the LIVs are listed in the following table. The LIVs can only be applied to employees for whom at least 1,248 remunerated hours were reported in the payroll return.

Average hourly wage based on a 38-hour working week

Statutory minimum wage

LIV per remunerated hour

More than EUR 9.89 but not more than EUR 10.88

100% to 110% of the statutory minimum wage

EUR 1.01 and maximum of EUR 2,000 per employee per year

More than EUR 10.88 but not more than EUR 11.87

110% to 120% of the statutory minimum wage

EUR 0.51 and maximum of EUR 1,000 per employee per year

In September 2016 a proposal to extend the LIV was included in the 2017 Collective Social Security Act. The proposal was to reduce the average hourly wage by using a 40-hour working week as basis instead of a 38-hour working week.

Average hourly wage based on a 40-hour working week

Statutory minimum wage

LIV per remunerated hour

More than EUR 9.50 but not more than EUR 10.45

100% to 110% of the statutory minimum wage

EUR 1.01 and maximum of EUR 2,000 per employee per year

More than EUR 10.45 but not more than EUR 11.87

110% to 125% of the statutory minimum wage

EUR 0.51 and maximum of EUR 1,000 per employee per year

Basic allowance for foreign taxpayers in Box 3

As of January 1, 2017, the fact that (non-qualifying) foreign taxpayers will also be able to take a basic allowance into account in Box 3 when determining their benefit from savings and investment in the Netherlands, will be laid down in law. This concerns a codification of the approval that had already been given in the policy statement dated April 25, 2016.

Click here to open the memorandum in pdf-format