The Netherlands - Tax Plan 2021

In brief

Today, 15 September 2020, the Dutch government released the Tax Plan for 2021, which includes certain amendments to Dutch tax laws. At a high level, the immediate impact of the legislative proposals in the Dutch Tax Plan 2021 seems to be limited. The more impactful measures that are announced by the Dutch government, such as measures to counter informal capital structures, modifications to the loss carry-forward regime and implementation of a new dividend exit tax, require further consideration by the government and are expected in the course of next year.

As a next step, the measures announced today will be discussed in Parliament in the coming weeks and, when approved, most of the new rules will be implemented effective 1 January 2021 (unless indicated otherwise). In this alert we summarize the most important tax proposals.


  1. Legislative proposals CIT

Limited amendments to the corporate income tax rate

Contrary to what was adopted in last year's Tax Plan, the 25% headline corporate income tax rate will not be reduced. Instead, starting on 1 January 2021, the 15% corporate income tax bracket applicable to profits up to € 200,000 will be extended to profits up to € 245,000. As of 2022, this bracket will be further increased to € 395,000.

The corporate income tax rate for profits up to € 200,000 will be reduced from 16.5% to 15% starting on 1 January 2021. The reduction to 15% was already adopted last year, as part of the Tax Plan 2020. Following the Tax Plan 2021, the lower corporate income tax rate of 15% will apply to profits up to € 245,000 in 2021. From 2022 onwards, this threshold will be further increased to € 395,000.

A reduction of the top corporate income tax rate from 25% to 21.7%, currently applicable to profits exceeding € 200,000, was announced as part of last years Tax Plan 2020. However, in this Tax Plan 2021 this reduction is cancelled and therefore the top corporate income tax rate will remain 25% for profits exceeding € 245,000 in 2021 and € 395,000 in 2022 and onwards.

Increased effective tax rate for Innovation box

The effective tax rate for profits qualifying for the Innovation box will be increased from 7% to 9% as of 1 January 2021.

Companies that realize profits from certain innovative activities are subject to a lower effective corporate income tax rate to the extent the innovation box applies. The effective tax rate of this innovation box is currently 7%. As of 1 January 2021 the effective tax rate will increase to 9%. The increase to 9% was already announced last year as part of the Tax Plan 2020.

Positive income no longer exempt under Article 10a CITA

On the basis of the draft legislative proposal, any net positive income earned on an Article 10a loan payable is no longer exempt from Dutch corporate tax. Such net positive income should be determined on an annual basis and per Article 10a loan payable.

Article 10a CITA disallows the deduction of interest expenses incurred on group loans that are used for tainted transactions. Tainted transactions include equity distributions and investments in subsidiaries that qualify for the Dutch participation exemption regime. Considering that interest expenses and FX losses on an Article 10a loan payable are non-deductible, the Dutch Supreme Court ruled in 2012 that equally an FX gain realized on an Article 10a CITA loan qualifies as exempt income insofar the FX gain exceeds the interest expense on that loan. The idea was to reach  a well-balanced outcome, since that meant that any income (positive and negative) earned on an Article 10a loan payable was kept outside the Dutch tax base altogether.

On the basis of todays draft legislative proposal, any net positive income earned on an Article 10a loan payable is no longer exempt from Dutch corporate tax. The proposal describes that such net positive income should be determined on an annual basis and per Article 10a loan payable. This means that on an annual basis it should be determined per Article 10a loan payable whether fx gains (and potential negative interest expenses) earned on that loan exceed potential interest expenses (and fx losses) incurred on that same loan. Such excess then no longer falls under Article 10a CITA and therefore forms taxable income.

Further guidance on application of anti-abuse rules

As announced earlier, the Tax Plan 2021 includes further guidance on the application of the earningsstripping rule implemented under the Anti-Tax Avoidance Directive 1 (“ATADI”) in interaction with the anti-hybrid rules implemented under the Anti-Tax Avoidance Directive 2, in certain specific situations.

Deduction of interest payments that generally fall within the scope of the Dutch anti-hybrid rules, but are nonetheless accepted under the exemption due to sufficient double inclusion income, can still be disallowed under the earningsstripping rule.

