On Budget Day, September 16, 2014, the Cabinet presented the 2015 Tax Plan to the Lower House. This year’s proposed tax measures are aimed at reducing the tax on labor and on simplifying taxation in general. Many of the proposed measures will take effect on Thursday, January 01, 2015. The main features of the 2015 Tax Plan are set out below.
Corporate income tax
Insurers can recognize additional Tier 1 capital as debt
As of 2014, the additional Tier 1 capital furnished by banks will explicitly qualify as debt, which means that the return will continue to be deductible. Please refer to our previous memorandum on this issue. Because the capital requirements imposed on insurers means they are comparable to banks, the Tier 1 capital furnished by insurers will now also qualify as debt.
Payroll tax and social security contributions
Research and development remittance reduction
The research and development remittance reduction for research institutes will be canceled, as these institutes have failed to adequately pass on the benefit they receive from the remittance reduction to the parties commissioning the work (see below under ‘Innovation rules’).
Customary salary plans
The permissible margin for determining the normative salary for director-major shareholders (DMS) will be reduced. At the moment, the salary of a DMS may be no more than 30% under the benchmark salary; this percentage will be reduced to 25% in 2015. As of 2015, the normative salary will be set at least at the highest of the following amounts:
- 75% of the salary of the most comparable employment, instead of similar employment;
- the highest salary of the other employees of entities (such as operating companies) from which the company, with application of the participation exemption, can derive benefits;
- EUR 44,000.
Transitional rules will apply in 2015 to director-major shareholders who have concluded an agreement with the Dutch Tax and Customs Administration regarding the amount of their salary. This means that the normative salary in 2015 will be set at 75/70 of the salary in 2013, if the salary in 2013 exceeded the standard amount of EUR 43,000 in 2013, unless it is plausible that the salary in 2015 will have to be set at a higher or lower amount pursuant to the customary salary plan. There is a rebuttal provision. No separate rules will be introduced to determine the normative salary of director-major shareholders of startups, because the existing methods are considered adequate.
Changes to the work-related costs rules and termination of the option regime
The work-related costs rules (werkkostenregeling; WKR) will be amended to make them easier to administer. This concerns the following measures:
- limited introduction of the necessity criterion;
- annual payment methodology;
- group rules;
- exemption for industry-specific products;
- removal of the distinction between reimbursements, provisions and items made available.
To enable this to be implemented on a budget-neutral basis, it has been proposed to lower the fixed exemption from 1.5% to 1.2%. The transitional rules, which allowed employers to choose between the WKR or the old rules, will end as of 2015. This means that as of 2015 all employers must apply the WKR. Please also refer to our previous memorandum prepared in response to the announcement of these changes.
Prorated allocation of the tax credit
Because the option regime will be replaced by the rules for qualifying foreign taxpayers as of January 1, 2015 (see below under ‘Other tax developments’), the bill provides for a prorated application of the tax credit for personal income tax.
The rules on untaxed interest rate reductions on staff loans will be amended. A proposal on this issue will be included in the bill on the Tax Miscellaneous Provisions Act 2015.
On January 1, 2012, the special leave plan was canceled. Individuals whose special leave entitlement amounted to EUR 3,000 or more on December 31, 2011, could elect to either: continue participating in the plan through to 2021, or 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 is only effective for one year.
Reduced rate on labor costs for home renovation extended
The reduced VAT rate of 6% on labor costs for the renovation and repair of homes older than two years will apply for a further six months, i.e. until July 1, 2015.
VAT exemption for hospitals and similar institutions Non-profit requirement withdrawn
The VAT exemption available for the care of institutionalized patients by hospitals and nursing homes for example, is currently subject to the condition that these services are provided on a non-profit basis. Operating surpluses are permitted as long as they are not distributed but used for the VAT exempt services provided by the institution. The 2015 Tax Plan removes this non-profit requirement. However, its withdrawal is dependent on the cancellation of the profit distribution prohibition that applies to hospitals for example. The latter cancellation is included in the Increase of Investment Opportunities for Specialist Medical Care Act (Wet vergroten investeringsmogelijkheden in medisch-specialistische zorg) and is expected to take effect on January 1, 2015.
Personal income tax
On balance, a slight increase in the tax rate of first tax bracket
The tax rate in the first tax bracket will be 36.5%. This is an increase of 0.25% compared to 2014, but is lower than the tax rate of 36.76% that had previously been forecast for 2015.
