Corporate tax rate
As in the previous year, the corporate income tax rates will remain unchanged. The lower tax rate of 19% will continue to apply to profits up to €200,000. For profits exceeding €200.000, the tax rate remains 25.8%.
The Budget Day documents indicate that no adjustments will be made to the corporate tax rates for now. The development can be summarized schematically as follows:
|
2022 |
2023 |
2024 |
2025 |
|
Lower tax rate
|
15%
|
19%
|
19%
|
19%
|
|
Profit threshold
|
€395.000
|
€200.000
|
€200.000
|
€200.000
|
|
Higher tax rate
|
25,8%
|
25,8%
|
25,8%
|
25,8%
|
During the parliamentary discussions on the Tax Plan 2025, there may still be adjustments made to the tax rates and brackets.
Adjustment of debt waiver exemption
Interaction with the loss compensation limitation
The debt waiver exemption is designed to provide relief to companies when debts are waived as part of a creditors' agreement. This scheme ensures that companies do not have to pay corporate tax on the waiver profit, allowing them to make a fresh start after a restructuring. However, the new rules for loss set-off that came into effect on January 1, 2022, may create a potential issue.
According to these rules, taxpayers can only offset up to €1,000,000 plus 50% of their taxable income in a given year against tax losses from previous years. Companies with losses exceeding €1,000,000 might still be liable for corporate tax on the waiver profit due to this limitation, despite the exemption.
Update: Budget Day 2024
The Tax Plan 2025 proposes to adjust the debt waiver exemption starting from financial years beginning on or after January 1, 2025.
For situations with off-settable losses up to €1,000,000, the current system remains in place. The proposed adjustment indicates that companies with off-settable losses exceeding €1,000,000 will be fully exempt from tax on the waiver profit, to the extent that this waiver profit exceeds the loss incurred in that year. If there are additional offsettable losses from previous years, these will be reduced by the amount of the exempt waiver profit.
This change prevents companies with large offsettable losses from still having to pay tax on waiver profit due to the loss set-off limitations. This avoids unintended tax burdens on companies after a creditors' agreement, increasing the chance of a successful restructuring and restart.
The proposed measure specifically targets companies with losses exceeding €1,000,000, so as to limit the impact on other statutory regulations, such as the earnings stripping measure. For companies with losses up to €1,000,000, the current system will remain in effect.
In conjunction with this adjustment, a change is also proposed whereby creditors will not need to reverse write-down losses if the waiver profit is offset against the debtor's losses.
Earningsstripping measure for real estate companies
Exclusion of real estate companies
The earnings stripping measure currently limits the deductibility of net interest expenses to 20% of EBITDA or a maximum of €1,000,000. This rule is designed to prevent excessive interest deductions and tax avoidance through debt financing.
Starting January 1, 2025, the €1,000,000 threshold will be abolished for real estate entities that spend more than half of the year conducting more than 70% of their activities related to real estate, such as leasing to third parties. This change aims to prevent real estate companies from splitting their activities into multiple entities to take advantage of the threshold multiple times.
Additionally, the deductible percentage of EBITDA under the earnings stripping measure will be increased from 20% to 25% in 2025. This is a change that will enhance the competitive position of Dutch companies, although it will still be below the European average of 30%.
Update: Budget Day 2024
The changes mentioned above will take effect from financial years beginning on or after January 1, 2025. This is a step to prevent tax avoidance through the splitting of real estate companies and an effort to promote a fairer tax environment.
Amendment earnings-striping rule measure for specifically real estate investors
Clarification of the liquidation loss scheme
Under the Dutch participation exemption, profits from a subsidiary are often exempt from corporate income tax. This also applies to negative profits: a loss is also not deductible for corporate income tax purposes at the level of the parent company. An exception to this rule is made in the case of a so-called liquidation loss. As a result, a loss incurred during the liquidation of a participation is deductible.
For situations where an intermediate holding company is liquidated, specific rules are applicable. These rules have proven to be very complex in practice. It is expected that the legislator will therefore clarify this scheme accordingly.
Update: Budget Day 2024
In the 2025 Tax Plan, two changes are proposed regarding the liquidation loss regime.
The first amendment means that when calculating the amount a taxpayer has sacrificed for a participation, any previous reversal of a write-down on a receivable from that participation, which increased the taxable profit, must be included. However, no amount equal to that write-down will be added to the revaluation reserve.
The second amendment addresses situations with intermediate holding companies. In certain cases, it was possible to turn a non-deductible capital loss on an indirectly held participation into a deductible liquidation loss on a directly held participation. This possibility is removed by changing the wording of the article.