The ATADII based Dutch anti-hybrid rules

These rules result in the following consequences if the Dutch taxpayer is a:

  • Payor: denial of the deduction of a payment if this payment is not included in taxation at the level of the payee as a result of  a hybrid mismatch; and
  • Payee: Inclusion of a payment if this payment is in principle exempt at payee level but deductible at payor level as a result of a hybrid mismatch.

To the extent, however, there is double inclusion income (“DII”), the (in principle) non-deductible payment following the Dutch anti-hybrid rules, is nevertheless deductible. Hence, if the payment (partly) consists of interest, such interest payment can still be deductible to the extent it can be offset with DII.

The ATADI based earningsstripping rule

This rule basically disallows the deduction of interest payments insofar the interest payment exceeds the interest income (balance approach) for the highest of:

  1. 30% of the EBITDA (including amendments thereon for tax purposes); or
  2. € 1,000,000.

Under the legislative updates proposed in the Tax Plan 2021, it is clarified that in order to determine which part of the DII relates to interest, and which part relates to other payments within the scope of the anti-hybrid rules, a pro-rata must be applied based on the ratio between such interest and other payments.

Additionally, the rules on the DII “escape” allow for a certain carry back if certain income is dually included in a later year. If a payor cannot deduct a payment following the Dutch anti-hybrid rules in year 1, but in year 2 there is sufficient DII due to a timing difference in including certain income in the taxable base, the non-deductible payment of year 1 can be “rolled over” and deducted in year 2 to the extent of that DII. Under the proposed rules, the above described pro rata rules should be taken into account to determine whether such deductible amount is still limited under the earningsstripping rule.

Possibility to create a “Corona provision” for anticipated losses

In assessing the taxable profit for 2019, it will be possible to create a Corona provision for all or part of Corona-related losses that are expected to materialize during 2020.

In assessing the taxable profit for 2019, it will be possible to create a Corona provision for all or part of Corona-related losses that are expected to materialize during 2020. For example, losses incurred due to Corona measures taken by the government can be considered Corona-related losses. Creating a Corona provision is limited to the total amount of profit for the year 2019 that would have been realized without the creation of the Corona provision. This means that creating a Corona provision cannot lead to a net loss for Dutch corporate income tax purposes.

Tightening of liquidation loss rules

In parallel to the Dutch Tax Plan 2021, a legislative proposal that introduces additional restrictions for the deductibility of a loss incurred when liquidating a subsidiary on which the Dutch participation exemption applies has been submitted to parliament for approval. The aim of the Dutch government is that the new restrictions apply per 1 January 2021.

In parallel to the Dutch Tax Plan 2021, a legislative proposal that introduces additional restrictions for the deductibility of a loss incurred when liquidating a subsidiary on which the Dutch participation exemption applies has been submitted to parliament for approval. The aim of the Dutch government is that the new restrictions apply per 1 January 2021.

Based on the proposal published, the following restrictions will become applicable per 1 January 2021:

  1. Shareholding requirement: The Dutch parent entity needs to own more than 50% of the shares in the subsidiary or have a decisive influence on the subsidiary (e.g. the parent entity owns more than 50% of the voting rights).
  2. Geographic requirement: The subsidiary needs to be a tax resident of the EU/EER/a specific association agreement country. Hence, the liquidation loss rule no longer applies with regard to subsidiaries that are a tax resident outside the EU/EER.
  3. Temporal requirement: The subsidiary needs to be dissolved (vereffend) ultimately three years after the end of the calendar year in which the activities of the subsidiary are discontinued or the decision to discontinue the activities is taken. The term of three years can be extended if the liquidation is delayed due to non-tax reasons. The burden of proof for these non-tax reasons lies with the Dutch taxpayer.

The shareholding requirement and geographic requirement should only limit a liquidation loss that exceeds € 5 million. This threshold applies per subsidiary that is liquidated. The Dutch legislator did emphasize that if the threshold is abused in practice, additional rules will be published.

If an entity that satisfies the above three additional restrictions is interposed between a Dutch parent entity and a subsidiary that does not satisfy the additional restrictions, the Dutch parent entity cannot indirectly claim the liquidation loss that relates to this non-qualifying subsidiary. In addition, the shareholding requirement and geographic requirement should be met for at least five years before the liquidation occurs, i.e. restructuring just before liquidation in order to meet said requirements does not allow for deduction of a liquidation loss. This five years term does not apply if the shareholding is acquired or incorporated within that term.

