2023 Dutch Budget Plan – Tax Proposals

On 20 September 2022, the Dutch government published its tax proposals for 2023 and onwards.

In the area of direct taxes the following measures can be relevant:

Corporate income tax

• Change in the corporate income tax rates.

Individual income tax

• Change in the income tax rate for shareholders with a substantial interest in a company (box 2).

Wage tax

• Increase of tax-free travel allowance.
• Limitation of the 30%-ruling.

Additionally, the proposal to amend the legal entity tax qualification policy has been announced but is not included in the 2023 Dutch Budget Plan package. 

The same goes for the abolishment of the efficiency margin on customary wage (box 2): this proposal is announced and will most likely be presented later as a parliamentary amendment to the Budget Plan 2023. 

The Dutch government also plans to disallow investment in real estate by fiscal investment institutions, but this measure is not included in the 2023 Dutch Budget Plan.

Lastly, some amendments to the conditional withholding tax on dividends have been announced to be proposed in the near future.

In the area of indirect taxes, the following measures can be relevant:

• Change in the real estate transfer tax rate.
• Change in the CO₂-tax for industry.
• Amendment of the vacant possession ratio (leegwaarderatio).

The final rules are likely to be published at a later moment but the (high-level) main rules from the proposals are already included below (potentially subject to change).

Currently, the tax proposals are subject to discussion in the Dutch House of Representatives (Tweede Kamer der Staten Generaal).

Proposed measures in the area of direct taxes

Corporate income tax rates

The Dutch government has announced it will increase the lower corporate income tax rates and will narrow the threshold, as indicated in the table below.

Income tax rates box 2 (for shareholders with a substantial interest)

The Dutch government has announced it will introduce two rate bands in box 2 as per 2024, which would also include a threshold. The income of Dutch shareholders with a substantial interest in companies will be taxed through a progressive tax rate, as indicated in the table below.

Increase of tax-free travel allowance (wage tax)

The Dutch government proposes to increase the tax-free travel allowance (reiskostenvergoeding) for employees who drive to their jobs, from 19 eurocents per kilometer to 21 eurocents per kilometer as of 1 January 2023. This measure is imposed to keep traveling to work affordable for employees. As of 1 January 2024, the maximum is planned to increase to 22 eurocents per kilometer.

Limitation of the 30%-ruling (wage tax)

Employees that are recruited outside of the Netherlands and that have specific expertise can make use of the favorable 30%-ruling: 30% of the wage can be enjoyed tax-free. The Dutch government proposes to impose a maximum to the ruling as of 2024 (the so-called Balkenende-norm or the Wet normering topinkomens (WNT)-norm, which is EUR 216.000 in 2022, but is expected to increase in 2024). As of 2024, the 30%-ruling can only be applied to wage amounting to a maximum of the WNT-norm. A gradual entry scheme is announced: for incoming employees that applied the 30%-ruling during the last tax period of 2022, the limitation of the 30%-ruling will not apply until 1 January 2026. 

Announced proposals in the area of direct taxes

Amendments to Legal Entity Tax Qualification Policy as per 1 January 2024

The Dutch government has been exploring ways to amend the legal entity tax Qualification policy (treatment as “transparent” (disregarded) or opaque for tax purposes). After the internet consultation during Spring 2021, the government plans to propose amendments to the qualification rules in Spring 2023. Under the proposed framework, the comparison rules, whereby the foreign legal entity is compared to Dutch legal entities, continue to apply.

However, one of the four criteria for qualification (the criterion that gives rise to most hybrid mismatches) i.e., whether the accession or replacement of partners can take place without the prior written consent of all partners, would no longer be applicable. Due to this change, there would no longer be a distinction between the closed limited partnership (transparent for Dutch tax purposes) and the open limited partnership (opaque for Dutch tax purposes). Thus, the open limited partnership would no longer be treated as a corporate taxpayer.

Abolishment of the efficiency margin on customary wage (box 2)

Dutch resident shareholders with a substantial interest in a company while simultaneously being employed with that company are obliged to allocate wage to themselves, so-called customary wage (gebruikelijk loon): the wage must be customary to the level and duration of the employment. Since it can be difficult to benchmark this wage for every position, an efficiency margin applies where the wage is determined according to a comparable employment relationship. This efficiency margin used to be 25%. Previously, this efficiency margin practically led to substantial shareholders setting their customary wage lower than an actual comparable wage. 

