On September 17, 2024, the Dutch Ministry of Finance unveiled the 2025 Budget, introducing several significant tax proposals for the upcoming year. These changes, if adopted, will take effect on January 1, 2025, unless stated otherwise.
Overview of the 2025 Tax Plans
In line with its coalition program, the Dutch government acknowledges that a favorable business climate is essential for a stable economy and prosperous companies in the Netherlands. Therefore, the 2025 Budget aims to ensure a predictable and solid fiscal policy, focusing on corporate tax rates and measures impacting various sectors.
Key Changes for Corporate Taxpayers
- Interest Deductibility Adjustments:
- Earnings Stripping Rule: The deductibility of net interest expenses, currently limited to the greater of 20% of fiscal EBITDA or a €1 million threshold, will be modified. The fiscal EBITDA cap is proposed to increase from 20% to 25%, aligning with the EU’s Anti-Tax Avoidance Directive (ATAD). Additionally, for real estate investment companies, the €1 million threshold will be eliminated if more than 70% of their assets are immovable property used by unrelated parties for more than half of the year. These companies can only rely on the 25% EBITDA threshold from January 2025.
- Extension of the Related-Party Definition:
- The Corporate Income Tax Act (CITA) uses a ‘related-party’ definition crucial for interest deduction limitations in intra-group financing. With the changes to Dutch partnerships and equivalent entities starting January 1, 2025, these entities will now fall under the extended related-party definition.
- Debt Relief Exemption Amendment:
- The interaction between the current tax loss settlement rules and the debt relief exemption can sometimes lead to unfavorable tax outcomes. To address this, the government proposes a new approach: if tax losses exceed €1 million, gains from debt waivers will be tax-exempt to the extent that they surpass these losses, easing restructuring for loss-making companies.
- Codification of the General Anti-Abuse Rule (GAAR):
- The GAAR, aimed at countering artificial tax avoidance schemes, will now be formally codified into Dutch law. This change aligns with the EU’s Anti-Tax Avoidance Directive but does not alter the existing Dutch doctrine of abuse of law (fraus legis).
- Prohibition of Certain Donations’ Deductibility:
- Corporate tax deductions will no longer be allowed for donations driven by personal motives of shareholders. Such donations will be treated as distributions subject to dividend withholding tax and personal income tax. However, business-driven donations, such as sponsorships, remain deductible.
Implementation of OECD Pillar Two Guidance in the Minimum Tax Act (MTA) 2024
The Minimum Tax Act 2024, which was enacted on December 31, 2023, includes clarifications related to the OECD’s Pillar Two rules:
- Interaction with Subject-to-Tax Rules in CITA:
- For anti-abuse measures, the proposed amendments to the CITA recognize Qualifying Pillar Two Top-up Taxes as ‘tax paid.’ This affects provisions like the anti-base erosion rule, participation exemption, and object exemption for foreign permanent establishment income.
- Incorporating Additional OECD Administrative Guidance:
- New guidance released by the OECD in 2023 and 2024 will be implemented into the MTA 2024. These include clarifications on carry-forward of excess negative tax expenses, treatment of new tax credit categories, and detailed rules regarding the application of the Substance-based Income Exclusion (SBIE). Some of these changes will apply retroactively to December 31, 2023.
Withholding Tax Act 2021 (WTA 2021) Updates
- New Group Concept:
- To address uncertainties and potential overreach in the current ‘cooperating group’ definition, a new group definition termed ‘qualifying unity’ is proposed. This focuses on entities that act together with the primary objective of withholding tax avoidance. The tax inspector will bear the burden of proof regarding the existence of such a unity.
- Reversion of Tax-Free Share Buyback Abolishment:
- Contrary to the 2024 tax plans that sought to abolish the tax-free share buyback facility for listed entities, the 2025 Budget proposes to reinstate this facility to prevent companies from ending share buyback programs or relocating out of the Netherlands.
Indirect Tax Changes
- Real Estate Transfer Tax (RETT):
- A new 8% RETT rate for residential real estate is proposed from January 1, 2026, replacing the default 10.4% rate. This reduced rate will apply only if the acquired property is deemed fit for residential use at the time of acquisition. However, the acquisition of non-residential property for redevelopment into residential use will not benefit from this reduced rate.
- Changes to the VAT Regime:
- Effective January 1, 2026, several activities will no longer qualify for the reduced 9% VAT rate. These include the supply of newspapers, magazines, and e-books; short-stays in hotels; museum admissions; sports events; and art supplies. From that date, the standard 21% VAT rate will apply, reflecting a move towards a more uniform VAT system.
Other Noteworthy Changes Effective from 2025
- New Dutch Entity Tax Classification Rules:
- Starting January 1, 2025, Dutch partnerships and equivalent foreign partnerships will generally be classified as transparent for Dutch tax purposes. Additionally, amendments to the classification rules for Dutch funds for joint accounts (FGRs) and foreign entities without clear Dutch equivalents will take effect, impacting tax obligations and potentially resulting in transitional taxes.
- Abolishment of Direct Real Estate as a Qualified Investment:
- The fiscal investment institution (FBI) regime will no longer allow direct investments in Dutch real estate from January 1, 2025. However, indirect investments through regular taxpayers or investments in non-Dutch real estate will remain permissible.
- Public Country-by-Country Reporting:
- Starting from the financial year 2025, multinational enterprises (MNEs) headquartered in the EU with revenues exceeding €750 million will be subject to public CbC reporting requirements. The first reports are due by December 31, 2026, and will require the disclosure of financial data on a jurisdictional basis.
Conclusion
The Dutch Budget 2025 introduces numerous tax changes, primarily targeting corporate taxpayers, real estate transactions, and MNEs. These proposals seem to align Dutch fiscal policy with EU directives and global tax standards while maintaining a conducive local business environment. Companies operating in or with the Netherlands should closely monitor these changes to adapt their tax strategies and ensure compliance.
Follow this link for more detailed information on the proposed fiscal changes for 2025.
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