Tax rates in the 2018 Tax Plan

The tax rate in the second and third payroll tax and personal income tax brackets is 40.80% in 2017. As of January 1, 2018, the tax rate in both brackets will be increased by 0.05% to 40.85%. The tax rate in the fourth payroll tax and personal income tax bracket is 52% in 2017 and will be reduced by 0.05% to 51.95% as of January 1, 2018. The brackets will be extended, which means that in 2018 the fourth bracket will start at a taxable income of more than EUR 68,507. As of January 1, 2018 the combined tax rate in the first bracket will be 36.55% (the same as in 2017).

As of January 1, 2018, 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 20,142

8.90%

27.65%

EUR 20,142

EUR 33,994

13.20%

27.65%

EUR 33,994

EUR 68,507

40.85%

-

EUR 68,507

-

51.95%

-

The general tax credit

The maximum general tax credit will be adjusted for inflation and increased to EUR 2,265. 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 68,509 and above, the general tax credit will be nil.

The labor tax credit

The maximum labor tax credit will be adjusted for inflation and increased to EUR 3,249. The amount of the labor tax credit is dependent on a person’s income. For incomes of EUR 122,694 and above, the labor tax credit will be nil.

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

As of January 1, 2018, the income-related contributions for health insurance under the Health Insurance Act payable by the employer will be increased from 6.65% to 6.90%. The maximum contribution base for the Health Insurance Act is EUR 54,614 as of January 1, 2018.

Abolition of deemed employment for non-executive directors of a listed company

The deemed employment for non-executive directors of a listed company will be abolished as of January 1, 2018. The deemed employment of supervisory board members had already been abolished as of 2017, but this consequently resulted in unequal treatment of non-executive directors of listed companies as compared to supervisory board members. This was not the intention, because non-executive directors (on a ‘one-tier board’) of a listed company have a comparable supervisory role to that of supervisory board members. As of January 1, 2018 non‑executive directors of a listed company will therefore no longer be subject to payroll tax. Non-executive directors will have to file a personal income tax return themselves after the end of the calendar year and via this return pay personal income tax, social security contributions and the income-related contributions for health insurance under the Health Insurance Act.

As of January 1, 2018 it may still be possible for non-executive directors of listed companies – just like supervisory board members – to (continue to) fall under the Payroll Tax Act via the opting-in rules. The director and the employer must apply to the Dutch tax authorities to use these rules before the first salary payment.

The executive directors of a listed company and a non-listed company will both continue to be subject to payroll tax.

Change to pseudo final levy excessive severance payment

If an employee’s annual salary two years before the end of their employment contract exceeded EUR 540,000 (2017) and the severance payment they receive in the current year is more than their annual salary, then upon the termination of the contract the employer must decide whether this involves an excessive severance payment. If that is the case, the employer must pay a pseudo final levy of 75%.

The computation rule contains an exception for share option rights awarded before year t-1 (where t is the year in which the employment contract is terminated). Based on case law, this exception also applies to share option rights already awarded before year t-1 but which had not yet become unconditional before year t-1. To ensure that the pseudo final levy is not evaded, the Cabinet proposes to amend the law such that the latter group of share option rights will no longer fall under the exception.

Application of tax component of payroll tax credit

The payroll tax credit consists of the general tax credit, the labor tax credit, the young disabled person’s tax credit, the elderly person’s tax credit and the single elderly person’s tax credit. These tax credits have a tax component and a contribution component. An employee is, in principle, entitled to the tax component if they receive Dutch income, and to the contribution component insofar as they are subject to the relevant national insurance contributions. The following section only deals with the tax component of the tax credits referred to above.