Higher labor tax credit
The 2014 Tax Plan had already provided for an increase to the labor tax credit for 2015. The 2015 Tax Plan provides for a further rise by increasing the reduction threshold, i.e. the income from which the labor tax credit will gradually be reduced. The maximum labor tax credit in 2015 will be EUR 2,200 and will gradually be reduced for income of EUR 49,900 (was EUR 41,300) and above and will amount to EUR 184 for income of EUR 100,800 and above (was EUR 92,200).
Changes to the gradual reduction of the general tax credit
The reduction percentage for the general tax credit will be increased by 0.32%; the rate for 2015 will therefore be 2.32%. In 2015, the general tax credit for income up to approximately EUR 20,000 will be EUR 2,203 and will be gradually reduced to EUR 1,342 for income of approximately EUR 80,000 and above.
Interest on residual home mortgage will be deductible for a longer period
The interest on the amount of mortgage remaining after the principal residence has been sold will be deductible for a longer period: 15 rather than 10 years.
Two temporary measures to support the housing market will become permanent
Two temporary measures to open up the housing market will become permanent. This concerns the extension - from two to three years - of the period during which the mortgage interest on a vacant unsold former principal residence or a vacant future principal residence can be deducted. Also, it will remain possible to deduct the mortgage interest on principal residences that are still for sale and were temporarily rented out.
Reduction of the elderly person's tax credit and cancellation of the elderly person's allowance in box 3 (2016)
As of 2016, the elderly person's tax credit will be reduced by EUR 83. The elderly person's allowance, which increases the tax-free capital for the elderly in box 3 by a maximum of EUR 27,984, will be canceled as of 2016.
Tax innovation rules
R&D remittance deduction
The remittance reduction for payroll tax purposes for research and development activities (S&O-afdrachtvermindering; also referred to as the “WBSO”) is a tax measure to encourage innovation by private parties by providing tax relief for the payroll costs related to research and development. Partly as a result of a budget overrun for 2013 and the shift of EUR 214 million from the budget for the research and development deduction to the R&D remittance reduction, the available budget for 2015 is EUR 794 million. At present, research institutes that do not carry on a business are eligible for the R&D remittance reduction if they perform R&D on behalf and for the account of a company or companies or a joint venture. This 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.
The research and development deduction (research & development aftrek; RDA)
The RDA was introduced in 2012 to grant taxpayers with an R&D certificate (S&O-verklaring) an additional deduction for qualifying innovation costs (payroll costs excepted) and expenses. The RDA budget for 2015 is EUR 238 million.
Procedural law amendments
Foreign pecuniary penalties no longer deductible
Penalties imposed by criminal courts or other domestic or EU bodies are not deductible for personal or corporate income tax purposes. In the 2015 Tax Plan, this will be extended to foreign pecuniary penalties. The Cabinet considers that the difference in treatment between domestic and foreign penalties is no longer desirable. This deduction limitation is broad and applies to all foreign penalties, including traffic fines, competition fines and environmental fines. However, it is noted that when a penalty is imposed abroad for an offense that is not recognized by the Dutch legal system and whose punishability is clearly in conflict with Dutch law or if justice was not properly administered, consideration will be given to allowing deduction of the penalty imposed by virtue of the hardship clause. Where payroll tax is concerned, foreign penalties cannot be designated as a final levy component.
From January 1, 2015 dividend withholding tax is included under interest on tax due
The rules concerning interest on tax due did not previously apply to dividend withholding tax. From January 1, 2015 this will be changed and dividend withholding tax will also be brought within the scope of interest on tax due. This means that interest on tax due will be calculated on additional dividend withholding tax assessments and that interest will be reimbursed on dividend withholding tax refund decisions.
Amendment of interest rules in line with EU law
The rules for late payment interest will be amended to comply with CJEU case law. In cases where tax is levied contrary to European Union law and there is thus entitlement to a refund, the Dutch Tax and Customs Administration will in future, upon request, reimburse late payment interest with effect from the date of payment of the tax that was wrongly levied until the date of repayment. Interest will only be reimbursed insofar as there is no entitlement to reimbursement of interest. These rules will take effect on January 1, 2015, and will also apply to wrongly levied tax that was refunded before January 1, 2015.
Further measures in the Tax Collection Act
- The rule whereby the Collector of Taxes only makes payments to one bank account in the name of a tax debtor will no longer apply for VAT purposes as of January 1, 2015. This measure was particularly prompted by the practical difficulties that it created for VAT.
- Banks are obliged to provide information to the Collector of Taxes that may be of importance during the implementation of the single bank account measure. This includes the following information: account number, name, address and date of birth of the bank account holder.