Introduction of a General Anti-Abuse Rule (GAAR)
The first EU Anti-Tax Avoidance Directive (ATAD1) requires EU member states, among other things, to implement a General Anti-Abuse Rule (GAAR).
During the implementation phase, the Netherlands took the position that it did not need to implement this provision, as the legal doctrine of fraus legis is essentially an uncodified general anti-abuse measure.
The European Commission has nevertheless called for the introduction of a legal standard. Consequently, the previous government indicated that it would present a measure in the 2025 Tax Plan that provides for a (codified) General Anti-Abuse Rule. This is not intended to introduce any material changes.
Update: Budget Day 2024
The 2025 Tax Plan proposes codifying the General Anti-Abuse Rule (GAAR) into a new article in the Dutch corporate income tax code. In summary, this article would deny tax benefits or cost deductions if they result from a completely artificial arrangement created with the primary purpose of obtaining a tax advantage.
The implementation is intended merely to codify the existing legal principle of fraus legis (abuse of law) and does not introduce substantial changes. However, because it will now be explicitly included in the law, it is possible that tax inspectors may invoke it more frequently.
Deemed existent permanent establishment
With the introduction of the Anti-Tax Avoidance Directive 2 (ATAD2), it was determined that the object exemption should not apply to foreign business profits of deemed existent permanent establishments ("buiten beschouwing blijvende vaste inrichtingen"). This implies that profits from such permanent establishments are subject to corporate income tax in the Netherlands if the other country does not recognize the permanent establishment. This measure was intended to prevent hybrid mismatches.
Double taxation
In practice, however, this measure has led to double taxation in certain instances. This occurs when the profits of a permanent establishment are taxed in the other country but are also included in the tax base in the Netherlands. This situation contradicts the rationale behind ATAD2, which aims to neutralize mismatches.
Update: Budget Day 2024, Tax Plan 2025
To address this issue, the Tax Plan 2025 proposes a legislative proposal to amend the object exemption accordingly. Under this proposal, the exemption would also apply to foreign business profits of a deemed existent permanent establishment that have already been included in the tax base of the other country. This change is intended to prevent double taxation and to ensure closer alignment with the rationale behind ATAD2.
About ATAD 2
Retention of the share repurchase facility for listed companies
Share repurchase facility for listed companies
The repurchase of own shares by listed companies in the Netherlands is, under certain conditions, exempt from dividend withholding tax due to the share repurchase facility. This arrangement ensures that Dutch listed companies are not placed at a fiscal disadvantage compared to foreign competitors, as in many other countries, the repurchase of own shares is not subject to dividend withholding tax.
Update: Budget Day 2024, Tax Plan 2025
In the 2024 Tax Plan, the House of Representatives decided to abolish the share repurchase facility as of January 1, 2025. However, the government now intends to reverse this decision. The legislative proposal in the 2025 Tax Plan aims to retain the share repurchase facility to avoid the potential negative impact on the competitiveness of Dutch companies and the broader business climate.
Change in subject-to-tax tests
Background subject-to-tax tests
In various provisions of the Dutch corporate income tax act, a so-called subject-to-tax test is included. This means that a provision – often a favorable exception for the taxpayer – only applies if a company is subject to a tax that, according to Dutch standards, is considered reasonable. This test is important to determine whether a company qualifies for certain tax benefits or exemptions.
Introduction Pillar 2 in the Netherlands
With the introduction of the Minimum Tax Act as of January 1, 2024, the question arises whether a tax under the Minimum Tax Act 2024 qualifies as a reasonable tax in relation to the various subject-to-tax tests. This is relevant because it may affect whether companies can benefit from certain tax advantages or exemptions.
Update Budget Day 2024
The previous administration had identified this issue already and the current government plans to codify in law the circumstances under which minimum tax can be considered a real levy in relation to the subject to tax tests. A distinction is made between two different types of subject to tax tests. The proposal specifies that a Pillar 2 top-up tax will qualify as a profit tax for subject to tax tests in which it should be assessed whether there is sufficient taxation, such as in the participation exemption. With regard to subject to tax tests that require an assessment of whether income has been taken into account in the tax base, the taxpayer will first have to prove that a Pillar 2 top-up tax has actually been levied in respect of the relevant income item.
This proposal is not intended to be a change from the current rules and is only intended as clarification for companies affected by the new minimum tax.
About Pillar 2
Mandatory application of the Dutch dividend withholding tax exemption
Dutch dividend withholding tax
When a Dutch company distributes dividends to its shareholders, it normally has to withhold a 15% dividend withholding tax. The distributing Dutch company pays this withheld dividend withholding tax to the Dutch tax authorities within 1 month after the dividends have been declared.
