Introduction:
The Dutch government has unveiled its Tax Plan for 2024, outlining a range of significant policy changes and fiscal measures that will impact individuals, businesses, and the broader Dutch economy. This comprehensive plan addresses various aspects of taxation, including corporate income taxes, personal income taxes, social security benefits, and public finances. Below, we delve into the key highlights and noteworthy proposals of the Dutch Tax Plan for 2024.
- Corporate Income Taxes / Withholding Taxes:
- Entity Classification Rules Overhaul: The Dutch tax classification rules for both Dutch and foreign entities, such as partnerships, are set to undergo a significant overhaul to align them more closely with international standards. This aims to mitigate “hybrid entity mismatches” in international contexts.
- Changes to VBI-Regime: The tax-exempt status for certain investment entities under the VBI-regime will be limited to entities regulated under the Dutch Financial Supervision Act, effectively excluding family-owned investment vehicles.
- Abolishment of Direct Real Estate Qualification: Fiscal investment institutions (FBIs) will no longer be allowed to hold direct investments in Dutch real estate starting from January 1, 2025. They can still invest indirectly or in non-Dutch real estate.
- Additional Measures to Prevent Dividend Stripping: New measures are introduced to prevent dividend stripping. Taxpayers claiming withholding tax credits, refunds, or exemptions must demonstrate that they are the beneficial owners of dividends.
- Changes to Thin Capitalization Rules for Banks and Insurance Companies: Banks and insurance companies will see changes to the thin capitalization rules, particularly the exclusion of intragroup interest from deductions, effective from January 1, 2024.
- Abolishment of Deduction for Certain Donations: The deduction for corporate income tax purposes related to non-business-motivated donations will be abolished.
2. Personal Income Taxes:
- Taxation of Lucrative Interests: The Tax Plan addresses the taxation of management participations known as “lucrative interests” by incorporating a Supreme Court ruling into law, including retroactive effects.
- Tax Rates in Box 3 (Net Wealth): The tax rate for Box 3 (net wealth) will increase from 32% in 2023 to 34%.
3. Energy-Related Tax Measures:
- Extension of Investment Allowances: The Energy Investment Deduction (EIA), Environmental Investment Deduction (MIA), and Arbitrary Depreciation of Environmental Investments (Vamil) will be extended until at least December 31, 2028. The EIA deduction percentage will decrease from 45.5% to 40.5% starting January 1, 2024.
4. Real Estate Transfer Tax:
- Cancellation of RETT Concurrence Exemption for Share Deals: Certain share deals involving real estate companies will no longer be exempt from Real Estate Transfer Tax (RETT), addressing disparities between asset and share deals.
5. Wage Taxation:
- Increase in Travel Allowance: The tax-free travel allowance will increase from EUR 0.21 to EUR 0.23 per kilometer as of January 1, 2024.
6. Other Legislation Effective from 2024:
- Tax Rates in Box 2: New tax rates for Box 2 (substantial interest) will be introduced, with the first EUR 67,000 of substantial interest income taxed at 24.5%, and the excess at 31%, effective January 1, 2024.
- Expatriate Regime: Changes to the 30%-allowance calculation basis will be implemented, effective January 1, 2024, impacting expatriates.
- Conditional Withholding Tax on Dividends: Legislation introducing a conditional withholding tax on dividend payments will take effect on January 1, 2024. It applies to dividends made to low-taxed jurisdictions, hybrid entities, and certain situations deemed abusive.
- Tightening of the Earnings Stripping Rule for Real Estate Companies: The earnings stripping rule for real estate companies will be tightened by eliminating the EUR 1,000,000 threshold, starting from January 1, 2025.
- Changes to Interest on Late Payment and Recovery Interest: As of January 1, 2024, interest rates on late payments and recovery interest are expected to increase, partially reflecting ECB interest rate changes.
7. Measures to Fight Poverty:
- Additional €2 Billion to Fight Poverty: An additional €2 billion per year will be allocated to support vulnerable households, preventing a rise in poverty rates, particularly among children. This will be funded by redistribution, including higher taxes on higher incomes.
8. Public Finances:
- Budget Deficit: The budget deficit is projected to be 2.9% in 2024, with the government emphasizing the importance of sound public finances for future generations.
9. Social Security Benefits and Purchasing Power:
- Purchasing Power and Poverty Measures: Various measures, including increasing the employment tax credit, raising child benefits, and improving social security benefits, aim to enhance the purchasing power of low-income individuals and families while reducing poverty rates.
- Free Breakfast in Schools: Financially vulnerable households will benefit from free breakfasts at schools.
- Housing Benefit: Housing benefits will see an increase of up to €416.
- Temporary Emergency Fund for Energy: Assistance from the Temporary Emergency Fund for Energy will be available to those unable to pay their energy bills until the end of March 2024.
- Impact on Poverty Rates: These measures are expected to maintain the poverty rate at 4.8% of the population and reduce child poverty to 5.1%.
10. Public Finances:
- Budget for 2024: The 2024 budget will exceed €430 billion in expenditure and generate over €402 billion in revenue.
- National Debt: The national debt will be 47.3% of GDP in 2024, well below the EU threshold of 60%.
- Future Debt Levels: The government acknowledges the need to address rising debt levels, projected to reach 52.9% in 2028, to ensure fiscal sustainability for future generations.
11. Making the Tax System Greener:
- Phasing Out Tax Exemptions for Fossil Fuels: The Tax Plan includes steps to phase out tax exemptions and reduced rates for fossil fuels to align with climate commitments.
12. Caribbean Netherlands 2024:
- Tax Plan for Caribbean Netherlands: The 2024 Tax Plan extends to Bonaire, St Eustatius, and Saba, with measures aimed at improving and simplifying the tax system and enhancing purchasing power.
Conclusion:
The Dutch Tax Plan for 2024 introduces a host of changes across multiple tax categories, aiming to strike a balance between supporting vulnerable populations, addressing fiscal challenges, and promoting environmental sustainability. These measures reflect the Dutch government’s commitment to ensuring a fair and economically stable future for the country.
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