Supportive tax relief measures to help limit the financial consequences for entrepreneurs
In this article, we provide an update and overview of the supportive tax relief measures which were made available in the Netherlands and which could help limit the financial consequences for entrepreneurs as a result of COVID-19. The Dutch government announced a full new set of measures which will be implemented to help business survive these difficult times.
All measures are currently available to be requested and no end date announced. We expect that the measures will apply as long as social life is affected by the Corona virus.
The following measures were announced in relation to personal income tax:
An employer can ask for compensation of wage costs (maximum 90%) for a maximum of three months. This benefit provides employers with the benefit of obtaining unemployment compensation for the hours missed if working hours of employees have to be reduced. Potentially, this measure will be extended for another 3 months.
The employees will remain employed by the company and will receive their regular salary. One of the conditions is that there must be at least 20% less revenue and another condition is that no employees will be fired in the period that the compensation is given.
The compensation depends on the loss of revenue. The government published some examples:
- If 100% of the revenue is lost, the compensation amounts to 90% of the wage costs;
- If 50% of the revenue is lost, the compensation amounts to 45% of the wage costs;
- If 25% of the revenue is lost, the compensation amounts to 22.5% of the wage costs;
This fund will replace the existing measure upon which reduced working hours can be requested. If a company already applied for reduced working hours, the new facility can only be requested after the reduced working hours facility has ended.
Measures currently available
Besides the measures which were announced and which will become available soon, the following measures are available now.
- Short-time working scheme
Companies affected by the consequences of the coronavirus outbreak and meeting ‘all conditions’ may be eligible for the current short-time working scheme. The short-time working scheme is an existing scheme that companies, that temporarily lose working hours due to a calamity, can apply for. In other words: there is temporarily no more work for (part of) the staff due to circumstances that fall outside the normal business risk. The scheme does not concern on call workers with a zero hour contract or temporary workers; it only applies to personnel for which an obligation exists to pay their wages on an ongoing basis. Employers can then claim unemployment benefit (in Dutch: WW) for that part of the personnel (the employer simply continues to pay the employee's salary, as it were, but receives compensation for this from the government).
The employees concerned must have accrued unemployment benefit rights (WW-rights). The calamity must result in loss of work for at least two weeks and a maximum of 24 weeks. There must also be a loss of work for at least 20% of employees. The scheme could apply at the earliest at the moment of request and only to the extent that there would not already be an excess of personnel in the company before the calamity occurred and no ongoing strikes are in place. The scheme would be granted for six weeks.
The advantage of this scheme is that you do not necessarily have to lay off employees because wage costs are temporarily reduced.
- A slightly modified version of the existing special tax payment deferral scheme
The Netherlands already has a special tax payment deferral scheme, where they could allow a tax payer with (temporary) liquidity problems to defer the tax payment for a maximum of one year (the DTA are not obliged to grant this deferred tax payment). Normally, the request for deferring a tax payment is assessed directly by the DTA, as certain conditions could be imposed by the DTA. Examples of conditions, depending on each specific situation, that would normally be imposed are (for deferred tax payments for a maximum of one year):
- Providing securities to the DTA for the deferred tax payments;
- Complying with all other tax obligations, including the on time filing of tax returns;
- Paying all (new) tax assessments other than the ones for which the deferred payment is requested;
- Paying in terms;
- Regularly updating the DTA regarding the financial situation of the company.
An exception exists in which the DTA could (but again is not obliged to) extend the term for deferred tax payments to more than one year and in some cases even without requesting securities for the deferred tax payments. For this exception a request must be filed with the DTA including a statement drawn up by a third party expert that demonstrates that:
- There are genuine current payment problems (not only expected problems);
- The payment problems are of a temporary nature;
- The payment problems will be resolved before a certain time; and
- There is a viable business.
With regard to the coronavirus, the normal conditions that could be imposed as mentioned above remain in force. However, the government has promised that when requesting for deferred tax payments it would be sufficient for now to provide the DTA with a written justification that the coronavirus has caused these problems. The collection of tax by the DTA for the requested tax payment deferral should then temporarily be halted. The content of the request, to what extent the request is well-founded and the conditions that will be imposed for the deferred tax payments will be assessed at a later stage and not be seen as a condition precedent. It is not yet clear what the consequences would be when the DTA would cancel the granted tax payment deferral at a later stage (other than possible immediate collection measures). It could be the case that penalties would be imposed at a later stage if they suspect abuse of this temporarily automatic deferred tax payment scheme. Please note that in any case the standard 4% recovery interest would be due on deferred tax payments.
Please note that when liquidity problems arise and tax payments cannot be made, the DTA must be informed about this situation in a timely manner to avoid a possible personal liability of the directors of the company for these tax payments (within two weeks after the date on which the tax or premiums should have been paid). A special form needs to be sent for this purpose to the DTA or other applicable instances.
Please also note that deferral of a tax payment amounting to less than EUR 20,000 could be requested by phone and under less strict conditions, however by doing so this could prevent the possible tax payment deferrals for longer periods of time as discussed above (and for higher amounts).
- Temporary removal of penalties for non-payment or late payment
Normally the DTA imposes a fine for late or non-payment of tax. With regard to the coronavirus and the associated economic position, the DTA will waive or reverse the (standard) penalty for failure to pay on time in the coming period (penalties targeting abuse still remain in force). It is still unclear when a standard penalty already has been imposed whether this reversal will take place automatically or only upon request.
Off-setting VAT refunds with payable wage tax
Another measure that all companies can make use of is the immediate offsetting of an expected refund of VAT against an amount to be paid in payroll taxes (regardless of whether or not they experience problems with the coronavirus). Certain conditions must met for this to apply.