1. Introduction
On 17 September 2024, Dutch Budget Day (Prinsjesdag), the Dutch government published its Tax plans for 2025 (pakket Belastingplan 2025) (Tax Plan) and some other related legislative proposals.
The Tax Plan includes various measures that will have an impact on the business community. These measures include, among others, an increase of allowed net financial expenses under the earnings stripping rule from 20% to 25% of tax adjusted EBITDA, a reduction of the real estate transfer tax rate for investors in leased out residential property (yet only as per 2026), and the introduction of a new cooperating group concept (“qualifying unity")(kwalificerende eenheid) for the Dutch Withholding Tax Act 2021 (Wet bronbelasting 2021). In addition, some technical changes will be made in the context of the changes in the Dutch classification rules that enter into force on 1 January 2025.
The Tax Plan also includes measures to reverse previously adopted changes set to enter into force on 1 January 2025: the dividend withholding tax share buyback facility for Dutch listed companies will remain applicable as well as the expat 30%-facility, albeit in a slightly amended form (a.o. the 30% will become 27% as per 2027).
In this publication, we discuss the legislative proposals that are most relevant to the business community as of January 2025. Most provisions of the Tax Plan and related proposals are supposed to enter into force on 1 January 2025; if later, such as the reduced real estate transfer tax rate, we will specifically mention this. In addition, we will also briefly discuss some other legislative changes that have been adopted previously, but that will become effective as of January 2025, as well as relevant international tax developments.
The Tax Plan is published here.
2. Corporate Income Tax
2.1 Entity Classification Rules
As from 1 January 2025, the Dutch entity classification rules shall change greatly. The relevant law (Wet fiscaal kwalificatiebeleid rechtsvormen) has been adopted already, although we are still awaiting certain guidance from the Dutch tax authorities and the legislators as regards some specific topics.
The new rules are aimed at making the Dutch entity classification rules more aligned with international practice. This should, among others, reduce mismatches and complexities (e.g. in relation to fund structures). In short, the currently opaque Dutch limited liability partnership (open commanditaire vennootschap) shall become tax transparent and also the rules as regards the Dutch open fund for joint account (fonds voor gemene rekening) shall be amended. In that context, also the Dutch tax classification of foreign entities (and foremost foreign partnerships) will change significantly. Foreign entities comparable to Dutch legal forms will be classified similarly as the comparable Dutch legal form for Dutch tax purposes. Other entities (i.e. those without a Dutch comparable legal form) shall be classified in accordance to the foreign tax classification as either transparent or opaque. This is only different if such entity is a Dutch tax resident in which case it will be opaque by default. This leads to many entities (both Dutch and foreign) changing tax colours. In that context, certain transitional rules will apply which limit the adverse impact of these changes.
The legislative proposals in the Tax Plan only include some limited technical amendments as regards the entity classification rules. Most importantly, for purposes of the Dutch base erosion rules (article 10a Dutch Corporate Income Tax Act (Wet op de vennootschapsbelasting 1969) (CITA)), the former opaque Dutch limited liability partnership and other entities which will have become tax transparent as per 2025, shall still qualify as a related entity (verbonden lichaam) for purposes of these anti-abuse rules. This clarification is deemed necessary as otherwise structures currently considered as falling within scope of this article 10a CITA, could unintendedly fall out of scope thereof as per 2025. Another notable technical amendment regards the rules in relation to the deductibility of expenses related to the issue of shares and stock options, which are meant to continue to apply to such expenses incurred by entities that have become tax transparent following the changes in the entity classification rules.
We note that we are still expecting some additional clarifications to the Dutch entity classification rules in the near future by means of a decree and possibly positions of the relevant ‘Knowledge Group’ at the Dutch tax authorities. In particular, we expect guidance in relation to the prioritisation of the Dutch opaque fund for joint account qualification of foreign partnerships in certain cases. We expect that certain foreign partnerships which are similar to an investment fund for regulatory purposes and are akin to a Dutch open fund for joint account, may become (or remain) opaque for certain Dutch tax purposes, even if these entities have legal personality domestically.
