On 27 October 2017, the new Dutch cabinet was formally appointed by the King. The coalition of political parties that will form the new Dutch government have published the Coalition Agreement 2017-2021 “Trust in the future” (Vertrouwen in de toekomst).
In an effort to preserve and enhance its tax appeal for corporates, the coalition agreement proposes a number of significant changes to the Dutch taxation of corporates.
After its bid to convince the European Medicine Agency to The Netherlands over the summer, this is another step to put The Netherlands on the radar of potential movers as a post-Brexit destination.
The coalition agreement includes the following proposed changes:
- Reduction of corporate income tax rate down from 20% to 16% on profits up to €200,000 and from 25% to 21% on profits in excess of €200,000.
- Introduction of further (net) interest deduction limitation rules to a maximum of 30% of EBITDA (earnings before interest, taxes, depreciation and amortisation) for corporate income tax purposes. An exception will be introduced for interest up to €1m per year. No exception will be introduced on the basis of group ratio. Abolition of certain specific interest deduction limitation rules, other than the interest deduction limitation rule previously introduced to stop erosion of the tax base which will remain.
- Introduction of thin capitalisation rules for banks and insurance companies to limit interest deduction for debt in excess of 92% of commercial balance sheet total for corporate income tax purposes.
- Increase of effective corporate income tax rate for innovation box income from 5% to 7%.
- Limitation of utilisation of losses carry forward down from nine years to six years.
- Fiscal investment institutions (fiscale beleggingsinstellingen) are no longer allowed to hold direct investments in real property (in connection with the abolition of dividend withholding tax).
- Abolition of dividend withholding tax, except in case of abuse and in case of dividend distributions made to low tax jurisdictions.
- Introduction of withholding tax on royalty payments and interest payments made to low tax jurisdictions.
- Limitation of application of the so-called 30%-rule for wage tax purposes down from eight to five years.
It is expected that most of these changes will be enacted on 01 January 2019.
Needless to say that these changes may provide a better climate for business to locate and operate in The Netherlands, especially in the context of Brexit. In particular, the abolition of dividend withholding tax in The Netherlands is welcome against the background of other proposed changes per 01 January 2018 that will make profit distributions of certain cooperatives subject to Dutch dividend withholding tax.
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