Foreign taxpayers may be partially entitled to the payroll tax credit. The following distinctions must be made with regard to this group of foreign taxpayers:

  1. employees who reside in a country outside the European Economic Area (EEA), Switzerland and on the BES islands (Bonaire, Sint Eustatius and Saba);
  2. employees who reside in a country within the abovementioned territories and who are non-qualifying foreign taxpayers;
  3. employees who reside in a country within the abovementioned territories and who are qualifying foreign taxpayers;

The first group of employees is not entitled to the tax component of the payroll tax credit. The second group of employees is entitled to the tax component of the labor tax credit by virtue of case law. The third group of employees is entitled to the tax component of all the tax credits, because, as qualifying foreign taxpayers, they are entitled to the same tax credits as Dutch residents (domestic taxpayers).

For payroll tax purposes, however, no distinction is currently made between the country of residence of employees. Moreover, an employer cannot assess whether their employees are qualifying foreign taxpayers. Consequently, a higher amount of tax credits is applied for the purposes of payroll tax than there is an entitlement for the purposes of personal income tax. The Cabinet therefore proposes amending the Payroll Tax Act as of January 1, 2019 such that:

  • the employees from outside the territories (group 1) will not be eligible for the payroll tax credit;
  • the employees from inside the territories (groups 2 and 3) will only be eligible for the tax component of the labor tax credit.

As of 2019, employers will thus have to make a distinction between the country of residence of their employees. No distinction will have to made between qualifying and non-qualifying foreign taxpayers as employers cannot assess this. The group of qualifying foreign taxpayers will have to claim the tax component of other tax credits in their personal income tax returns.

How this will affect the payroll administration is illustrated in the following table:

 

Entitlement to tax component labor tax credit?

Entitlement to tax component

Other tax credits?

Group 1

No

No

Group 2

Yes, applied in payroll tax

No

Group 3

Yes, applied in payroll tax

Yes, not applied in payroll tax, claimed via the personal income tax return

Mitigation of WVA administrative burden

The remittance reduction for research and development (R&D) is a tax incentive plan that is designed to compensate part of the salary costs, other costs and expenses for R&D. For employers, the R&D remittance reduction reduces the amount of payroll tax and social security contributions payable. The average hourly wage is used to determine the 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. It is proposed that the reporting no longer take place for each separate R&D certificate but jointly for all R&D certificates issued in a calendar year. In line with this, it is proposed that the Minister of Economic Affairs prepare the R&D certificate adjustment annually.

Partial exemption salary benefit share options innovative start-ups

On the basis of an amendment included in the 2017 Tax Plan, which amendment had already been approved in 2016, as of January 1, 2018 a partial exemption for benefits derived from share options in innovative start-ups will apply, subject to conditions. To support innovative start-ups and allow greater flexibility in the type of remuneration, only 75% of the benefit received when exercising or disposing of a share option right will be taken into account as salary. The maximum exemption will be set at EUR 12,500 (25% of EUR 50,000). The conditions for taking advantage of this exemption are:

  1. The employer possesses a Starters R&D certificate in the year in which the share option rights were awarded.
  2. At least 12 months and no more than five calendar years have passed since the share option right was awarded
  3. The de-minimus cap (EUR 200,000 over three years) in the EU State aid rules is not exceeded.

Salary Costs (Incentive Allowances) Act

On January 1, 2017 the Salary Costs (Incentive Allowances) Act (Wet tegemoetkomingen loondomein; Wtl) took effect. This Act contains three types of tax benefits to compensate the payroll costs of employers and is intended to encourage employers to employ or to retain people who are in a vulnerable position on the labor market. In addition, the low youth low income benefit (jeugd-lage-inkomensvoordeel; Youth LIV) is intended to (partly) compensate the increase in the minimum youth salary as of July 1, 2017. Of the three measures, the low income benefit (lage-inkomensvoordeel; LIV) took effect on January 1, 2017, while the payroll costs benefit (loonkostenvoordeel; LKV) and the Youth LIV will take effect on January 1, 2018.