2.2 Fiscal Investment Institution Regime
Under current law, certain entities investing in (passive) portfolio investments are eligible for the status of fiscal investment institution (fiscale beleggingsinstelling) (FBI) for Dutch corporate income tax (vennootschapsbelasting) (CIT) purposes (the FBI-status). FBIs investing in real estate are commonly referred to as the Dutch equivalent of a Real Estate Investment Trust (REIT). An FBI is subject to CIT at a rate of 0% if it meets certain stringent conditions, including an obligation to distribute qualifying profits within eight months after the end of the financial year. The main purpose of this tax facility is to allow for a collective investment by individuals and institutional investors in for instance, shares, bonds and real estate assets without triggering higher taxes than would have been triggered if they had made such investments directly and individually. In principle, an FBI is required to withhold Dutch dividend withholding tax (dividendbelasting) (DWT) in respect of the annual (mandatory) distribution of its qualifying profits.
As of 1 January 2025, in accordance with last year’s tax plan (Tax Plan 2024) FBIs are no longer allowed to directly invest in Dutch real estate. As such, an entity no longer qualifies as an FBI if it holds Dutch real estate assets and thus becomes subject to CIT at the regular rate of 25.8% (19% over the first EUR 200,000), instead of the current 0% rate for entities with the FBI-status. Upon losing the FBI-status, the assets and liabilities shall be marked-to-market under the 0% tax rate whereas future income and gains will be subject to CIT at the regular rates. As of 2025, non-Dutch real estate investments are still allowed under the FBI regime but are of less relevance as the jurisdiction where the real estate is located is typically entitled to levy domestic corporate income tax in relation to such real estate.
2.3 Exempt Investment Institutions restriction
The Dutch exempt investment institution (vrijgestelde beleggingsinstelling) (VBI) regime, available to public limited liability companies (e.g. Dutch N.V.’s) or (opaque) FGRs, changes as per 1 January 2025. Under current law, a VBI is not subject to CIT and dividend distributions by a VBI are not subject to DWT. The initial aim of this regime was to facilitate collective investments in financial instruments of retail and institutional investors. In practice, however, most VBIs were family-owned entities. As of 2025, the VBI regime will only be available to an investment institution (belegginginstelling) or UCITS (icbe) as defined in the Dutch Financial Supervision Act (Wet op het financieel toezicht). This change will therefore mainly affect family-owned VBIs used for estate planning purposes.
2.4 Interest deduction under the Earnings Stripping Rule
The earnings stripping rule is a generic interest deduction limitation rule included in the Dutch corporate income tax act. Based on this rule, net financial expenses (i.e. in particular interest expenses minus interest income) may only be deducted up to 20% of a taxpayer’s (adjusted) taxable profit or, if higher, EUR 1 million. Non-deductible net financial expenses can be carried forward indefinitely to subsequent years.
The Tax Plan proposes to relax this rule by increasing the current 20% limit of a taxpayer’s (adjusted) taxable profit to 25% whereas the EUR 1 million safe harbour threshold will remain in place for most taxpayers. Please note that the Tax Plan includes a specific anti-fragmentation measure for companies that lease out real estate to third parties. We refer to section 3.4 here below.
2.5 Broadening scope of tax neutral Legal Merger Facility
The Tax Plan provides that also so-called ‘simplified’ sister mergers (vereenvoudigde zusterfusie) will be eligible for the tax neutral merger facility. As no shares are issued in relation to such mergers, according to the letter of the law, the facility does not apply. This will now be solved. In addition, also direct individual shareholders of such sister companies involved in the merger, shall be able to apply a tax neutral roll-over. This was already applied in practice pursuant to a tax decree yet will now be codified. A simplified sister merger where a shareholder only indirectly holds all shares in the merging companies (the simplified indirect sister merger) is, however, not in scope of the proposed amendments.
2.6 Tax losses and the Debt Waiver Exemption
The concurrence between the relatively new loss compensation rules under the CITA (which result in a minimum CIT by limiting the use of tax losses) and the debt waiver exemption (kwijtscheldingswinstvrijstelling) may result in adverse tax effects when restructuring companies in financial difficulties.
If a taxpayer has debts and these debts are (partially) waived by the creditor (as opposed to converted into equity), this generally results in having to recognise taxable profit at the level of the debtor equal to the waived amount. Because levying taxes in a distressed situation could exacerbate the financial difficulties, Dutch personal income tax and the CITA provide for a specific debt waiver exemption. Part of this rule is also that the exemption only applies to the extent that the waiver gain exceeds the losses of the current year and carry-forward losses from previous years.