The geographic and temporal condition will also apply to losses incurred when discontinuing a permanent establishment with its head office in the Netherlands. The threshold of € 5 million also applies with regard to discontinuation losses of permanent establishments.

  1. Legislative announcements Corporate Income Tax

Following the advice of the Dutch advisory commission on the taxation of multinationals in the Netherlands, the Dutch Government has furthermore announced to investigate the merits of the following potential tax measures:

Limitation on offsetting tax losses

Currently, a loss incurred in a year can be settled with profits realized in the preceding year (carry-back) and six subsequent years (carry-forward). To introduce a minimum corporate income tax for highly profitable companies in the Netherlands, the Dutch government has announced that it considers to introduce a limitation on offsetting tax losses to 50% of the taxable profit, for profits exceeding € 1 million. This limitation would be introduced in combination with an unlimited loss carry forward period (as opposed to the current period of six years). Unless the new measure proves to be difficult to implement in practice, the contemplated amendment should be implemented as per 1 January 2022.

Amendments to the arm’s length principle

The Dutch government has announced to look into amendments to the arm's length principle to counter so-called informal capital. The arm’s length principle developed by the OECD prescribes, in short, that a company involved in intercompany transactions should apply arm’s length standards appropriate to e.g. its function, activities and risk profile. To adhere to the arm's length principle, the Dutch tax system provides that an overstatement in profits (on a transaction, activity, or otherwise) is subject to a downwards transfer pricing adjustment (the so-called ‘informal capital doctrine’).

If no corresponding upward transfer pricing correction is implemented at the affiliated company abroad, it may occur that part of the profits are not taxed anywhere. The announced bill would limit the downwards transfer pricing adjustment of the Dutch taxable profit insofar the corresponding upward transfer pricing correction is not included in the taxable base of the affiliated company. The announced bill is expected to be submitted in the spring of 2021 and should be implemented as per 1 January 2022.

Research on limitation of interest deduction / introduction capital allowance

The Dutch government aims to have a more equal tax treatment of debt and equity. In order to further pursue this aim, the Dutch government has announced to investigate a budget neutral introduction of a capital allowance, in combination with a further limitation of the earning stripping rule (as introduced as per 1 January 2019 to implement the Anti-Tax Avoidance Directive). As this would be a significant change, the Dutch government will further review the desirability and the implementation of this proposal.

Limitation of creditability withholding tax on portfolio dividends

In order to eliminate a potential conflict with EU law (following the decision of the CJEU in the Sofina SA, C-575/17), the Dutch government has announced to limit the creditability of Dutch dividend withholding taxes (hereafter: ʺwithholding taxʺ) for Dutch resident companies.

In order to eliminate a potential conflict with EU law (following the decision of the CJEU in the Sofina SA, C-575/17), the Dutch government has announced to limit the creditability of Dutch dividend withholding taxes (hereafter: ʺwithholding taxʺ) for Dutch resident companies.

On the basis of the proposed amendment, the settlement of the withholding tax would be limited to the amount of Dutch corporate income tax due in the respective year, whereby the remaining withholding tax can be carried forward to a later year. The contemplated amendment should be implemented as per 1 January 2022. For the period prior to the implementation, the Dutch government will issue a policy decision which will - under conditions - allow the Dutch tax inspector to grant a refund of Dutch withholding tax to companies established outside the Netherlands.

  1. Other expected developments

Potential dividend withholding tax on exit

The so-called 'dividend exit tax' - a proposed levy of dividend withholding tax upon an exit of a taxpayer from the Netherlands - is not part of the Tax Plan 2021. The legislative proposal to introduce a dividend exit tax is currently being revised and it is unclear when the revised version will be published.

The so-called 'dividend exit tax' - a proposed levy of dividend withholding tax upon an exit of a taxpayer from the Netherlands - is not part of the Tax Plan 2021. A legislative proposal to introduce this exit tax was submitted to the Dutch parliament by an opposition party on 10 July 2020. The proposal rendered media attention after a majority of the Dutch parliament appeared to be open to introducing such an exit tax.

