On Budget Day, September 16, 2014, the Cabinet presented the 2015 Tax Plan to the Lower House. We expect the bill on the Act introducing the No Payroll Tax and Social Security Contributions Decision to be presented shortly. In this memorandum we address the most significant changes proposed for payroll taxes, social security contributions and remittance reductions. The proposals are intended to take effect on January 1, 2015, unless another date is explicitly stated. We will also discuss a number of other relevant developments.
Tax rates in the 2015 Tax Plan
The combined rate (tax and national insurance contributions) in the first bracket will increase by 0.25%; the rate in the second bracket will remain as it was in 2014. The tax brackets will also be extended. As a result of the introduction of the Long-term Care Act, the tax rates in the first and second bracket will increase by 3%, but there will be a corresponding 3% decrease in the contribution percentage.
As of January 1, 2015, the tax rates (including indexation) for employees born after January 1, 1946 will be:
but not more than
The general tax credit
The general tax credit will be increased to EUR 2,203. The amount of the general tax credit is dependent on a person’s income. The higher the income, the lower the general tax credit. The minimum general tax credit in 2015 will be EUR 1,342.
The labor tax credit
The maximum labor tax credit will be increased to EUR 2,220. The amount of the labor tax credit is dependent on a person’s income. The higher the income, the lower the labor tax credit. The minimum labor tax credit in 2015 will be EUR 184.
Income-related contributions for health insurance under the Health Insurance Act
As of January 1, 2015, the income-related contributions for health insurance under the Health Insurance Act payable by the employer will be reduced from 7.5% to 6.95%.
Prorated allocation of the tax component of tax credits
In order to be eligible for the tax component of tax credits a taxpayer must have been a domestic taxpayer during the entire year or have opted to be treated as a domestic taxpayer for the entire year. As of January 1, 2015, the option rule for domestic taxpayer status will be canceled and will be replaced by the rules for qualifying foreign taxpayers. The tax credit will also be adjusted as of January 1, 2015. The intention is to allocate the tax component of the tax credit on a pro rata basis for the period during which the taxpayer had a domestic or qualifying foreign taxpayer status. The implementation of the prorated allocation of the tax credit will require changes to the Dutch Tax and Customs Administration’s IT system and therefore will not take effect until January 1, 2016. For 2015, it has therefore been proposed to temporarily allocate the full tax component of the tax credit, even if the taxpayer was only taxable for part of the year. This represents a liberalization of current legislation.
Reduction in permissible margin for normative salary of director-major shareholder
A customary salary rule applies if someone works for an entity in which they or their partner hold a substantial interest. The rule determines the minimum salary of the director-major shareholder (“DMS”).
The new customary salary rule will no longer use ‘similar employment’ as a basis, but ‘the most comparable employment’. In addition, the efficiency margin will be set at 25%. This means that the salary amount to be taken into account as of 2015 must be at least set at the highest of the following amounts:
- 75% of the salary of the most comparable employment;
- the highest salary of the employees of related entities (such as operating companies) and entities from which the company, with application of the participation exemption, can derive benefits;
- EUR 44,000.
As an exception to this general rule, rebuttal evidence may be presented. If the taxpayer can convincingly demonstrate that the salary of the most comparable employment is lower than the salary according to the general rule, 75% of the salary of the most comparable employment will still be taken into account (with a minimum amount of EUR 44,000).
In many cases, agreements have been made with the Dutch Tax and Customs Administration on the normative salary of a DMS. Because the Dutch Tax and Customs Administration needs time to conclude new agreements, transitional rules will apply for 2015. In 2015, the salary of a DMS will be set at 75/70 of the salary in 2013 if this salary exceeded EUR 43,000 in 2013, unless it can be convincingly demonstrated that the salary for 2015 will have to be set at a higher or lower amount on the basis of the customary salary plan.
Work-related costs rules
On January 1, 2011, the work-related costs rules (werkkostenregeling; “WKR”) took effect. The WKR replaces the old system of tax-free reimbursements and provisions as it applied until December 31, 2010. Under the transitional rules, employers could, in 2011 through 2014, annually elect to apply the ‘old’ regime or the WKR. As from January 1, 2015 the transitional rules will no longer apply and the WKR will apply to all employers from then on.
By letter dated July 3, 2014, the government informed the Lower House that several of the problems that were being experienced with the WKR would be corrected in the 2015 Tax Plan, which would at the same time make the WKR easier to administer. The 2015 Tax Plan includes the following changes:
The fixed exemption percentage will be reduced
In order to implement the changes to the WKR on a budget-neutral basis, as of January 1, 2015 the fixed exemption will be reduced from 1.5% to 1.2% of the payroll for tax purposes (column 14 salary).