However, under the Dutch loss carry forward rules, past losses can only be set off against profits in a given year up to an amount of EUR 1 million plus 50% of the taxable profit exceeding EUR 1 million.
The interrelation between the loss carry-forward rules and the waiver gain exemption, effectively means that insofar a waiver results in taxable profits in excess of EUR 1 million, the waiver gain exemption only results in an exemption of 50% of the waiver gain (after set-off against current losses) in excess of EUR 1 million. In practice, such may be impactful and could still lead to the taxpayer's bankruptcy or otherwise cause financial problems.
Therefore, the Tax Plan proposes an adjustment to the debt waiver exemption. The adjustment aligns with broader government policy, including the Private Composition Act 2021 (Wet Homologatie Onderhands Akkoord 2021) (WHOA), to support corporate restructuring efforts. As of 1 January 2025, for situations involving losses to be offset exceeding EUR 1 million, the debt waiver income is fully exempted to the extent that the debt waiver income surpasses the losses incurred in the year. Simultaneously, the amount of tax loss carry forwards is reduced with the amount of this increased waiver gain exemption to avoid double counting.
It is noted that this rule will only apply in relation to financial years starting as of 1 January 2025. In our view, it would be good if the rules would apply from their announcement or from the start of the current financial year as it is difficult to explain if companies would become financially distressed under the current rules upon implementing a taxable debt waiver in 2024, yet within reach of 2025.
2.7 Changes to the Liquidation Loss Scheme
Although losses in relation to shareholdings in qualifying subsidiaries are in principle not deductible for CIT purposes, an exception may apply under specific statutory provisions in respect of losses derived from a liquidation of the entity in which a qualifying participation is being held. The Tax Plan proposes two changes to the liquidation loss scheme.
The first change regards the calculation of the amount of the loss, which is based on the sacrificed amount (opgeofferd bedrag) for the relevant participation. The sacrificed amount generally consists of the amount paid by the taxpayer to acquire the participation but can change over time, for instance due to a receivable on the participation being written-down. The proposed change ensures that when calculating the sacrificed amount, any such write-downs are included in the liquidation loss if the taxpayer has reported a reversal of this write-down as taxable income (which could occur if the receivable is converted into equity or certain other tainted transactions).
The second change relates to specific rules that already apply in case an intermediate holding company is liquidated that in turn held shares in subsidiaries. In order to prevent an operating loss of such subsidiary or a non-deductible loss resulting from a sale of such subsidiary being converted into a deductible loss resulting from the liquidation of the intermediate holding company, the liquidation loss rules contain a specific provision. The Tax Plan proposes to further clarify this restriction.
2.8 Implementation of the General Anti-Abuse Rule (GAAR)
The first Anti-Tax Avoidance Directive (ATAD1) from 2016 required EU Member States to implement a general anti-abuse provision, more commonly referred to as the GAAR (General Anti-Abuse Rule). This measure combats, in short, artificial arrangements defeating the object or purpose of the applicable tax law while designed to obtaining a tax advantage instead of being put into place for valid commercial reasons reflecting an economic reality.
So far, the Netherlands has not transposed the GAAR into law, because the legislator was of the view that the GAAR was already implemented into domestic legislation through the unwritten doctrine of abuse of law (fraus legis). Fraus legis applies when the decisive purpose for entering into an arrangement is to avoid Dutch taxation and the arrangement is contrary to the object and purpose of the legislation. At the request of the European Commission, the Netherlands has included the GAAR from ATAD1 in the CITA. It is stressed that it is not intended that the codification of the GAAR in the CITA leads to any substantive changes to the current practical application of fraus legis under the CITA or, as the case may be, any other Dutch tax law.
2.9 CITA: Subject-to-tax tests
Various provisions in the CITA, such as the participation exemption, include a subject-to-tax test. So far, it has not been clear whether an (additional) tax under Pillar 2 legislation constitutes a profit tax and, if so, whether by including the Pillar 2 tax the relevant subject-to-tax test would be met. The Tax Plan proposes changes to these subject-to-tax tests to clarify that qualifying Pillar 2 top-up taxes under the Pillar 2 rules constitute profit taxes that qualify for the subject-to-tax test. It is stressed that it is not intended that the proposed clarifications constitute any substantive changes to the current practical application of the subject-to-tax test.
