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Dutch Budget and Tax Plan for 2021 Presented

On 15 September 2020, the Dutch Budget for 2021 was presented, which includes the Tax Plan for 2021. Key points of the Tax Plan include the following, which are to generally apply from 1 January 2021, subject to approval:

  • The planned reduction in the higher corporate tax rate is scrapped and will remain 25%;
  • The lower corporate income tax rate will be reduced from 16.5% to 15.0%, with an increase in the lower rate threshold from EUR 200,000 to EUR 245,000 in 2021 and a further increase to EUR 395,000 in 2022;
  • A new loss offset restriction will be introduced providing that the offset of carried forward losses will be limited to 50% of profits exceeding EUR 1 million, although the current 6-year carry forward limit will be removed (i.e., losses may be carried forward indefinitely from 2021);
  • The Innovation Box tax rate for profit from innovative activities will be increased from 7% to 9%;
  • A new job-related investment tax credit (BIK) will be introduced, providing that businesses that make an investment, such as the purchase of a new machine, will receive a tax credit that can be set off against the payment of salaries tax and national insurance contributions;
  • The basic (lower) income tax bracket rate will be reduced from 37.35% to 37.10% in 2021, with the rate to be further reduced to 37.03% between 2022 and 2024;
  • The tax-free allowance for box 3 tax for individuals on capital and assets will be increased to EUR 50,000, with the overall tax rate increased from 30% to 31%; and
  • The standard property (real estate) transfer tax rate will be increased from 6% to 8%, with the reduced 2% rate currently provided for residential properties limited only to cases where the buyer purchases the property as a personal dwelling and an exemption introduced for homebuyers aged 18 to 35.

Further to the above, the government is also planning to tighten interest deduction limitation rules, which includes the amendment of the interest deduction limitation rules for related party financing provided in Article 10a of the CTA with the addition of a provision to address cases where a positive result on a related party debt (e.g., a positive foreign exchange result) would provide an exemption from Dutch tax. This provides that to the extent the positive result on a related party debt exceeds the amount of interest expenses on that specific loan, such positive result is excluded from Article 10a and is therefore added to the taxable basis.

In addition to the Tax Plan, a bill has also been submitted to limit the liquidation and termination loss facility in respect of business activities outside the Netherlands. This includes that the facility will be amended from 2021 to provide that losses exceeding EUR 5 million will only be deductible if concerning a qualifying interest in an EU/EEA resident entity/establishment and the liquidation is completed within three years of ceasing activity.

Lastly, the conditional withholding tax on interest and royalties that has already been approved will be introduced from 1 January 2021. The withholding tax rate is equal to the higher corporate income tax rate of 25% and applies on payments to related parties in specified jurisdictions with a corporate tax rate of less than 9% and to countries listed by the EU as non-cooperative.

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