The Dutch government proposes to abolish the efficiency margin, so that substantial shareholders pay more income tax in box 1 (rather than box 2 with a lower rate).

Amendments to the conditional withholding tax on dividends

The conditional withholding tax on dividends enters into force as of 1 January 2024, and targets payments to related entities that are resident for tax purposes in a low-tax jurisdiction or in countries that are on the EU-blacklist. The conditional withholding tax will be levied at the highest CIT rate (i.e., 25.8%) and may be levied in addition to the dividend withholding tax of 15%. The proposal contains an anti-cumulation rule.

During the course of 2023, the Dutch government plans to propose to expand the term ‘withholding agent’ with the inclusion of:

• foreign entities (entities incorporated in accordance with foreign law that have similar legal features to a comparable Dutch legal entity), since these entities were inadvertently omitted in the initial codification of the conditional withholding tax on dividends, and
• reverse hybrid companies, since these companies are corporate income taxpayers since the entry into force of ATADII on 1 January 2022.

In addition, the government plans to propose to expand the taxable base for the regular dividend withholding tax and the conditional withholding tax on dividends by including renumerations for capital provisions. Through this, the dividend tax acts should correspond with the corporate income tax act.

Lastly, the government plans to propose to limit the deduction of conditional withholding tax for non-resident taxpayers in the Netherlands with a substantial interest in a Dutch resident company (technisch aanmerkelijk belang). The Dutch Income Tax Act 2001 does not stipulate such a limitation (yet), while the Dutch Corporate Income Tax Act 1969 does for Dutch resident taxpayers. With this proposal, the income tax act should correspond again with the corporate income tax act.

Proposal to disallow investment in real estate by fiscal investment institutions

The fiscal investment institution (FBI or Fiscale Belegginsinstelling) is effectively corporate income tax exempt. It is a facility for individual shareholders to invest jointly in securities and real estate among others, without resulting into higher taxation, compared to when the individual shareholder invests directly without the interference of a fiscal investment institution.

The Dutch government plans to disallow the direct investment in real estate by fiscal investment institutions as of 1 January 2024. In 2023, the government explores possible accompanying measures. This planned proposal aims to ensure corporate income taxation under all circumstances of profit derived from real estate.

Proposed measures in the area of indirect taxes

Change in the real estate transfer tax rate

The real estate transfer tax rates for the acquisition of non-residential real estate and for the acquisition of residential real estate by entities and individuals that do not live in the residences for a longer period of time will increase to 10.4 percent as per 1 January 2023. The real estate transfer tax rate for the acquisition of ‘regular’ residential real estate remains at 2 percent. 

Change in the CO₂-tax for industry

One of the measures introduced by the Netherlands to achieve the reduction of greenhouse gas emissions is a CO₂-tax for industry, by pricing the limited amount of available emission allowances. The amount of available emission allowances depends on the reduction factor. The Dutch government proposes amend the reduction factor in three ways:

• by calibrating the reduction factor for new EU ETS-benchmarks;
• by gradually reducing the amount of emission allowances for industry from 1 January 2023 to 4,85 Mton in 2030; and
• by calibrating the rate of the CO₂-tax industry according to the studies of the PBL Netherlands Environmental Assessment Agency.

To achieve these three points, the government proposes to set the reduction factor for 2023 at 1.213, and to reduce the factor in 2024 with 0.078. The rate for the CO₂-tax remains unchanged. 

Amendment of the vacant possession ratio (leegwaarderatio)

The value of residential real estate is determined according to the Valuation of Immovable Property Act (Wet waardering onroerende zaken, or WOZ). The valuation can pertain to leased residential real estate. The value of such leased residences is determined by multiplying the so-called WOZ-value with the ‘vacant possession’-ratio (leegwaarderatio). The Dutch government proposes to amend this ratio so that the difference in value between leased and non-leased residential real estate is (gradually) decreased.

Please contact the authors if you have any questions concerning the proposals.