2.10 Adjustments and clarifications to the Dutch Minimum Tax Act 2024 (Pillar 2)
The Dutch Minimum Tax Act 2024 (Wet minimumbelasting 2024), which implements the Pillar 2 Directive, came into effect on 31 December 2023. This legislation is continuously in motion and being clarified. The Tax Plan proposes further technical improvements and clarifications.
3. Real Estate
3.1 Reduced Real Estate Transfer Tax Rate as per 2026
Currently, Dutch real estate transfer tax (overdrachtsbelasting) (RETT) is levied at a base rate of 10.4 % in respect of the acquisition of real estate situated in the Netherlands, or certain rights concerning such property (including qualifying shareholdings in real estate rich companies). For residential property for own use the RETT rate is 2% whereas a 0% rate applies to certain entrants on the Dutch residential market. A 4% rate shall apply to certain newly built real estate acquired in the context of a share deal. We refer to section 3.2 here below.
The Tax Plan proposes to reduce the base rate from 10.4% to 8% for investors in residential property as of 1 January 2026. This is not yet included in any of the legislative proposals but is announced to be included in some additional legislation to be proposed soon. The reduced rate is meant as stimulus for the Dutch residential market which has been suffering greatly from various tax, regular and macro-economic developments. Although the reduction of the rate will be welcomed, likely many stakeholders believe that the rate should be further reduced to have a meaningful impact and be expanded to other real estate categories as well. Furthermore, it will be an unpleasant surprise to many that the reduced rate only enters into force as per 2026 instead of 2025.
3.2 RETT Concurrence Exemption for certain share transactions restricted
The acquisition of Dutch real estate assets is subject to RETT. In certain cases, in addition to RETT, Dutch value added tax (omzetbelasting) (VAT) (at a rate of 21%) may also be applicable. This would be the case in relation to Dutch real estate that is considered ‘new’ for RETT purposes and qualifying building plots. To prevent this double taxation, a RETT concurrence exemption (samenloopvrijstelling) may apply, resulting in a RETT exemption. Under current rules, the concurrence exemption may also be applied in relation to the acquisition of an equity interest in a Dutch real estate rich company. As share transfers are not subject to VAT, in combination with the RETT concurrence exemption, neither RETT nor VAT is due. This is particularly beneficial for investors for whom the VAT would otherwise (i.e. in an asset deal) be a cost, such as investors in newly built residential property or commercial property leased to lessees which cannot opt for a lease subject to VAT such as in health care and the financial sector.
As of 1 January 2025, in accordance with the Tax Plan 2024, the concurrence exemption will no longer be applicable in relation to the acquisition of an equity interest in a Dutch real estate rich company if the underlying new real estate is used for less than 90% VAT taxable supplies (such as residential real estate and real estate leased to health care and financial institutions). A reduced RETT rate of 4% will apply in such cases. This dedicated 4% (instead of the current 10.4%) rate reflects that there is still a significant irrecoverable VAT liability in relation to the development of the property.
The concurrence exemption will continue to apply for share transactions where the underlying new real estate will be used for at least 90% VAT taxable supplies (such as most commercial real estate, including real estate used for hotel and logistic purposes) if all other current conditions are met.
3.3 Legal Demerger Facility and Real Estate Transfer Tax
Under the current RETT demerger facility, the acquisition of real estate assets in a demerger is exempt from RETT, unless the demerger is predominantly aimed at the avoidance or deferral of tax. According to the government, the current rules are susceptible to misuse. For example, in the case of a sale to third parties, a direct transfer would be subject to RETT while it is possible to avoid the imposition of RETT through a series of transactions. For this reason, the exemption will only be applicable in relation to active business situations and subject to a mandatory claw back period of three years. These amendments are expected to be included in the 2024 end-of-the-year decree (Eindejaarsbesluit 2024) and should become effective as of 1 January 2025.
3.4 Anti-fragmentation measure in the Earnings Stripping Rule
As mentioned under section 2.4 regarding the earnings stripping rule, net interest expenses (i.e. interest expenses minus interest income) may only be deducted up to 20% (25% as of 2025) of a taxpayer’s (adjusted) taxable profit or, if higher, EUR 1 million.
