September 24, 2021

Traditionally on the third Tuesday of September – this year on 21 September - for the occasion of Budget Day, the Dutch caretaker cabinet presented its 2022 Tax Plan. Due to the caretaker status of the current government, this year’s envisaged plans are non-controversial, contain relatively few substantive changes, and continue a consistent policy to further improve the business climate for companies in the Netherlands. Please find below the main highlights of the proposed tax measures that are relevant for corporate income tax payers doing business in or with the Netherlands. Below proposals still need to be adopted by the House of Representatives and Senate (Eerste en Tweede Kamer), and therefore may be subject to change.

Reduction of CIT Rates (SME)

As per 1 January 2022 the first €395,000 taxable income (instead of €245,000 in 2021) will be taxable at the lower rate of 15%. Taxable income above this amount is taxed at a rate of 25%.

Changes in at arm’s length principle

The legislative proposal based on which hybrid mismatches which arise under the application of the at arm’s length principle will be neutralized from 1 January 2022 onwards, introduces rules that combat mismatches that arise due to different application of the arm's-length principle by the Netherlands and other states.

Loss carry forward rules

As per 1 January 2022, the term of the loss carry forward facility will be expanded from 6 years to unlimited future years. This facility however, will only be fully applicable for profits up to €1,000,000; for profits exceeding this amount, only 50% of the taxable income can be set off against tax losses.

Taxation of employee stock option plans

In order to further increase the appeal of the Dutch tax system and in this regard making it more attractive to grant share options as salary, new rules are introduced related to the levy of wage tax and personal income tax in case of employee stock option plans. Based on the legislative proposal, the moment of taxation of share options may be shifted from the moment of exercise to the moment when the acquired stock on exercise is available for trade, subject to certain conditions.

Introduction of tax liability for reverse hybrid entities

Reverse hybrid entities will not only become subject to corporate income tax (‘tax liability measure’), but also be obliged to withhold tax at source, such as dividend withholding tax and conditional withholding tax on interest and royalty payments. This means that dividend withholding tax will be withheld on dividend payments made by a reverse hybrid entity, to both domestic and foreign participants. As a rule, however, Dutch participants are entitled to credit the dividend tax withheld.

In the reverse situation, a hybrid entity can qualify as the beneficiary of a dividend. Provided the relevant conditions being fulfilled, the reverse hybrid entity can then invoke the withholding exemption in the dividend withholding tax act. However, the proposal contains a look-through provision based on which the withholding exemption does not apply insofar as a participant would itself not have been entitled to the withholding exemption in the event of a direct interest in the underlying, dividend-distributing and withholding company.

Tax free reimbursement of expenses working at home

Because of COVID-19, many employees have started working from home. The general expectation is that also after the corona measures end, a large group of employees will continue to work (partly) from home. Many employers have indicated that working from home will become a long term arrangement, and therefore they wish to provide an allowance to the employee for the additional costs of working from home.

Research has shown that an employee incurs approximately €2,- extra costs per day worked from home. The government therefore proposes to start from an exemption of a fixed amount of maximum €2,- per (part of a) day worked from home.

Concurrence with commuting costs

On the same working day, it is not possible to apply both the exemption for working at home and the exemption for commuting costs. If an employee works from home for a part of the day and works at the fixed place of work for the other part of the day, only one of the two exemptions is applicable.

If you have any questions regarding the above, please do not hesitate to contact us.