- The 2015 Tax Plan introduces joint and several liability for payroll tax where use is made of the group rules in respect of the work-related costs rules.
Self-employed persons without employees
In the case of incapacity for work, self-employed persons without employees, may under certain conditions draw on their individual supplementary pension plan without additional deemed interest of 20% being imposed.
A penalty will be introduced for improper acts (such as surrender) with a net annuity. A fixed rate approach (with a rebuttal provision) then applies: half of the contribution on January 1 of the previous year upon surrender. This amount will be multiplied by the number of years of exemption in box 3 from 2015. A maximum of ten years applies. The calculated amount will be taxed in box 3.
A separate exemption for net pension will be included in box 3. Although it is assumed that net pension cannot be surrendered because this is prohibited by the Pensions Act, the net annuity surrender penalty will also apply to the net pension. A net partner pension is exempt from inheritance tax. The exemption for pensions may, however, reduce the general exemption for inheritance tax.
2015 Tax Plan miscellanea
Tap water tax ceiling to remain
The 2014 Tax Plan laid down that the 300 m3 ceiling for the tax on tap water would be abolished on July 1, 2014 with the introduction of a graduated rate. The Cabinet has, however, decided to withdraw this amendment. This decision is now legally enshrined in the 2015 Tax Plan. In anticipation of this, a policy decree had already granted an approval to cover the period from July 1, 2014 through December 31, 2014.
Further elaboration of waste tax
As of April 1, 2014, waste tax was reintroduced in the form of a tax of EUR 17 per tonne on landfill waste only. The waste tax will be elaborated further with effect from January 1, 2015. It is proposed to tax the waste from Dutch businesses or municipalities that is intended for landfill or incineration. Tax will be levied on the quantity of waste delivered to both incinerator plants and landfill sites, with tax rebates applying to outgoing waste. The rate from January 1, 2015 is EUR 13 per tonne. Neither waste from foreign businesses nor the export of waste will be subject to tax.
Expansion of reduced rate for locally generated renewable energy to businesses
The 2014 Tax Plan provided for an energy tax discount for associations of owner-occupiers and cooperative associations that generate renewable energy locally. This discount will be expanded to cover businesses by dropping the requirement that all members of the cooperative association must be individuals. However, the reduced rate does not apply if a business' participation in a cooperative association or association of owner-occupiers exceeds 20%.
Energy tax exemption for renewable electricity generated by landlord
The energy tax exemption for renewable electricity generated by means of solar panels, for example, is applied if the electricity is generated by its consumer. This condition implies that the electricity generation is for the account and risk of the consumer. An exception to this rule will be introduced for the rental sector. As a result of the announced exception, the landlord and tenant can incorporate the presence of a home renewable energy system in the rent at their own discretion.
Use of BPM valuation reports
At present, taxpayers that import used vans, cars or motor cycles can determine their value for private motor vehicle and motorcycle tax (belasting op personenauto’s en motorrijwielen; BPM) purposes by either using a fixed price table, a general list of quoted prices or a valuation report. Where valuation reports are used, there are strong indications that the appraised value is often set too low. To avoid abuse, as of 2015 valuation reports will only be allowed to be used for damaged vehicles. The owner of the damaged car/motor cycle can then still opt for a fixed price table, a list of quoted prices or a valuation report. For other vehicles, the option for a valuation report will be withdrawn.
Double cabin cars
At present, it is unclear how certain vehicles should be defined for BPM and motor vehicle tax (motorrijtuigenbelasting; MRB) purposes. This specifically concerns motor vehicles used for passenger transport that have a double cabin and with a maximum permissible capacity not exceeding 3,500 kg. A double cabin is present if there is room behind the driver for one row of passengers sitting next to each other in the direction of the driver. To prevent vehicles being regarded as trucks as a result of this hazy definition and therefore falling outside the scope of the BPM, cars with a double cabin will be regarded as passenger cars. This will apply to motor vehicles with a maximum permissible capacity of more than 3,500 kg of which the length of the designated passenger space exceeds the space not designated for passengers. This measure will take effect on January 1, 2016.
Other tax developments
The abovementioned tax measures in the Tax Plan 2015 are to be complemented by a number of other important tax developments. A brief discussion of several of these developments is set out below.