Payroll costs benefit (LKV)

The payroll costs benefits will replace the contribution reduction for occupationally disabled and older employees, which will be canceled as of January 1, 2018. The contribution reduction for younger employees and the contribution exemption for marginal employment will also be canceled as of January 1, 2018. The LKV is illustrated in the following table:

 

Wage cost benefit per remunerated hour

Maximum duration of the benefit

Older employees (56 years and above)

EUR 3.05 and maximum of
EUR 6,000 per employee per calendar year

three years

Occupationally disabled employees

EUR 3.05 and maximum of
EUR 6,000 per employee per calendar year

three years

Employees who fall under the quota target group

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

three years

Redeployed occupationally disabled employees

EUR 3.05 and maximum of
EUR 6,000 per employee per calendar year

one year

Application of LKV

The payroll costs benefits can be applied for via the payroll return. Specific conditions apply for each LKV. In addition, a target group certificate must be present for each LKV, which the employer can request from the Employee Insurance Agency (in Dutch: UWV) or the municipality. After the end of the relevant year (for 2018: before March 15, 2019) the UWV will issue a provisional calculation in respect of the employees for whom the employer has requested the application of the LKV in the payroll tax return. The provisional calculation is based on the payroll tax returns as these were filed on January 31 (2019 for the year 2018) at the latest. The employer then has until May 1 of that year to either amend the information or supplement it (file adjustments). To calculate the final tax relief, the UWV uses the information recorded in the policy administration as at May 1.

Overlap between the LKV and LIV

If an employee is entitled to both the LKV and LIV, the total tax benefit will be limited to a maximum of the amount of the highest tax benefit. If the tax benefit is the same in both cases, the employee will only be entitled to the LKV.

Youth LIV

The new tax benefit was introduced in response to the changes to the Minimum Wage and Minimum Holiday Allowance Act, which changes took effect as of July 1, 2017. As of July 1, 2017 the normal statutory minimum wage will apply to employees 22 years of age and older (was 23 years and older). The statutory minimum youth wage for employees 18 years of age through to 21 years of age was also raised as of July 1, 2017. This means higher wage costs for employers and is the reason for the introduction of a Youth LIV as of January 1, 2018. The Youth LIV is illustrated in the following set table:

Age at December 31, 2017

Youth LIV per employee per remunerated hour

Maximum Youth LIV per employee per year

18

EUR 0.23

EUR 478.40

19

EUR 0.28

EUR 582.40

20

EUR 1.02

EUR 2,121.60

21

EUR 1.58

EUR 3,286.40

Application of Youth LIV

Specific conditions apply to the Youth LIV, which is assessed and automatically paid on the basis of the UWV’s benefit entitlement database. It is therefore important that the number of remunerated hours is accurately reported in the payroll tax returns. The UWV will issue a provisional calculation for the Youth LIV at the end of the relevant year (for 2018: before March 15, 2019). This is based on the payroll returns that were filed no later than January 31 of the following calendar year. The employer then has until May 1 of that year to either amend the information or supplement it (file adjustments). To calculate the final tax benefit, the UWV uses the information recorded in the benefit entitlement database as at May 1.

Overlap between Youth LIV and LKV

If an employee is entitled to both the Youth LIV and the LKV, both tax benefits will be paid out.

Summary Salary Costs (Incentive Allowances) Act

Tax credit

Target group

Automatic?

Date

LIV

Low incomes

Yes

As of 1-1-2017

Tax benefit increase in minimum youth wage (Youth LIV)

Young people 18 - 21 years

Yes

As of 1-1-2018

LKV

  • Older employee
  • Occupationally disabled employee
  • Target jobs agreement
  • Redeployed occupationally disabled employee

Older and occupationally disabled employee

No, request via payroll tax return

As of 1-1-2018

Contribution reductions for younger, older and occupationally disabled employees

Younger, older and occupationally disabled employees

No, processed via payroll tax return

Canceled as of

1-1-2018

Click here to download the memorandum in pdf format