If the proposal is adopted in its current form, Dutch tax residents would become subject to  a 15% dividend withholding tax on their realized and unrealized retained earnings upon an exit from the Netherlands, e.g. a cross-border merger or otherwise. Shareholders that can apply the Dutch dividend withholding tax exemption embedded in Dutch domestic law, or a tax treaty exemption, would not be subject to the exit tax. In addition, the exit tax would only apply if the Dutch tax resident moves to a 'qualifying state' and is part of a group with a consolidated turnover of at least € 750 million. Qualifying states are for instance states that do not levy a comparable dividend withholding tax or provide for a step-up. We note under the current proposal the exit tax would have retroactive effect to 10 July 2020.

The opposition party that initiated the exit tax proposal is currently revising the legislative proposal after receiving advice from the Dutch Council of State.

Wage tax-related plans

The cabinet has also announced the following wage tax-related plans in the 2021 Budget:

  • A job-related investment deduction (‘Baangerelateerde Investeringskorting’ or ‘BIK’) to incentivise employers to make investments in their business. If a company makes a certain investment (e.g. purchasing new hardware), it will be able to deduct part of such expenditure from its payroll taxes due. The cabinet wants to temporarily introduce this discount as of 2021 as a crisis measure. After the BIK, this budgetary space will be used for a measure yet to be determined, with the same target of reducing employer costs.
  • The amendment of the tax treatment of stock option plans for employees of start-up companies that was already announced in last year’s Budget will not yet be introduced, but will instead be worked out in more detail in the coming months. Attention will be given to possibilities to include optionality between taxation at exercise of the option, or at sale of the shares. The cabinet aims to publish a draft proposal in February 2021 for public consultation. Subsequently, the new concept will be included in a legislative proposal, which is aimed to go into effect as of 1 January 2022.
  1. Indirect Tax

Increased RETT rate for real-estate investors

Now confirmed: Increase RETT rate from 2% to 8% for investors in residential property in The Netherlands.

As already informally announced last week, a number of measures are proposed with the view to create a more balanced playing-field on the residential housing market. To this end, a RETT exemption will be introduced for first-time buyers of residential property while the scope of the reduced rate of 2% for acquisitions of residential property will be restricted significantly.

The proposed measures consist of the following core elements.

Increase in general RETT rate to 8% in 2021

As of 1 January 2021, the general RETT rate for the acquisition of property in the Netherlands will increase from 6% to 8%. Last year the government's intention appeared to be to only increase the RETT rate for non-residential property to 7% on January 1, 2021.  

Residential property: Significant restriction of scope 2% rate

The reduced rate for the acquisition of residential property will remain at 2%. However, its scope will be restricted significantly: as of 2021 the reduced rate will only be available to private individuals that will be using the property as their primary place of residence.

Any other purchaser of residential property will be considered an 'investor' and will be facing the general RETT rate of 8%.

The measures, if adopted, will therefore have a significant impact on the cost base for investors in residential property in The Netherlands.

RETT exemption for acquisition of residential property by a first-time buyer

To lower the threshold for first-time buyers to enter the housing market, a RETT exemption will be introduced for first-time acquisitions of residential property, starting 2021.

In order to qualify for this RETT-exemption, certain requirements have to be met by the buyer:

  • Is at least 18 years old, but not older than 35;
  • The RETT exemption has not yet been requested to be applied on a prior acquisition; and
  • The respective residential property will be the starter’s primary place of residence.
  1. Wage and Income Tax

A number of Dutch wage and income tax measures are proposed in the 2021 Budget. For starters, the Budget codifies certain COVID-19 related measures, such as the temporary increase in the tax-free space of the work-related costs scheme (‘WKR’) from 1.7% to 3% for the first € 400,000 of the company’s total taxable wages. This increase was already introduced as an emergency measure in connection with COVID-19 earlier this year, and only applies to the year 2020. On the other hand, as of 1 January 2021 the tax-free space will be decreased permanently from 1.2% to 1.18% for the total taxable wages that exceed € 400,000.

Furthermore, as of 1 January 2021 employee educational expenses that qualify as so-called ‘wages from previous employment’ can be appointed as final levy wages. This way, qualifying educational expenses can be reimbursed free of tax under the WKR to former as well as current employees. This can e.g. be done as part of a social plan that applies in case of termination of employment. The cabinet expects the measure to encourage employers and employees to invest in employees’ education even after the employment is terminated.

