Value Added Tax (VAT)
VAT- Exemptions for Hospitals and other Similar Institutions
In order to apply the VAT exemption for nursing and caring of a person admitted to a care institution (e.g., hospital), such services currently cannot be provided with the purpose of seeking a profit. The VAT exemption and above-mentioned requirement also apply to other closely related services, such as the provision of food, drinks, medicine, and dressing materials to the cared-for person. As of January 1, 2015, the above-mentioned requirement will be abolished. Consequently, special medical care and other closely related services will no longer be subject to VAT regardless of the purpose of seeking profit.
VAT Rate Home Renovation
The current regulation under which the reduced VAT rate of 6% is applied to renovations and restorations made to a residential property has been extended until July 1, 2015. Initially, the regulation was scheduled to be abolished at the end of 2014. The reduced VAT rate only applies to renovations and restorations of residential properties with a first usage of more than two years ago. The reduced VAT rate for renovation and restorations of residential properties only applies to the cost of labor and not to the extent of material.
Dutch Corporate Income Tax/Personal Income Tax
Legislative Proposal Regarding Taxability of Public Entities
Besides the presentation of the 2015 Tax Plan, the legislative proposal regarding taxability of public entities has been submitted to the Dutch Parliament. The legislative proposal states that public entities will become subject to corporate income tax as of January 1, 2016. With the aforementioned proposal, the Dutch government aims to create a level playing field between private entities and public entities that are carrying on a business. Currently, Dutch national law dictates that public entities are only liable to tax for activities performed that are mentioned in the Dutch Corporate Income Tax Act. In the legislative proposal at hand, all public entities are liable to tax regardless of their legal form, unless the public entity or the activities performed by the public entity are exempt from taxation based on the legislative proposal. For example, public entities performing public duties are exempt from taxation. Public entities have until January 1, 2016 to prepare for the (potential) upcoming tax liability. For more information, please we refer to the April 8, 2014 article on our website.
Tier 1 Capital for Insurance Companies
Since January 1, 2014, tier 1 capital for banks is treated as debt capital. To ensure a level playing field between financial institutions, tier 1 capital for insurance companies will also be treated as debt capital as of January 1, 2015. As a result, insurance companies may regard payments on tier 1 capital as tax deductible on their profits.
Foreign Penalties No Longer Tax Deductible
The Dutch Personal Income Tax Act and the Dutch Corporate Income Tax Act provide that penalties imposed by the Dutch criminal court, the Dutch government, or an institution of the European Union are not tax deductible. By contrast, penalties imposed by foreign governments are tax deductible. As of January 1, 2015, penalties imposed by foreign governments will no longer be tax deductible.
Innovative Fiscal Regimes
The WBSO allowance and the Research and Development Allowance (RDA) are fiscal instruments that aim to improve innovation by private companies. The WBSO allowance enables companies to reduce their Research and Development (“R&D”) wage costs, and the RDA allows companies to deduct from their profits certain non-wage related costs and investments. As of January 1, 2015, the WBSO allowance no longer allows the deduction of wage costs relating to contract research performed by public knowledge entities. In addition, €16 million will be added to the WBSO allowance budget in 2015, and €234 million of the RDA budget will be relocated to the WBSO allowance budget. The RDA budget will get an additional cut for €150 million to cover the expenses related to the postponement of the Household Allowance. Furthermore, the Dutch government will be examining the possibility to combine the WBSO Allowance and the RDA into a single regime for the wage taxes.
First Income Tax Bracket
As of January 1, 2015, the rate in the first income tax bracket will be raised by 0.25% to 36.50%. However, this is less than the 0.51% increase of the rate in the first bracket as announced in the Tax Plan 2014. The rates of the other three tax brackets remain unchanged.
Reduction General Tax Credit
The general tax credit decreases when the level of income increases. The decrease percentage for 2015 will be set at 2.32%, an increase of 0.32%, whereby the minimal general tax credit will be €1,342, and the maximum general tax credit will be €2,203 in 2015.
Increase Employment Credit
The employment credit will increase in 2015. However, the level of the employment credit will be reduced if a certain income level is exceeded. The start of this reduction, the so called “reduction limit,” will be higher than the amount mentioned in the 2014 Tax Plan. This limit is set on €49,900 in 2015. The maximum employment credit in 2015 will be €2,200 and the minimum employment credit €184.
Life-Course Savings Scheme
As of January 1, 2012, the so-called “Life-course scheme” (in Dutch: Levensloopregeling) has been abolished for new cases. In 2013, taxpayers were entitled to a discount in case they withdrew the total life-course savings. By withdrawing the total amount, only 80% of the life-course savings were includible as taxable income. In 2015, participants of the life-course saving scheme will again be offered this benefit of only including 80% of the savings in their taxable income. However, for 2015, a maximum has been set, being the balance available for withdrawal pursuant to this facility at December 31, 2013.
As of January 1, 2015, the interest deduction period for residual debts that may have remained after the sale of a dwelling in a declining market, will be extended from 10 to 15 years. In addition, the period during which interest is deductible for an owner on their vacant home will be extended from two years up to three years as of January 1, 2015. Also, it will still be possible in 2015 to claim a mortgage interest deduction for your principal residence after it has been rented out for a certain period. For example, this may apply in relation to a former principal residence that is still up for sale but also to new property that has been purchased and will shortly become the principal residence.
