In December 2023, the Tax Plans 2024 were adopted by the Senate. Although the package was adopted by the Senate, senators expressed concerns about certain measures: the increase of the bank levy rates, the further scaling back of the 30% regime for incoming expats, the increase of the PIT rates, and, as of 1 January 2025, the abolishment of the tax-free share repurchase facility for dividend withholding tax purposes. The current caretaker government acknowledged the concerns and promised to come up with alternatives. See also our December 2023 website post here.

In the letter, the caretaker State Secretary for Finance discusses the abovementioned measures in detail, including their negative impact on the Dutch business climate and suggests alternatives (taking into account budgetary restrictions). In preparation thereof, the caretaker government has had meetings with the business sector. These meetings confirmed that long-term predictability and consistency of tax policy is vital for a sound business climate. In addition, the business sector expressed its concerns on the level playing field with other EU Member States. The innovation box was specifically mentioned as an important factor for an attractive business climate. Hence, the caretaker government wants to stress to the Senate as well as to the next government the importance of stability of the innovation box.

Abolishment of the tax-free repurchase facility for listed companies as from 1 January 2025

Share buyback programs of listed companies in the Netherlands will in general become subject to Dutch dividend withholding tax.

Comment caretaker government

The expected revenue might be substantial lower as companies most likely will end their share buyback programs or even relocate out of the Netherlands. The long-term solution would be to harmonise the EU rules in this respect as other EU Member States do not levy dividend withholding tax in similar situations or do not levy dividend tax at all.

Alternative measure

According to the letter the best option is to refrain from abolishing the tax-free repurchase facility. Suggested alternative budgetary options are (i) the abolishment or relaxation of negatively assessed VAT schemes, (ii) the increase of employer social contributions, or (iii) changes to the corporate tax rates or brackets, for instance the increase of the first bracket rate of 19% (2024) to 20.5%.

Scaling down of the 30% regime for incoming expats

The 30% regime for incoming expats has been further scaled back at the end of 2023. The 5-year maximum term remains applicable, but as from 1 January 2024, the tax-free allowance will over 5 years gradually decrease from 30% to 10%. This does not affect 30% rulings already in use before 1 January 2024. This amendment adds up to the capping of the 30% regime to wages up to EUR 233.000. For more information we refer to this article on our website.

Comment caretaker government

Although there is currently a debate taking place on the future of the 30% regime, the recent limitations have negative impact for employers in attracting specifically skilled staff and thus also on the Dutch business climate, specifically the education, healthcare, top sports, and the tech and startup sector. Since most EU Member States have comparable schemes, restrictions should be internationally coordinated. In addition, it followed from the 2017 evaluation that the scheme was efficient and effective.

Alternative measure

A new scheduled evaluation has been accelerated and interim conclusions are expected in Q2 2024. The evaluation will contain policy options and potential alternative measures, which can be part of the 2025 Tax Plans.

Increased tax rates bank levy

As of 1 January 2024, the bank levy tax rates were increased. The tax rate regarding short-term loans from 0.044% to 0.058% as well as the general tax rate from 0.022% to 0.029%.

Comment caretaker government

The bank levy increase has a negative impact on the international competitiveness of Dutch banks as well as on the investment climate due to lending restrictions. The ECB has, in an opinion requested by the Dutch ministry of Finance also expressed its concerns. It is therefore recommended to reassess the bank levy and, in order to prevent double taxation, to adopt a more nationally oriented tax base.

Alternative measure

The caretaker government does not see alternatives taking the budgetary rules into account.

Increase tax rates box 2 and box 3 of the personal income taxation

Also as of 1 January 2024, the tax rates for income from substantial shareholdings (box 2) and income from wealth (box 3) were both increased with an additional 2%. As a result, the new rates are 33% for box 2 (income above EUR 67,000) and 36% for box 3.

Comment caretaker government

Due to the box-system in the Dutch PIT Act, changes in the rates may lead to tax-driven behaviour such as box arbitrage. Therefore, it is important to keep an overall balance between all three boxes.

Alternative measure

In the view of the caretaker government, the headline box 2 rate is too high, and this tax measure should be reversed. This could be financed by either down scaling of the SME profit exemption or by increasing the box 2 step-up rate.

Concluding remarks

This letter fits in the renewed attention for a sound and predictive business climate in the Netherlands. The Dutch caretaker government clearly underlines the importance thereof. It remains to be seen how parliament as well as a new government will deal with this going forward. We will keep you posted on relevant developments.