The coalition agreement and how everyone’s lives will radically change
Radical change … on the tax front, that is. Is it really as exciting as the title? No. But if you are an entrepreneur, the proposals can have an impact!
Most non-entrepreneurs will notice little on net. Tax cuts on labor coupled with tax increases on consumption are expected to balance each other out in net euros. The 1 will advance a few tens, the other will decline a few tens.
In addition, it is important to realize that these are only proposals, and not yet existing laws! The cabinet has a narrow majority in the chamber, so realization of the coalition agreement will remain to be seen.
For non-entrepreneurs, the following proposals are most relevant:
Two tax brackets instead of four (36.93% & 49.5%)
Current brackets range between 36.55%, 40.8% & 52%. Thus, this means a small increase for blue-collars, and a decrease of about 3-4% for white-collars. Leave the pitchforks in the barn for now, as higher incomes are also expected to be hit harder by the deduction cuts.
Mortgage interest deduction to be further reduced
The subsidy for having a mortgage will be reduced. In 4 years, the maximum tax credit for mortgage interest is scheduled to be 36.93%. For 2017, the maximum subsidy is still 50%. The rebate works in conjunction with the addition of the owner-occupied home lump sum. It is also being reduced. From 0.75% of the WOZ value now, to ,60% of the WOZ value. On balance, for a “standard” situation, there is 100 euros more tax to be paid annually.
VAT rate from 6% goes to 9%
The 6% rate applies to many “basic necessity” products such as food and beverages. Services of, for example, the barber, shoemaker or painter are also covered by the 6% rate. The Cabinet has proposed that the VAT rate increase will take effect January 1, 2019. It is expected that this rate increase will actually go through.
“Please note that these are only proposals, not applicable laws!”
For entrepreneurs, the following proposals are also relevant:
The loss set-off period goes from 9 to 6 years
If you suffered a loss for 7 years, which has not yet been set off against profits earned, you may set off future profits against the loss suffered for another 2 years. This is/was considered reasonable within the philosophical thinking of taxing total profit. Only the total capital gain over the entire life span of a company, should be taxed. Unfortunately, the current administration cannot agree, and wants to shorten this deadline. Fair is fair, this is a uniquely Dutch provision, but any right-thinking tax philosopher would argue for an unlimited loss deduction period.
The VPB step-up from 200,00 to 250,000 was a lie, the VPB rate will be reduced.
The step-up of the low VPB rate from 200,000 to 250,000 will not happen. It was intended that the “low” VPB rate would apply up to 250,000, instead of 200,000 now. In return, the VPB rate is reduced incrementally (4 yrs) from 20% to 16%. Higher profits are subject to a reduction from 25% to 21%. Only in 2021 will the lowest rate apply. The first year the rate will decrease by 1%, the following years by 1.5%.
Box 2 rate is increased from 25% to 28.5%
Profits in a B.V. are taxed twice. 1x at the annual profit (VPB rate, now for many 20%, in 2021 16%) and a2nd x when distributing profits to the shareholder (25% box 2 tax if it is a natural person in the Netherlands). This change hits business owners especially hard who have enjoyed profits in the past but have not yet distributed them. This is because they paid the higher VPB rate on those profits, and may also start paying the higher dividend rate should they not distribute those profits until after the change. Profits are then, should the money remain in the bank account, taxed in Box 3. So paying out now is not necessarily the wisest thing to do!
Self-employment deduction to be limited
Currently, entrepreneurs can deduct the self-employment deduction at the highest tax rate of 52%. The government plans to limit this deduction to the lowest tax bracket. The deduction limitation is thus equated with the mortgage interest deduction limitation. This measure will provide a hefty net tax increase, should it pass.
Limitation on depreciation of self-managed buildings
Currently it is allowed to depreciate a self-managed building up to 50% of the WOZ value. The government plans to change this lower limit to 100%. As a result, companies can no longer take deductions through depreciation on buildings. How the government intends to deal with “old” cases, where a property is 50% on the tax balance of the WOZ value, is not yet known.
Dividend tax to be abolished
The oddest duck in the bunch; dividend tax to be abolished. Dividend tax constitutes for most as a kind of withholding tax, similar to withholding of payroll taxes. Annually, when filing your income tax return, you can receive a portion of the dividend tax paid/withheld back, or have it act as an advance payment on your income tax return. With this measure, companies no longer have to withhold dividend tax, should they make a dividend payment. To be clear, this does not avoid paying taxes to the recipient! A DMS will still have to pay 25% on dividend income.
DBA Act to be reversed
The DBA Act, substitute for the VAR declaration, is being replaced. In its place is a principal’s declaration, which establishes the relationship between the principal / contractor. With a low rate i.c.w. a sustainable working relationship, the tax authorities can automatically assume that there is a working relationship. A low rate will be somewhere between 15 – 18 euros per hour. This will also be subject to a cautious enforcement policy for the time being. That means no fines, but it can still lead to after-tax penalties!
Final conclusion
A lot of vest pocket / pocket proposals but ultimately higher incomes are expected to bear the brunt of this. The tax cut from 52% to 49.5% is hefty, but the deduction limitation on the self-employment deduction/mortgage interest deduction will certainly affect most business owners and/or homeowners as well.