Measures for companies

On Budget day the government presented its tax plans for the coming year. Mazars highlighted some of the bills from the tax plan for you. What changes for you?

Reduction of corporation tax

The rate of corporation tax will be reduced in three steps: As from 2019, the lowest tax bracket in corporation tax (taxable profits up to € 200,000) is taxable at 19% and the highest tax bracket (from € 200,000) is taxable at 24.3%. As at 2020, tax rates will respectively be 17.5% and 23.9% . In 2021 the rates will be 16% and 22.25% respectively. This corporation tax rate reduction will mainly benefit small and medium-sized enterprises. Large enterprises in particular benefit from abolition of the dividend tax.

New interest deduction limitations

The government proposes to introduce a new general interest deduction limitation. Roughly speaking, this measure comes down to the fact that the balance of interest paid and received is deductible up to 30% of the adjusted profit. Adjusted profit is profit before interest, tax, depreciation and other decreases in value. In addition, the interest deduction restriction will have a threshold of € 1 million. In principle, the non-deductible portion may be deferred.

Box 2 tax rate increase

Along with the reduction of corporation tax rates, it is proposed to adjust the current tax rate of 25% for income from substantial shareholding (i.e. shareholding of 5% or more) to 26.9% in 2021. To satisfy small and medium-sized enterprises, the original adjustment of 28.5% in the coalition agreement has therefore been reduced. The tax rate structure in Box 2 is as follows:

 

Tax rate

2019

25.0%

2020

26.25%

2021

26.9%

Six years to offset substantial shareholding losses

Currently, substantial shareholding losses can be offset against profits from the previous year (loss carry-back) and profits from nine years after the loss year (loss carry-forward). The loss carry-forward has been cut to six years. A substantial shareholder therefore gets less time to offset the loss.

Investment tax credits are being continued

The energy investment allowance (EIA), environmental investment credit (MIA) and random depreciation environmental investments (Vamil scheme) are being extended for a further period of five (5) years until 1 January 2024. The EIA deduction percentage reduces to 45%. The Minister of Economic Affairs and Climate Policy is responsible for the Energy List.

Changes as a result of Anti Tax Avoidance Directive (ATAD) 1

If interest is not deductible as a result of the generic interest deduction restriction, this interest can be carried forward unlimited to the future. To prevent any improper use, an anti-abuse measure has been included in the corporation tax. Provisions have also been included to arrange any concurrence between carried forward interest based on the generic interest deduction restriction and the tax group rules. In addition, the provisions on demergers, mergers, administrative reorganisations or realignments are supplemented for situations where claims exist on carried forward interest based on the generic interest deduction restriction.

Tier 1 capital

Tier 1 capital, or core capital, comprises the share capital and retained profits of a company. Supplementary tier 1 capital is so-called hybrid capital instruments with characteristics of both equity capital and borrowed capital. This capital consists of instruments that have an unspecified maturity date and no repayment incentive. Currently compensation, for example interest, to banks and insurance companies for providing such capital, is deductible. The government now wants to put an end to that. Hence the government aims to ensure equal treatment of equity capital and borrowed capital and thus envisages to restrict financing with borrowed capital (including hybrid capital) to ensure a healthy financial sector. 

Limitation of loss carry-forward in corporation tax

The current time limit for loss carry-forward in corporation tax is nine years. This time limit is being reduced to six years and will apply for the first time to losses in 2019. For a loss suffered in 2018, a limitation period of nine years still applies. In the event that this relates to a split financial year, the limitation of loss compensation takes effect from the financial year beginning in 2019.

No investment in Dutch real estate by by Fiscal Investment Institutions (FIIs)

A corporation tax rate of 0% applies for fiscal investment institutions (FIIs). As from 1 January 2020, fiscal investment institutions may no longer invest directly in Dutch real estate. This measure is linked to the abolition of dividend tax. For the time being, dividend tax is being withheld on profit distribution to foreign investors. However, if the dividend tax is abolished, the Netherlands would lose its right to levy tax on results on real estate located in the Netherlands. With that in mind, the real estate measure prohibits FIIs from investing directly in Dutch real estate.

Limitation on depreciation on buildings

Under current legislation, in principle, B.V.s may depreciate up to a maximum of 50% of the WOZ value (Valuation of Immovable Property Act) on immovable property if this is used for their businesses. Investment properties may be depreciated until the book value is equal to 100% of the WOZ value. The government wants to discontinue this differentiation in corporation tax by setting the depreciation limit of all buildings at 100% of the WOZ value. The measure ensures that the difference between book value and future sale value is smaller, resulting in the taxable profit from selling the building being lower.

Shorter deferment of exit tax for B.V.s

B.V.s (private company with limited liability) and other entities that are subject to corporation tax are given a shorter deferment for payment of the so-called exit tax. This exit tax is applied if an entity, subject to corporation tax, moves its fiscal place of business abroad. Tax authorities currently offer the option to pay the levy on capital gains on transferred component assets arisen in the Netherlands, but as yet unrealized, in ten equal annual instalments. This time limit is shortened to five years. Payment deferment discontinues insofar as capital gains are realised before that time.

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