Other wage and income tax measures in the 2021 Budget include:

  • Reduction of addition to income for certain environmentally friendly cars;
  • Life-course savings schemes;
  • Codification of other COVID-19 related measures;
  • Income tax measures. 

Changes in tax-free space under the work-related costs scheme

The tax-free space under the work-related costs scheme (‘WKR’) is the amount of the company’s total taxable wages payable to all employees, which employers can dedicate to providing or reimbursing certain compensation items to their staff free of tax.

As of 1 January 2020, the tax-free space of the WKR is 1.7% for the first € 400,000 of total taxable wages payable to all employees, and 1.2% for the excess. As an emergency measure in connection with COVID-19, a temporary increase from 1.7% to 3% for the first € 400,000 was announced for the year 2020, in anticipation of a further legislative proposal. This increase in the tax-free space has now been codified in the current Budget.

Furthermore, the proposal intends to lower the percentage of 1.2% permanently to 1.18% for the total taxable wages exceeding € 400,000, as of 1 January 2021. The financial resources that become available due to this reduction in the tax-free space, are to be used for the increase of the exemption for educational expenses (as discussed below).

Increase of exemption for educational expenses under the WKR

As of 1 January 2021, the specific exemption for educational expenses under the WKR will be increased, so that it also applies to the reimbursement of educational expenses that qualify as ‘wages from previous employment’. This is relevant if an employer for example reimburses educational expenses of an employee in connection with a social plan, or any other form of termination of the employment agreement.

The increase of this exemption is realized by allowing the employer to appoint these reimbursements as final levy wages, but is only granted to the extent that the amount of the reimbursements does not significantly exceed reimbursements that are provided in similar circumstances. The cabinet expects that this measure will stimulate the reimbursement of education expenses in case of termination of employment agreements.

Reduction of addition to income for certain environmentally friendly cars

For the year 2021, the reduction of the addition to income for a regular electric car is 10% of the catalog value with a maximum of € 4,000, and for a hydrogen car and a solar cell car the discount is always 10% of the catalog value.

Life-course savings schemes

For employees still entitled to so-called ‘life-course saving schemes’ (a tax-friendly employee savings scheme that has meanwhile been phased out), the cabinet proposes to make the institution carrying out the savings scheme liable for the withholding of wage tax and social security premiums at the moment when the value of the entitlement needs to be taken into account (i.e. at a certain specific notional moment of benefit). This notional moment of payment will also be brought forward to 1 November 2021, so that the employee can pay his tax debt before 1 January 2022, resulting in a reduction of the taxpayer’s assets relevant for box 3.

Codification of other COVID-19 related measures

In addition to the temporary increase of the tax-free space of the WKR in connection with COVID-19 that we mention above, a legal basis is also created for a number of other tax measures, which, due to the urgency, were initially implemented via a policy decision. Examples include the tax exemption for the Allowance for Entrepreneurs in Sectors Affected by COVID-19 (‘TOGS’), the so-called “care bonus” of € 1,000 net for healthcare personnel, and the Temporary Bridging Scheme for Flexible Workers (‘TOFA’).

Income tax measures

The Budget also provides for some important measures with respect to income tax, which are listed below:

  • The self-employed persons’ tax allowance will be reduced by € 110 per year, to limit the difference in tax treatment between employees and the self-employed. To compensate the self-employed for this to some extent, the workers’ tax credit will be increased. Also, the rate of the first bracket of income tax in box 1 (i.e. the taxation of work and the private dwelling) will decrease by 0.25% as compared to 2020. The latter measures will obviously not only benefit the self-employed, but also employees.
  • As of 1 January 2021, the tax-free sum in box 3 (the deemed capital yield tax) will be increased from currently € 30,846 to € 50,000. For partners, the tax-free allowance will be increased from € 61,692 to € 100,000. The cabinet calculated that taxpayers with assets of up to € 220,000 will benefit, but taxpayers with assets of more than € 220,000 will pay more box 3 tax. For couples, the amount as of which more tax is due is € 440,000. As a corresponding measure, the tax rate in box 3 will be increased to 31%.

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