For dwellings with a value more than €1,040,000, the deemed taxable income from such dwelling will increase from 1.80% to 2.05% in 2015, and thereafter to 2.35% in 2016.
Expense Allowance Scheme
As of January 1, 2011, employers may utilize the Expense allowance scheme (in Dutch: Werkkostenregeling), or they can use the transition scheme and elect to fall under the previous rules for reimbursements and benefits. As of January 1, 2015, all employers will be required to use the Expense allowance scheme. Furthermore, the following items will change as of January 1, 2015:
- The discretionary margin will be reduced from 1.5% to 1.2% of the total payroll.
- The necessity requirement (which provides that items given to employees must be “necessary” for the performance of the employment) will extend to tools, computers, mobile communication, and similar devices.
- An exemption will be introduced for a discount on a company’s self-produced items.
- An exemption will be introduced for some workplace-related provisions, where currently a zero rating is applied.
- A group scheme will be introduced, under which the Expense Allowance scheme may be calculated at a group level. Companies that meet the ownership rules (participations of at least 95%, calculated per calendar year), can qualify as a group. Employers may elect whether or not to use this option.
- In case the Expense allowance scheme is exceeded, the tax could be settled on an annual basis instead of a monthly basis. Any tax due should be paid together with the wage tax due for the first period of the next calendar year.
Customary Salary Scheme
As of January 1, 2015, the customary salary for the customary salary scheme (in Dutch: Gebruikelijkloonregeling) for director/shareholders will be determined based on the “most comparable employment” instead of “similar employment” (which is the current standard). With this change, the Dutch government aims to fight cases in which a wage will be determined that is lower than a businesslike wage, because of the fact that there is no similar employment available within the company. With this new rule, it is assumed that a comparable employment is always available. Furthermore, the highest paid other employees are also taken into account. In the current regulation, a director/shareholder may report a wage that is 30% lower than a businesslike wage (but not less than €44.000). This so called “efficiency margin” will be reduced to 25% as of January 1, 2015.
Under the Tax Plan 2014, the 2014 tax rate for income from a “substantial interest” in a company was reduced to 22% for income up to €250.000 and 25% for additional income. As the Tax Plan 2015 provides no further indication as to the aforementioned 2014 rate reduction, we presume that the tax rate for income from a “substantial interest” is restored to its pre-2014 percentage (i.e., 25%).
The Minister of Finance has indicated that the beneficial tax treatment of personnel loans should no longer be permitted. The 2015 tax bill will address this issue with a proposal.
As of January 1, 2015, for any individual with an income of up to €100,000, the maximum pension contribution percentage for the average salary rule is set at 1.875% and for the final salary rule at 1.657%. On income in excess of €100,000, a voluntary savings opportunity is introduced: the “net annuity.” The value of such net annuity is not taxable under the deemed passive income rules for personal income tax purposes. To combat abuse of this rule, redemption of the net annuity leads to a clawback of the aforementioned exemption under the deemed passive income rules, by including an amount of 50% of the redemption price as deemed passive income and subsequently multiplying such amount with the number of years during which the individual participated in the net annuity, at a maximum of ten years. Taxpayers will have an opportunity to argue that this clawback provision should not apply, where the result is unduly burdensome in a specific case. In addition, a separate exemption will be added to the deemed passive income rules with respect to net pensions, the drafting of which will be mirrored to the rules under the Wage Tax Act 1964. The aforementioned clawback provision will apply similarly to net pensions.
Finally, individual entrepreneurs without employees will be permitted as of January 1, 2015 to accelerate drawing upon pension benefits that were built up voluntarily, without revision interest becoming due.
Revision of Recovery Interest
If an EU member state has levied tax under a national law that is not in accordance with EU law, the member state is required to repay such unduly levied tax. As of January 1, 2015, taxpayers that are entitled to a tax refund for that reason can request the Dutch tax authorities to also pay so-called “recovery interest” on the tax amount to be refunded. While the measure will take effect as of January 1, 2015, prior tax refunds based on this principle are still eligible for a retroactive refund of recovery interest. Taxpayers will have six weeks starting January 1, 2015 to file requests for retroactive refunds on recovery interest with respect to tax refunds awarded prior to 2015.
Dividend Withholding Tax and Interest Rules
Current interest rules do not provide that the Dutch tax authorities pay an adequate interest refund for unduly withheld dividend withholding tax. As of January 1, 2015, the Dividend Withholding Tax Act will be part of interest rules that currently apply to other tax acts. The rules will apply to both refunds and assessments (i.e., dividend withholding tax payable and receivable).
- The reduced rate that currently applies to cooperatives and owners’ associations with respect to locally generated sustainable energy will be expanded to entrepreneurs. However, a new requirements will be introduced for cooperatives: they will not be eligible for the reduced rate to the extent that an entrepreneur holds more than a 20% interest in a cooperative or owners’ association.
- The exemption for self-generated sustainable energy will also apply as of January 1, 2015 to sustainable energy that is generated by a landlord and used by its tenant.
The aforementioned changes may have a significant impact on you or your company. If you require any assistance, Ryan International Tax specialists are happy to discuss the impact on and the possibilities for you or your company.