The Netherlands implemented a domestic dividend withholding tax exemption in line with the EU Parent-Subsidiary Directive. The Dutch dividend withholding tax exemption also applies to entities that are established in a jurisdiction where the Netherlands had concluded a double tax treaty with.
Dutch dividend withholding tax exemption
Under the domestic dividend withholding tax exemption, dividend distributions to non-resident shareholders may be exempt from withholding tax if certain conditions are met:
- The non-resident shareholder resides in an EU Member State or a tax treaty jurisdiction that includes a provision on dividends;
- The Dutch participation exemption would apply if the non-resident shareholder were a tax resident of the Netherlands; and ;
- The structure is not deemed abusive.
Update: Budget Day 2024
Currently, the distributing Dutch entity has the option to withhold and pay dividend withholding tax or not. In most cases, the Dutch dividend withholding exemption will be applied to avoid Dutch dividend withholding tax. But it could happen that the distributing Dutch entity withholds and remits the dividend withholding tax when, in retrospect, it could have applied the dividend withholding tax exemption. In this situation, no appeal can be made against the (wrongful) withholding and remittance of dividend withholding tax.
Starting January 1, 2025, the application of the withholding exemption will be mandatory. This ensures that the recipient of the dividend can appeal if the Dutch dividend withholding tax has been withheld incorrectly. This makes the withholding exemption regime more streamlined.
Combatting dividend stripping
New ‘group’ definition in the Dutch withholding tax rules
Background Dutch withholding taxes
On January 1, 2021, the Netherlands introduced a conditional withholding tax on interest and royalty payments made by a Dutch company to an affiliated company in a low-tax jurisdiction. As of January 1, 2024, this law has been expanded to include a conditional withholding tax on dividends, applicable only to dividend payments made to companies in low-tax jurisdictions or in certain abuse situations.
The Dutch Withholding Tax Act applies solely to payments between affiliated parties, determined by the presence of a ‘qualifying interest’. This qualifying interest can also be established based on the presence of a so-called ‘collaborating group’. This expansion aims to prevent abuse through the fragmentation of interests. However, there are practical signals indicating that the application of the term ‘collaborating group’ is often unclear. In addition, in some cases, withholding tax may be levied in situations that were not intended by the Dutch Withholding Tax Act by application of the concept of ‘collaborating group’.
Update: Budget Day 2024
To address this ambiguity, the government is proposing in the 2025 Tax Plan to replace the term ‘collaborating group’ with a new group term. The new group concept that has been proposed is ‘qualifying unity’. A ‘qualifying unity’ exists when entities act jointly for the primary purpose or one of the primary purposes of avoiding the levy of withholding tax on one of those entities. The proposed changes to the group concept in the Dutch Withholding Tax Act are intended to ensure that withholding tax is levied only in situations for which the Dutch conditional withholding tax is intended.
New rules for conditional withholding tax on dividends
Other measures that will come into effect as of 2025
- Qualification legal entities
A foreign legal form that is comparable to a Dutch legal form will, as a rule, receive the same tax treatment as the comparable Dutch legal form (legal form comparison method). If there is no comparable legal form, either the 'symmetric method' or the 'fixed method' will apply.
- Abolition of the Consent Requirement
The limited partnership (commanditaire vennootschap, CV) will become fiscally transparent in all cases starting from 2025.
- Changes to Exempt Investment Institutions (VBI) and Fiscal Investment Institutions (FBI)
- VBI: Only VBIs regulated under the Financial Supervision Act will be eligible for corporate tax exemption.
- FBI: FBIs that directly hold Dutch real estate will no longer be able to apply the 0% corporate tax rate as of 2025 and onwards.
- New Definitions
As a result of the introduction of the new Qualification Policy for Legal Forms Act (Wet Fiscale Kwalificatie Rechtspersonen), a number of changes to the definitions are proposed. In many cases, this will expand the scope of the deduction limitations and anti-abuse measures. We recommend carefully reviewing the textual changes, as they could have significant implications.
Potential consequences for Section 10a of the Corporate Income Tax Act 1969
The interest deduction provision of Art. 10a CITA 1969 is intended to combat base erosion in the Netherlands. As a result of the new Qualification Policy for Legal Forms Act, in situations (formerly non-transparent) entities, which as of 1 January 2025 no longer qualify as non-transparent but as transparent, will no longer fall under the term ‘entity’ for the purposes of Section 10a Vpb 1969 Act.
Update: Budget Day 2024
To mitigate the unintended consequences of the Qualification Policy for Legal Forms Act, the government proposes to amend some provisions in the 2025 Tax Plan. In doing so, the scope of the terms ‘entity’ and ‘affiliated entity’ will be expanded.
Would you like to know more about the 2025 Tax Plan?
Please contact one of our experts. They are here to help you out.
Contact us