As the rule applies per taxpayer, the earnings stripping rule could be an incentive for certain taxpayers, such as leveraged real estate investors, where annual interest expenses often exceed the 20% (25% as of 2025) threshold but not the EUR 1 million) to use the EUR 1 million threshold multiple times within a group and thus not to include those entities in a single fiscal unity for CIT purposes. As such, by dividing activities over various stand-alone, yet related, companies, the EUR 1 million threshold can be used multiple times.
The Tax Plan proposes that the EUR 1 million threshold is no longer available for companies that lease out real estate. As a result, as of 1 January 2025, net interest expenses of such companies may only be deducted up to 25% of the (adjusted) taxable profit.
3.5 Specific VAT rate increases
The VAT rate in relation to supplies in the cultural sector as well as leisure shall increase from 9% to 21% as from 2026. This shall impact amongst others hotel stays, the supply of books and visits to theatres and museums.
3.6 VAT revision rules for real estate services
On 5 March 2024, the Dutch Ministry of Finance launched a public consultation to introduce a VAT revision period for certain immovable property services such as renovations, repairs, and (major) maintenance to the extent the remuneration for those services amounts to at least EUR 30,000. This change would only be relevant for services that have not led to the construction of a newly build real estate property as otherwise already a VAT revision period would apply.
Under the existing VAT revision rules, recovered VAT for such real estate services is in principle final at the end of the financial year in which the services were first used. If, for example, a building is renovated and leased with VAT to a tenant, the VAT paid and recovered in relation to the renovation service is in principle final at the end of the financial year of first use. Should in later years the lease no longer be subject to VAT (for instance because the new tenant is a bank or a healthcare institution), this does not lead to a correction of the earlier VAT recovery. This rule led to some abuse, e.g. by first leasing a property on a short stay basis subject to VAT (and thus the VAT on the services was deductible) and changing the lease concept to regular long term VAT exempt lease after the lapse of the first financial year.
Based on the proposed draft bill, a VAT revision period of five years will apply. If the VAT use of the renovated property changes during this period, e.g. from short stay lease to regular lease, then this may result in a partial repayment of previously recovered VAT or, vice versa, to an additional right to recover VAT.
4. Conditional Withholding Tax and Dividend Withholding Tax
4.1 Dividend Withholding Tax Share Buyback Facility
Share buybacks are a common way for listed companies to return excess cash to shareholders. Although as a main rule share buybacks are subject to DWT, to date listed companies can benefit from a specific buyback facility. This facility allows a Dutch listed company to buy back shares free of (grossed-up) DWT subject to certain restrictions. Initially, this dividend tax repurchase exemption was set to be abolished as of January 1, 2025, which (together with amongst others the decision to drastically reduce the benefits of the 30%-facility for expats, see section 5.1 below) resulted in public debates about the business climate in general and for listed and/or international companies in particular. This discussion has fortunately led to a reconsideration of the earlier plans as a result of which the facility will be retained.
This means that Dutch listed companies shall be able to continue their practice of tax exempt share buy back schemes.
4.2 Clarification of Cooperating Group Concept Dutch Withholding Tax Act 2021
Under the Withholding Tax Act 2021, a conditional withholding tax applies to payments of interest, payments of royalties and payments of dividends and other profit distributions. The conditional withholding tax is an anti-abuse measure and applies to payments made (or deemed to be made) by a Dutch entity (broadly defined) directly, or – if certain requirements are met – indirectly, to a related entity or permanent establishment of such entity (i) in a low-tax jurisdiction; or (ii) in cases of abuse.
An entity is related if it can directly or indirectly control the decisions made by the other entity on its activities (a qualifying interest). This is for example the case if it has more than 50% of the voting rights yet may also apply in much less evident cases. The controlling entity can either be the paying or the receiving entity. Furthermore, an entity is related, if a third party has a qualifying interest in both the paying and receiving entity. An entity is also related if it has an interest, but not a qualifying interest in the Dutch entity, but it is part of a collaborative group of entities which as a total has a qualifying interest in the Dutch entity that makes the payment. This concept of ‘cooperating group’ (samenwerkende groep) is also used for CIT purposes, more specifically in article 10a(6) CITA.
The Dutch government noticed that the concept of ‘cooperating group’ caused a fair amount of uncertainty in the application of the conditional withholding tax, in particular for investment funds with multiple investors. In response to this uncertainty, the government has decided to introduce a new group concept solely for the purposes of the Withholding Tax Act 2021.