Pension changes 2015
The legal basis for the changes to pensions in 2015 (Witteveen 2015) was laid down on May 27, 2014, when the Upper House of the Dutch Parliament passed the Reduction of Maximum Pension Accrual and Premium Rates and Maximum Pensionable Income Act (Wet verlaging maximumopbouw- en premiepercentages pensioen en maximering pensioengevend inkomen) containing amendments (novelle) resulting from the pension agreement from December 2013. The accrual percentage for a retirement pension based on an average pay plan with a retirement age of 67 years has been set at 1.875% and for a final pay plan the maximum accrual percentage will be 1.657% per year of service. The maximum pensionable income will be capped at EUR 100,000, less the state pension offset. Taxpayers whose pensionable income exceeds EUR 100,000 will be able to supplement their pension by way of a tax-friendly net annuity. Please refer to our previous memorandum on this issue.
Bill on temporal ringfencing reserves
The bill on temporal ringfencing reserves that was presented to the Lower House on August 30, 2013 contains new rules on temporal ringfencing which will apply to the application of the participation exemption for corporate income tax purposes. These rules were prompted by the Supreme Court judgment rendered on June 14, 2013, in which the Court noted that if the government wishes to ringfence an exemption transition resulting from a legal amendment in order to apply the participation exemption, this must be laid down in law. This bill is still being debated by the Lower House.
Bill on procedural simplification Dutch Tax and Customs Administration
On August 30, 2013, the Ministry of Finance announced a bill dealing with a new tax regime for personal income tax and inheritance and gift tax: the Act on procedural simplification Dutch Tax and Customs Administration (Wetsvoorstel vereenvoudiging formeel verkeer Belastingdienst). The Ministry aims to simplify and speed up the process by which the tax liability is determined. The assessment period for cooperative taxpayers will be shortened and the procedure will be less formal. This bill is still being debated by the Lower House.
Limitation on interest deduction for home mortgages in highest tax bracket raised to 51%
As of 2014, the maximum percentage against which the interest on home mortgages can be deducted in the highest tax bracket will be reduced by half a percent per year. In 2015, a maximum of 51% of the interest paid on home mortgages will be deductible.
Imputed income from an owner-occupied home to increase for expensive homes
In 2015, the imputed income from an owner-occupied home exceeding a certain WOZ value (in 2014 this is EUR 1,040,000) will be increased from 1.80% to 2.05%, for that part exceeding this WOZ value. The percentage will eventually increase to 2.35% in 2016.
End of child-related income tax allowances (2015)
As part of the bill to reform child allowances with effect from 2015, three child-related income tax allowances will end: the personal deduction for child support, the parental leave tax credit and the single parent credit.
Gradual reduction in employment bonus for the 60-plus age group
As of 2015, the employment bonus for employed persons between the ages of 61 and 64 will be abolished for new beneficiaries and will no longer be index-linked. The bonus will be phased out by the beginning of 2018.
Temporary reduction in box 2 tax rate reversed
In 2014 the tax rate for the first EUR 250,000 of income derived from a substantial interest was temporarily reduced from 25% to 22%. As of 2015, the normal 25% rate will again apply to all income derived from a substantial interest.
Temporary liberalization of gifting exemption for own home canceled
The liberalized gifting exemption for own homes will not be extended. Therefore, family members or third parties who wish to gift an amount not exceeding EUR 100,000 to be used for the own home will have to do this before January 1, 2015.
Temporary extension of resale period for real estate transfer tax purposes canceled
The 2013 Tax Plan extended the resale period for real estate transfer tax purposes from six months to 36 months for both residential and non-residential real estate. Properties acquired in the period from September 1, 2012 through January 1, 2015, and which are resold within 36 months, will only be subject to real estate transfer tax on the capital gain realized. The extended resale period will no longer apply to property acquired after 2014; the normal six-month period will apply instead.
Revision of option rule for foreign taxpayers
The option rule for foreign taxpayers will be revised. Under the current rule, certain foreign taxpayers can opt to apply the Personal Income Tax Act 2001 as it applies to domestic taxpayers. As of January 1, 2015, the option rule will be abolished. Under the new rules, the personal and family situation of foreign taxpayers may receive the same tax treatment as that of domestic taxpayers. This will bring the scope of the current rules more in line with EU law. The new rules will, in principle, be restricted to foreign taxpayers who are residents of an EU or EEA Member State, Switzerland, or one of the BES islands, and who earn 90% or more of their income in the Netherlands. The current rule is based on the taxpayer's worldwide income, for which double taxation relief is given. However, under the new rules, qualifying foreign taxpayers will only be taxed on their Dutch income, and are, in principle, entitled to the same deductions and tax credits as domestic taxpayers.
CO2 emission standards for the addition to income for the use of a company car tightened
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.