Limited introduction of necessity criterion
As of January 1, 2015 the necessity criterion will be introduced as a specific exemption for tools, computers, mobile telecommunication devices and similar equipment. This does not only involve the reimbursement or provision of these tools and IT equipment, but also all related reimbursements or provisions, such as a subscription via a 4G card or a protective cover for the mobile phone. The point of departure is the employer’s opinion on the necessity of the item (‘an absolute necessity’). If the employer reasonably believes that such items are essential for running the business, then they are specifically exempt. For example, an employer provides mobile phones to a group of employees, but at the request of several employees is also prepared to pay for the cost of an upgrade to a smartphone. In that case, the upgrade is non-essential, and the additional cost of the upgrade must be deducted from the fixed exemption.
In principle, the employer’s opinion as to whether an item is essential is decisive. However, the following two conditions apply:
- The employee is obliged to return the item or pay the residual value if, in the opinion of the employer, the item is no longer essential for work purposes.
- The employee does not perform any activities as a director or supervisory board member of the employer (anti-abuse).
A heavier burden of proof has been included for directors and supervisory board members. Tools, computers, mobile telecommunication devices and similar equipment cannot be brought within the scope of the specific exemption, unless the employer can convincingly demonstrate that these are items normally used by directors or supervisory board members in the performance of their duties.
Annual payment methodology
At present, the WKR has three methods for assessing whether the fixed exemption will be exceeded and whether the employer is liable for a final levy under the WKR. As of January 1, 2015 the employer will be able to make a one-off calculation after the end of the calendar year to determine whether the fixed exemption has been exceeded. If this is the case, the final levy payable must be reported and remitted in the first return for the first period of the following calendar year.The employer is, however, free to remit the final levy before the end of the calendar year.
In the event an employer ceases to be a withholding agent during the calendar year, it must, at the latest, report the final levy in the return for the period in which it ceased being a withholding agent.
Alignment of reimbursements and provisions for items made available at work
The initial point of departure for the WKR was that all reimbursements and provisions to employees were to be deducted from the fixed exemption, as this would alleviate the need for separate entries in the accounts with regard to employees. In order to make the WKR easier to administer, in addition to an exception for the specific exemptions, an exception was also made for provisions that are partly used at work. However, in practice it has proven difficult to value such provisions or determine how often they are used. For this reason a nil valuation was introduced. A distinction thereby arose between provisions that are made available at the workplace and provisions that are supplied or reimbursed at the workplace.
As of January 1, 2015, a new specific exemption will be introduced for a number of workplace-related provisions for which a nil valuation currently applies. A ministerial regulation will make it possible to designate certain provisions as falling under this new exemption.
As of January 1, 2015 a specific exemption for discounts on the industry-specific products of an employer or a company related to the employer will be introduced in the WKR and will apply if the following two conditions are met:
- The benefit (i.e. discount) does not exceed more than 20% of the fair market value of the products.
- The benefit does not exceed EUR 500 per annum.
No changes have been made to the conditions for a specific staff discount exemption contained in the transitional rules, with the exception of the unused portion of the staff discount that may be carried forward to following calendar years. As of January 1, 2015, it will no longer be possible to carry the unused portion of the discount forward.
As of January 1, 2015, group rules will apply. This means that fixed exemptions, reimbursements and provisions within the group will be added together. Within the group, no split of reimbursements and provisions has to be made if employees of one group company receive the same kind of reimbursements and provisions as employees of another group company. If the joint fixed exemption is exceeded, the tax must be reported and remitted by the group company with the largest payroll subject to payroll tax. All group companies will be jointly and severally liable for the full amount of tax payable by the group.
A group is present if all participating withholding agents operate as a group during the entire calendar year and one of the following situations applies:
- the withholding agent holds at least a 95% interest in another withholding agent.
- The other withholding agent holds at least a 95% interest in the withholding agent.
- A third party holds at least a 95% interest in both of the above withholding agents.
The withholding agent can opt to apply the group rules no later than the moment of payment in the return for the first period of the following calendar year. Opting for application of the group rules means they will apply to all group companies that met the ownership requirement of 95% during the full calendar year.
Foreign pecuniary penalties cannot be designated as part of the final levy for the WKR
Under the WKR, Dutch pecuniary penalties cannot be included in the fixed exemption. As of January 1, 2015 this will also apply to foreign pecuniary penalties.
Cancellation of nil valuation interest reduction on staff loans for principal residence
The rules on untaxed interest rate reductions on staff loans for the principal residence will be amended. A proposal on this issue will be included in the bill on the Tax Miscellaneous Provisions Act 2015.
80% surrender rule for special leave plans
On January 1, 2012, the special leave plan was canceled. Individuals whose special leave entitlement on December 31, 2011 amounted to EUR 3,000 could opt to: (i) continue participating in the plan through to 2021, or (ii) surrender it in full in 2013. In the case of surrender, only 80% of the balance as at December 31, 2011 would be taxed. Anyone who did not take advantage of the 80% rule in 2013, will get another chance to do this in 2015. In 2015, the 80% rule will apply up to a maximum of the entitlement on December 31, 2013. The remainder will be taxed in full. The rule will cease to apply on January 1, 2016 and therefore only applies for one year.
