On Budget Day, September 17, 2019, the government presented the 2020 Tax Plan to the Lower House. The proposed tax measures focus on lower labor costs, combating tax avoidance and tax evasion, an attractive business climate for economic activities of substance and further environmental measures. The real estate world was of course not forgotten. The following blog sets out the five most important points of consideration from Budget Day.
Increase in real estate transfer tax on non-residential property
As of January 1, 2021, the government proposes increasing the real estate transfer tax on non-residential property from 6% to 7%. Non-residential property includes, for example, industrial buildings, business premises, land intended for housing, as well as hotels and guest houses. Despite public pressure to increase the real estate transfer tax rate on residential property for investors with large portfolios, the rate for the purchase of residential property will remain at 2%.
Partial reduction of corporate income tax rates
Corporate income tax rates will be reduced, but the reduction of the regular 25% rate will be postponed and will be less than originally proposed. The regular rate (above €200,000) will remain at 25% in 2020, but will increase to 21.7% in 2021. The reduction of the ‘basic rate’ for profit up to and including €200,000 will however proceed as planned: from 19% to 16.5% in 2020 and ultimately to 15% in 2021.
Changes to the landlord levy
To ease the housing shortage, a tax reduction will be introduced for landlords that are subject to the landlord levy (this includes landlords that rent out at least 50 rent-controlled houses) and who build new houses in areas where housing is scarce. The reduction of€25,000 for each new-built house only applies to houses in areas where housing is scarce and which requires a minimum investment of €62,500. The construction of these houses must have started on or after January 1, 2020. Moreover, the monthly rent must remain under €607.46 (2019 rate).
Withholding tax on interest and royalties as of 2021
The Netherlands is partly saying farewell to one of the jewels in its crown: as of January 1, 2021 a withholding tax on interest and royalty payments to affiliated entities established in jurisdictions with a corporate profit tax rate lower than 9% or in jurisdictions appearing on the EU list of non-cooperative jurisdictions, will be introduced. This is because the government wants to prevent the Netherlands from being used as a gateway to low-taxed countries. The proposal is that the withholding tax rate is the same as the highest statutory corporate income tax rate. Based on the current proposals, this will be 21.7% in 2021.
Furthermore, a liability provision was proposed, under which the directors of both the entity that is paying the interest/royalties and the entity receiving the interest/royalties could be held jointly and severally liable for any withholding tax that was wrongly not withheld and/or remitted.
Substance requirements in the withholding exemption for dividend tax, foreign substantial interest rules
A number of conditions in the form of substance requirements currently apply to the withholding exemption for dividend tax and to the tax liability for entities established outside the Netherlands that hold a substantial interest in a Dutch company. If an intermediate holding company complies with these requirements, there is no abuse (‘safe harbor’). In response to judgments by the Court of Justice of the European Union in February 2019 it has been proposed that as of January 1, 2020 these substance requirements will only play a role in the division of the burden of proof. This means that also in situations where the substance requirements have been complied with, the Dutch tax authorities will be able to take the position that there is an abuse situation. The safe harbor for intermediate holding companies will therefore not always be ‘safe’ in abuse situations.
If the Upper and Lower Houses pass the 2020 Tax Plan, it will take effect as of January 1, 2020. Would you like to know more about the measures described above or the effect of the 2020 Tax Plan on your situation? Visit us on the Expo Real (stand C2.120) or feel free to reach out to us.