The Tax Plan 2025 proposes to replace the ‘cooperating group’ with the concept of a ‘qualifying unity’(kwalificerende eenheid). The ‘qualifying unity’ definition focuses on situations where entities act jointly with the main goal or one of the main goals to avoid the imposition of withholding tax on one of those investors. This requires that the investors act jointly, for example by making arrangements that result in there being no qualifying interest. A 'qualifying unity’ is in any case present where a controlling interest is deliberately divided among entities that each hold a non-controlling interest to fall out of the scope of the Withholding Tax Act 2021. All facts and circumstances are relevant in the assessment of whether a ‘qualifying unity’ is present. The burden of proof to demonstrate the existence of a ‘qualifying unity’ lies with the tax inspector. This is a very welcomed amendment as it takes out the potential overkill of the current concept of ‘cooperating group’ which has led to uncertainty and negatively impacted the Dutch fund practice.
We would like to note that, irrespective of us welcoming the change discussed above, further guidance in relation to the cooperating group concept for Dutch CIT purposes in relation to partnership structures would be suitable as well from a legal certainty perspective.
4.3 Mandatory Withholding Exemption
Profit distributions to shareholders that can apply the participation exemption or that are part of the same fiscal unity for CIT purposes are exempt from DWT. This exemption is, however, optional and not mandatory. In practice, this could lead to a situation where the distributing company did not apply the exemption and did withhold the DWT, while an appeal by the company would only result in a refund to the distributing company and not to the shareholder directly. This could amongst others result in liquidity and/or interest disadvantages for the shareholder. To make it possible for shareholders to appeal the applicability of the exemption and thus also be entitled to a refund of the DWT, it is proposed that the DWT exemption will become mandatory in circumstances where the dividend payment is exempt under the participation exemption or not subject to CIT because the companies involved are part of a fiscal unity for CIT purposes.
4.4 Record Date Dividend Withholding Tax
The Dutch dividend withholding tax act 1965 (Wet op de dividendbelasting 1965) includes a specific provision for holders of publicly traded shares. According to this provision, the end of the record date (registratiedatum), in principle based on the records of the central securities depository, determines who may be identified as the person entitled to the proceeds of the shares (opbrengstgerechtigde). However, this does not necessarily mean that such person is also the person entitled to the shares for Dutch tax purposes; that should be based on further analysis. Based on leading case law, if such person identified as shareholder at the record date would be a nominee (zaakwaarnemer or lasthebber) it would not be entitled to the shares for tax purposes. It is noted that this concept should be distinguished from ultimate beneficial ownership (uiteindelijk gerechtigde) in relation to which additional conditions apply. The Tax Plan 2025 proposes to clarify that the application of this provision only relates to the timing of the ownership test and not to who is or is not the person entitled to the proceeds of the shares (opbrengstgerechtigde).
5. Employment taxes
5.1 Expat Regime (30%-Facility)
Under the 30%-facility, a tax-free allowance of 30% of an employee’s Dutch-sourced remuneration can be granted to qualifying incoming expatriates employed by a Dutch employer instead of reimbursing these employees for the real additional costs and expenses caused by their expat assignment. As of 1 January 2024, the 30%-facility has been cut back. The new regulations stipulate that the current percentage of 30% can only be applied in the first 20 months. For the next 20 months, the percentage drops to 20% and for the last 20 months, the percentage drops to 10%.
Although the 30%-facility was under scrutiny, the Tax Plan proposes to reverse the limitation introduced in the Tax Plan 2024. It is proposed to, as of 1 January 2027, retain the possibility to grant a tax-free allowance, but lower the percentage to a flat rate of 27% of an employee’s Dutch sourced remuneration over the entire duration of the application of the expat regime. For the years 2025 and 2026 it is proposed to retain the possibility to grant a tax-free allowance of 30%.
This proposal has not yet been included in the legislative proposal published on 17 September 2024, but was simultaneously announced to be included in an amendment to the legislative proposal by the Dutch government. It is intended to publish this amendment in the week of 14 October.
