On 24 April, Hans Vijlbrief, the Dutch state secretary for Finance, announced six additional tax measures to support businesses and homeowners in response to the COVID-19 crisis. These measures serve two main purposes: to improve liquidity and to neutralise the negative tax effects caused by the inability of taxpayers to satisfy certain conditions in order to benefit from tax facilities.
The six new measures include:
A reduction in the customary wage in the event of fall in turnover
Mainly in SMEs, there are many shareholders who, in addition to holding an equity participation in the company, perform activities on behalf of the company. If this participation qualifies as a substantial interest (in short, if the interest entitles the holder to 5% of a company’s equity), then a customary wage needs to be taken into account for the interest holder's activities for the purpose of calculating payroll-tax liability. This customary wage concept was introduced to combat tax avoidance, which could be achieved by refraining from paying employment-related income, resulting in the increase in the company’s equity value. Under Dutch personal income tax rules, employment-related income is taxed at higher rates than benefits obtained for shares of a substantial interest.
Even if a company achieves less or no turnover, this customary wage needs to be recognised and the corresponding payroll tax must be paid. Because many companies are experiencing a significant loss in turnover as a result of the current crisis, it is now possible for these companies (and their substantial interest holders) to temporarily recognise a lower customary wage relative to the company's fall in turnover. This measure will be structured similarly to the arrangement implemented during the previous financial crisis.
Relaxation of the hour criterion for the self-employed
Entrepreneurs are entitled to various types of entrepreneurial-related tax deductions. One of the most important is the self-employed deduction, allowing an entrepreneur to deduct a fixed amount of EUR 7,030 (the 2020 figure) from his taxable profit for Dutch personal income tax. Entrepreneurs are only eligible for this deduction if they spend 1,225 hours a year on their businesses and if they are subject to personal income tax. To prevent entrepreneurs from losing the right to this deduction, Dutch tax authorities will assume that from 1 March 2020 until 31 May 2020 these entrepreneurs have spent at least 24 hours a week on their businesses, even if they have not.
Work costs scheme
Through the work-related costs scheme, employers can give untaxed allowances to employees. In addition to certain specific listed allowances that can be paid free from tax (or facilities made available), employers also are allowed, subject to certain conditions, to grant non-listed allowances for ‘free space’ calculated at a certain percentage of the overall wages paid to employees. The percentage to be applied is increased once from 1.7% to 3% for the first EUR 400,000 for all the wages paid out per employer. This allows employers to give their employees additional benefits.
'Corona' corporation tax reserve
In order to maintain the liquidity of corporate taxpayers, these taxpayers will be able to take into account the losses they predict for 2020 when determining the taxable profit for the 2019 financial year.
Normally, this 'offsetting' can only take place when filing the 2020 tax return, which will not be earlier than early 2021. To prevent corporate taxpayers from having to wait almost a year, changes will be made to tax rules, which will allow companies to create a 'corona reserve' for corporate income tax purposes when determining their taxable profits for the year 2019. The amount of this reserve, which should not exceed the profit for 2019, will be equal to the anticipated 2020 loss.
Postponement of the entry into force of the bill to discourage substantial interest holders from lending excessively from their ‘own’ companies
New rules will become effective on 1 January 2022 to combat excessive borrowing by substantial interest holders from ‘their’ companies. Essentially, a tax deferral can be achieved through this type of borrowing since the borrowing of these monies means that the funds do not need to be extracted from the companies as taxable dividends. Certain anti-tax deferral rules would take effect on 1 January 2022. In order to avoid the effects of these rules, substantial interest holders should reduce their borrowing to EUR 500,000 (excluding residential home loans) before that date. The introduction of these new rules will be postponed by one year to 1 January 2023. This effectively grants the substantial interest holder another year to reduce their borrowing.
Payment break for mortgage obligations
Lenders such as banks want to offer customers a grace period for payment of interest and redemption for up to six months if they are temporarily unable to meet their payment obligations during the crisis. In order to be eligible for a tax deduction for interest costs, certain repayment-related conditions need to be met for new residential mortgage backed loans. Certain measures will be introduced to effectively prevent adverse tax consequences due to payment breaks granted to homeowners.
For more information on these new tax measures, contact your regular CMS advisor or local CMS experts.