Tax plan 2021

On Prinsjesdag, 15 September 2020, the Cabinet will present the 2021 Tax Plan. With the prospect of the upcoming elections on the one hand, and the effects of the corona crisis on citizens, business and the public administration on the other, it will become clear which tax changes the Netherlands must take into account. . In the run-up to this third Tuesday of September, we share the expected tax changes and our first insights.

Expected changes for the entrepreneur

The expected most important changes for the entrepreneur in one overview.

Further interest deduction restrictions on debt

The cabinet already set a maximum of interest deduction options last year. The Secretary of State for Finance goes a step further this year to discourage entrepreneurs from taking on large debts that they can no longer bear in economically difficult times – such as the corona crisis. What the further interest deduction restrictions will look like will probably be known with Prinsjesdag.
We believe it is important that loans remain economically sound, but we also endorse the importance of retaining interest deduction options for companies. Laws and regulations on this subject have been simplified since 2018. A new interest deduction restriction could make the system more complex again.

Tax corona reserve

The so-called fiscal corona reserve (FCR) was already announced in May to help companies in the corona crisis. Thanks to this measure, corporate taxpayers will have a one-off opportunity to set off (part of) the expected loss as a result of the corona crisis for 2020 against the corporate tax for 2019. This will benefit the liquidity position because the expected loss in 2020 will be the profit for 2019. and therefore the corporation tax payable is also lower. The FCR is the maximum profit for 2019 without the FCR. It is therefore not possible to offset more (expected) loss than the profit in 2019. Although much is already known about the FCR, the bill will only be presented with Prinsjesdag. The big question is: when is a loss a corona loss? We hope that this will become clearer. Entrepreneurs who have already reported on 2019 can still make a correction if it turns out that there is or is not a corona loss.

Temporary expansion of free space WKR reduced

In order to compensate employers for the corona crisis, the free space of the work-related costs scheme (WKR) was temporarily increased in 2020 from 1.7% to 3% over the first 400,000 euros of the total wage bill. Above 400,000 euros, the free space remained at 1.2%. It is expected that it will be announced with Prinsjesdag. that the exemption of up to 400,000 euros will return to 1.7% from 2021. Knowing that the free space will probably be scaled back to the old level from 2021 onwards, we advise employers to take a good look at the extent to which they can still use the extra free space within the WKR this year.

Whether or not to reduce the corporate tax rate?

In order to ensure that the Netherlands would remain an attractive country of residence, it was announced in 2018 that the corporate tax rates would be significantly reduced in the coming years. The base on which the Vpb is levied has been broadened. In 2019, the Vpb rate became 19% for profits up to 200,000 euros and 25% for profits from this amount. After that, the rates would drop further to 16.5% and 22.55% in 2020 and 15% and 20.5% in 2021, respectively. Despite the good intentions, the reduction in 2020 did not work out as planned. The high rate remained at 25%. On closer inspection, the Cabinet nevertheless opted for a reduction in the burden on citizens instead of a further reduction of the Vpb. The new Vpb rates for 2021 will be announced on Prinsjesdag. We believe it is very likely that the further reduction will not continue in 2021 due to the corona crisis.

Innovation box less attractive

The innovation box is a tax benefit in corporate tax for profits arising from innovation. If companies meet all the conditions and make a profit from a certain innovative activity, they will have to pay less corporate tax on this profit. That rate is now 7%, but will rise to 9% in 2021. It is interesting for entrepreneurs who now use the innovation box to take advantage of the lower rate this year.

Intermediate solution box 3 gives air

Assets in box 3 (for example savings, shares or a second home) have been taxed since 2001 on the basis of a notional return. The fictitious return increases the more power there is. In reality, returns have often been a lot lower for some time. This means that taxpayers must pay tax on a higher income from the capital than the return actually achieved. It is even possible that more box-3 tax is due than that received in return. That effect of box 3 is experienced as unjust. Many proceedings have therefore been instituted over the years against the notional capital gains tax. These procedures often deal with the question whether the levy is contrary to the right to undisturbed enjoyment of property within the meaning of the European Convention on Human Rights (ECHR). So far, the Supreme Court has not declared box 3 invalid, but that case-law shows that there is considerable tension with the ECHR. An earlier plan by the former state secretary to amend the box 3 levy met with many objections. The current Secretary of State for Finance recently brushed aside his predecessor’s plan. He announces a “simpler” interim proposal in the short term and is looking for a long-term solution.

As far as we are concerned, the introduction of an alternative system based on actual (savings) returns cannot happen quickly enough. An interim solution by considerably extending the tax-free allowance offers relative peace and clarity in the short term, but we believe that in 2020 it should still be possible to levy tax on the actual return on capital.