5.2 Abolishment of partial foreign taxpayer status
Although not included in the Tax Plan 2025 but adopted as an amendment to the Tax Plan 2024, another relevant change as of 1 January 2025 is that an expatriate using the 30%-facility and living in the Netherlands can no longer opt to be treated as a partial foreign taxpayer for Dutch income tax purposes. Under the partial foreign taxpayer rules, expatriates using the 30%-facility and living in the Netherlands, can largely remain outside the scope of Dutch taxation on income from substantial interest holdings and income from savings and investments, as only the income from real estate held in the Netherlands and the income from shares of a legal entity established in the Netherlands are included in the Dutch income tax base. This rule was, amongst other, applied in relation to certain lucrative interest benefits derived by often high earning managers structured via foreign shareholdings. By abolishing this rule, expatriates will no longer be able to benefit from this favourable rule. Consequently, expatriates that become Dutch tax residents will in principle be taxable in the Netherlands on their worldwide income unless a credit or exemption is available for foreign sourced income under Dutch domestic law or applicable double tax treaties.
A grandfathering rule applies in relation to expatriates who already applied the 30%-facility at the end of 2023. These expatriates are allowed to retain their status of partial foreign taxpayer status until 31 December 2026 at the latest.
5.3 End of enforcement moratorium on false self-employment
In 2016, the Employment Relationships Deregulation Act (Wet Deregulering Beoordeling Arbeidsrelaties) was introduced. This law, implemented at the time to better combat false self-employment, caused significant unrest and debate from the outset. This resulted in the government establishing an enforcement moratorium for the Tax Authorities in 2016. As a result, the Tax Authorities would not retroactively correct the classification of the employment relationship for payroll taxes with clients, except in cases of evident malicious intent or failure to follow instructions adequately.
On 6 September 2024, the State Secretary of Finance, the Minister of Social Affairs and Employment, and the Minister of Economic Affairs sent a letter to the Second Chamber of Parliament (Tweede Kamer) that outlines the government's decision to abolish as of 1 January 2025 the enforcement moratorium. In short, as of 1 January 2025, the normal rules for imposing correction obligations (correctieverplichting), additional tax assessments, and fines when enforcing the classification of the employment relationship for payroll taxes will be applied by the Tax Authorities. The enforcement will primarily focus on payroll taxes at the companies. Considering the previous enforcement moratorium, the Tax Authorities will only retroactively correct up to the date of lifting the enforcement moratorium. For the period before that date, taking into account the five-year statute of limitations, corrections will only be imposed if there is malicious intent or if a previously given instruction was not followed adequately. Also, there will be leniency in imposing fines for clients who can demonstrably show that they are working on reducing false self-employment within their organisation. In such cases, no fines for violations will be imposed for incorrect classification of the employment relationship during the first calendar year after the moratorium ends. Further, the Tax Authorities will discontinue the assessment of model agreements. Existing approved model agreements will be honoured until end date of the approval.
In our blog of 13 September 2024, we discuss the end of the enforcement moratorium on false self-employment in more detail.
6. Individual Income Tax Rates
The Tax Plan proposes significant adjustments to the box 1 income tax brackets (income from work and home ownership). The first income tax bracket, applicable to incomes up to EUR 38,441 per year, will be reduced to 35.82%. Additionally, a new second bracket has been introduced, with a rate of 37.48% for box 1 income ranging from EUR 38.441 to EUR 76,817 per year. The top rate of 49.5% will remain unchanged.
The box 2 (income from substantial interests) top tax rate goes down from 33% (2024) to 31% (2025). The income tax rate for the first EUR 67,000 of box 2 income will remain at 24.5%.
The box 3 (income from savings and investments) tax rate will remain at 36%.
7. First Public CbCR report for most companies in 2025
On 22 June 2024, the Dutch Profit Tax Disclosure Directive (Public Country-by-Country Reporting) Act entered into force. This is an EU-initiated, mandatory, public reporting for large, international companies. Among others, the profit tax paid, the number of employees and the income per country must be reported.
Reporting will start for financial years beginning on or after 22 June 2024. For companies that have a financial year that is equal to the calendar year, this means that they will first report in relation to their financial year 2025. This report must then be made public by 31 December 2026 at the latest.
8. Disclaimer
It is possible that the Tax Plan as it is currently drafted will be amended in the course of parliamentary discussions. New elements may be added to the Tax Plan. It is currently expected that the Second Chamber of Parliament will vote on the final contents of the Tax Plan in week 46. The First Chamber of Parliament (Eerste Kamer), which has no right of amendment and can only adopt or reject a Bill, is expected to discuss the Tax Plan on 9 and 10 December 2024.
