Highlights of main tax proposals in budget 2023
26 September 2022
On 20 September 2022, the Dutch government published its Budget Day proposals, which contain budget measures for 2023, as well as tax legislative proposals for calendar year 2023 and thereafter. This alert focuses on several tax proposals that would affect businesses and certain individuals.
Corporate income tax rate and brackets
The Netherlands operates a two-bracket corporate income tax rate system, under which the standard corporate rate is currently 25.8%, with a lower rate of 15% applying to taxable income up to EUR 395,000. The government has proposed to reduce the lower income bracket from EUR 395,000 to EUR 200,000 and increase the lower rate from 15% to 19% as from 1 January 2023. Under this measure, the first EUR 200,000 in profits would be taxed at a rate of 19% and the excess taxed at the 25.8% rate.
Conditional withholding tax on dividends
A conditional withholding tax on certain dividends would apply as from 1 January 2024. Since 1 January 2021, conditional withholding tax has been levied on interest and royalty payments made by Dutch resident entities to entities in low-tax jurisdictions and in cases of tax abuse. A low-tax jurisdiction for these purposes is a jurisdiction that does not levy corporation tax, levies corporation tax at a rate of less than 9% or is listed on the EU’s blacklist of noncooperative jurisdictions.
The conditional withholding tax would be extended to include dividend payments made by Dutch resident entities to entities resident in a low-tax jurisdiction and in cases of tax abuse. The tax rate would be equal to the standard corporate income tax rate of 25.8% and could be offset against the normal withholding tax (if applicable).
Additional measures targeting dividend stripping
In principle, dividends distributed by Dutch resident companies, such as BVs and NVs, are subject to a 15% dividend withholding tax. However, in recent years, the practice of “dividend stripping” has been increasingly in the public eye and has led to considerable public discourse; the government held a public consultation on dividend stripping at the end of 2021. Dividend stripping describes practices that allow taxpayers to avoid Dutch dividend withholding tax by separating the beneficial and legal rights to dividends. To prevent these practices, the government announced that additional measures to counter dividend stripping will be introduced by 1 January 2024 at the earliest.
Fiscal investment funds and real estate
A Dutch fiscal investment fund currently is not liable to Dutch corporate income tax if certain requirements are met. The government intends to introduce proposals in the future that would prevent fiscal investment funds from investing directly in Dutch or foreign real estate. More details on the proposals are expected in the Dutch government’s (tax) budget for calendar year 2024.
Real estate transfer tax
The 2023 budget proposes to increase the standard rate of the real estate transfer tax from 8% to 10.4% as from 1 January 2023. In 2022, a lower transfer tax rate of 2% applies to real estate purchased by an individual and subsequently used as that individual’s main residence; in all other instances, the transfer of real estate is subject to the standard 8% rate tax. While the standard rate would be increased under the budget proposals, the lower transfer tax rate would remain unchanged.
Windfall profits tax
In anticipation of the EU’s plans to introduce a windfall profits tax on fossil fuel producers, the Dutch government announced plans to introduce a similar tax in the Netherlands that would apply to entities in the energy sector that profit from high gas prices. It is expected that a higher tax rate would be levied in calendar years 2023 and 2024 on profits derived from the sale of natural gases (on land or sea) where the price exceeds EUR .50 per m3. Revenue from the windfall profits tax would be used to compensate Dutch taxpayers currently facing exorbitant energy prices.
Income from substantial shareholdings
“Box 2” of the Dutch personal income tax law taxes income from substantial shareholdings (i.e., shareholdings of 5% or more) at a standard rate of 26.9%. It is proposed to introduce a two-bracket system that would apply as from 2024. Under the revised system, the first EUR 67,000 of income from substantial shareholdings would be taxed at a rate of 24.5% and income exceeding that amount would be taxed at a rate of 31%.
The Netherlands offers a beneficial tax regime for certain highly skilled expatriates recruited from outside the country to work in the Netherlands that aims to compensate expatriates for the additional costs incurred when they come to work in the Netherlands. Under this regime—known as the 30% facility—qualifying individuals may receive up to 30% of their gross salary tax-free. The government has confirmed its plans to limit the 30% facility to a maximum of EUR 216,000. A transitional measure would be introduced to reduce the maximum tax-free amount to EUR 216,000 for employees who take advantage of the 30% facility during 2022. The revised cap on the tax-free amount would apply as from 1 January 2024 for expatriate employees who apply for the 30% facility on or after 1 January 2023 and as from 1 January 2026 for expatriate employees that currently benefit from the facility.
The Dutch parliament still must approve the budget proposals, and once approved the measures would apply as from the dates mentioned above.