Clarify remittance from research and development work for public knowledge institutions

The R&D tax credit is aimed at stimulating research and development work by private companies. Until 2014, public knowledge institutions could qualify for R&D tax credit if they carry out research and development work on behalf of and for the account of a company or a group of companies. This option has expired as of 2015. However, public knowledge institutes can also run their own businesses and, if they perform research and development work, qualify for R&D tax credit. The cabinet has indicated that it will make further clarification of these regulations in the 2021 Tax Plan.

Clarify the small-scale deduction

An entrepreneur who invests in a business asset is entitled to the small-scale investment allowance; a percentage of the investment amount is deductible from the profit. Litigation was initiated earlier this year within partnerships (VOF, partnership, CV). Ultimately, on 1 May 2020, the Supreme Court clarified how this deduction should be calculated within partnerships.
This regulation will be further clarified in the Tax Plan 2021.

Increase rate substantial interest

The 2019 Tax Plan announced that the substantial interest rate (AB rate, rate that taxes income from a substantial interest – this arises if a taxpayer owns at least 5% of the share capital of a company or cooperative) will gradually increase. This is related to the reduction of the corporate tax rate. For 2021, the AB rate will increase from 26.25% to 26.9%.

Reduction of the number of deductions in income tax

The 2019 Tax Plan states that the deduction rate of a number of deductions in income tax will be reduced step by step. The most important of these is the home interest deduction. The other deductions included here are:

  • the entrepreneur’s allowance (including the self-employed person’s allowance, employee’s allowance, R&D allowance);
  • the SME profit exemption;
  • the posting exemption;
  • personal deductible items (including alimony, specific healthcare costs, gifts).

As of 2021, the percentage at which these items are deductible is still 43% (now 46%). Further decline will take place in 2022 and 2023.

Doing ability test from now on in legislation

In 2017, the Scientific Council for Government Policy noted that many taxpayers are only able to draw up a plan, take action, maintain it and deal (repeatedly) with temptations and setbacks in tax regulations. This is due not only to those citizens, but often also to the multiplicity and complexity of the regulations. The necessary is expected of them in the event of tax changes. According to the State Secretary of Finance, this “Doing ability” should not be neglected. According to him, the ability to act must become an integral part of the process that ultimately leads to the implementation of laws and regulations. This process will consist of drawing up policy and legislation in accordance with the Integrated Assessment Framework (IAK), drawing up an implementation test in which the interaction between citizens, companies and the legislator is taken into account and using behavioral insights whether the measure has a positive or negative effect. on the ability of citizens to act.

A Doing Power toolbox is being developed and used in this context. A first start is being made on this in the 2021 Tax Plan package. In our opinion a positive development for all taxpayers.

Tax moment of share option rights startups

If employers grant stock option rights to employees, the benefit gained with this option right forms wages when the right is exercised. A special share option scheme has been in place since 2018 for innovative start-ups. In short, this means that up to a maximum of € 50,000 of the benefit obtained when exercising this option (s), only 75% is regarded as wages. A characteristic of the current scheme is that tax is due at the time of exercise of the option right (and thus the acquisition of the shares). However, at that time there is not always sufficient liquidity available to the employee to pay the tax owed.

The Cabinet’s aim is to adjust the scheme, shifting the moment of taxation to the moment of disposal of the shares acquired with the stock options. According to the cabinet, this should make it more attractive to work for startups or scale-ups. The amended scheme will be included in the Tax Plan and is expected to take effect on 1 January 2021.

Relevant tax topics around Prinsjesdag

Liquidation loss scheme

Under the applicable scheme, a Dutch company can – within certain conditions – offset the loss on a foreign subsidiary against the domestic profit. This is called the liquidation loss scheme. Large multinationals use this scheme to house risky projects abroad. If the project succeeds, the profit is not taxed in the Netherlands because of the participation exemption. If it turns out to be a financial loss, the liquidation loss scheme can be used. The Cabinet intends to limit the liquidity loss scheme within the foreseeable future. A bill to this effect is expected in the summer of 2020. This bill will be dealt with separately from the 2021 Tax Plan, but will have consequences for the Dutch tax climate and is therefore related to the changes from the Tax Plan.

Borrowing excessively

Many shareholders with a substantial interest (5% or more) in a company – usually a BV – borrow money from their own company. On Prinsjesdag 2018, it had already been announced that a measure would be introduced to counter “excessive” borrowing from the own company. The bill recently went to the House of Representatives in this context. Due to the corona crisis, the government has decided to postpone the introduction for a year. The new scheme is to take effect on January 1, 2023. This bill will be dealt with separately from the 2021 Tax Plan, but will have consequences for the Dutch tax climate and is therefore related to the changes from the Tax Plan.

Sources: Letter of State Secretary of Finance, July 9, 2020, No. 2020-0000129249, Letter of State Secretary of Finance, June 26, 2020, 2020-0000121324 and Letter of State Secretary of Finance, May 19, 2020.

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