R&D remittance reduction
At present, research institutes that do not carry on a business are eligible for the R&D remittance reduction if they perform research and development activities (R&D) on behalf and for the account of a company or companies or a joint venture. This then involves contract R&D. Research institutes that are granted a remittance reduction must pass on this benefit to the commercial party that commissioned the work. It appears that research institutes do not always adequately pass on this benefit. It has therefore been decided to remove contract R&D conducted by public research institutes from the R&D remittance reduction.
Addition to income percentages for private use of company cars
The CO2 emission standards (indicated in grams per kilometer) for the addition to income for the use of a company car will be tightened in 2015:
Petrol 2014 2015
4% addition to income 0 0
7% addition to income 1-50 1-50
14% addition to income 51-88 51-82
20% addition to income 89-117 83-110
25% addition to income >117 >110
Diesel 2014 2015
4% addition to income 0 0
7% addition to income 1-50 1-50
14% addition to income 51-85 51-82
20% addition to income 86-111 83-110
25% addition to income >111 >110
The 4% addition to income for zero emission cars and the 7% addition to income for cars emitting more than 0 grams per kilometer but less than 50 grams per kilometer of CO2 will only apply to cars purchased before the end of 2015.
The tax facilitated pension accrual for employee pensions (also referred to as the second pillar pension or supplementary pension) will be scaled back even further as of January 1, 2015. Assuming a retirement age of 67 years, the maximum accrual percentage under a final pay plan will be 1.657% per year of service and 1.875% per year of service under an average salary plan. The permissible accrual percentages for defined contribution pension plans will also be reduced. At the same time, different state pension offsets will probably apply to both final and average salary plans. And as of January 1, 2015 the maximum pensionable salary for employee pensions will be capped at EUR 100,000 (less the state pension offset). It is crucial that employers amend the pension plans on time, i.e. before January 1, 2015. Not making these changes on time will have serious tax implications. The pension contributions will be fully taxed as of that moment (employee contribution non-deductible, employer contribution taxed). Moreover, the tax relief already obtained for the accrued pension rights will be reversed, which could result in the market value of the already accrued pension rights being taxed at a rate of 72% (including 20% deemed interest).
Net annuity and net pension
It will be possible to accrue net savings in situations where the EUR 100,000 threshold is exceeded. The savings can be made from the net salary or net income. An exemption will be introduced in box 3 for the saved amount. The benefits will not be taxed in box 1. The net savings can be made as either a net annuity or net pension.
Both employees and non-employees can take avail of a net annuity. According to the draft legislative text, the benefits will not be taxed in box 1 and the value will be exempt from the tax on deemed investment income in box 3. The box 3 exemption will be reclaimed upon surrender. The amount included in the assets in box 3 is equal to half of the value of the net annuity at the beginning of the year preceding the surrender, increased by the number of years, from 2015, of entitlement to the box 3 exemption, whereby a maximum of 10 years will be taken into account. A rebuttal provision will apply in the event this fixed approach proves to be disproportionately harsh.
The 2015 Tax Plan includes provisions which will make it possible to withdraw the annuity, in full or in part, before its maturity without incurring deemed interest (20%) in the event of long-term incapacity to work.
Employers are obliged to offer employees whose pensionable salary exceeds EUR 100,000 (without taking the cap into consideration) a net pension if the general pension plan is mandatory for all employees. The legal provisions for the net pension are set out in the 2015 Tax Plan.
In general, the same rules apply as those for a net annuity, but with the added proviso that the Pensions Act also applies to net pensions, which means that the number of beneficiaries will be smaller and surrender is, in principle, not possible. Another important difference is that a net pension cannot be inherited, while a net annuity can be.
Revision of option rule for foreign taxpayers
As of January 1, 2015 the option rule for foreign taxpayers will be canceled. The option rule allows foreign taxpayers to claim deductions normally only available to domestic taxpayers (such as the mortgage interest deduction and the personal tax allowance). However, the option rule contains a number of provisions which allow the Netherlands to reclaim the deductions, in full or in part, in certain situations. Because these restrictive measures could be contrary to EU law in certain situations, the new rules on qualifying foreign taxpayers had already been approved in the debates on the 2014 Tax Plan. Under these rules, foreign taxpayers whose income is for 90% subject to Dutch tax may claim Dutch deductions. The rules are only available to resident taxpayers of an EU Member State, an EER Member State, Switzerland or the BES islands. An important difference with the current option regime is that the taxpayer is, in principle, entitled to specific deductions rather than having to opt for them. Furthermore, the rules no longer contain provisions that would allow the deductions to be reclaimed.