2021 Tax Plan: post-crisis tax system will be better, fairer and more sustainable
The 2021 Tax Plan package includes extra measures to stimulate economic growth during the coronavirus crisis. At the same time, the government is working to provide prospects for the period thereafter. It is continuing its reforms, including measures to create a better, fairer and greener tax system. This is the message of the 2021 Tax Plan.
As State Secretary for Finance Hans Vijlbrief explains: ‘It’s precisely in times of crisis that we need to set our sights firmly on the future. That’s why this Tax Plan looks not only to the present but also to the future, so that we can emerge from the crisis with a fairer and greener tax system. For instance, multinationals are going to shoulder a fairer share of the tax burden. We’re reducing tax rates for small businesses with low profits. We’re improving access to the housing market for first-time buyers, and soon nearly a million fewer people will be paying income tax on modest savings and investments. We are also greening the tax system by introducing a CO2 tax to encourage industrial companies to cut their emissions.’
The 2021 Tax Plan includes the following measures.
People who lose their jobs during the current crisis must be able to retrain as easily as possible. That is why employers will no longer pay salaries tax and national insurance contributions for training costs incurred after making employees redundant.
The previously announced reduction of the high corporation tax rate will be scrapped; the rate will remain 25%. The funds freed up will enable the government to strengthen the economy at this critical time.
The government is encouraging businesses to make investments by introducing a new job-related investment tax credit (BIK) from 2021. Businesses that make an investment, such as the purchase of a new machine, will receive a tax credit that they can set off against the payment of salaries tax and national insurance contributions. The details are still being worked out.
The reduction of the low corporation tax rate from 16.5% to 15% will go ahead as planned. In addition, more SMEs will pay this lower rate in the years ahead. From 2021, the low rate will apply to profits of up to €245,000 instead of €200,000. In 2022 this limit will be raised further to €395,000.
Measures for everybody
The government is making it easier for first-time buyers to enter the housing market. From 2021, home buyers aged 18 to 35 will no longer pay transfer tax. The rate paid by investors, on the other hand, will rise from 6% to 8%.
The government also intends to cut taxes. Savers and small investors with assets of up to €50,000 (or €100,000 if they have a tax partner) will no longer pay tax on those assets from 2021. The tax rate will, however, by raised slightly, from 30% to 31%. As a result, the number of small savers and investors who pay tax in box 3 (i.e. on income from savings and investments) will fall by nearly one million. And anyone with savings or investments of up to €220,000 (or €440,000 if they have a tax partner) will pay less tax on them.
The increase in the employment tax credit planned for 2022 will be moved forward a year, which means that people in work will be better off next year. This will benefit both employees and the self-employed. The increase will come on top of the increase already scheduled for 2021. At the same time, the general tax credit will be increased by €22 more than the €60 already planned. In 2021 the basic income tax rate will be reduced from 37.35% to 37.10%. The government will reduce this rate further between 2022 and 2024, ultimately to 37.03%. Finally, the elderly person’s tax credit will also be increased.
Taxes for businesses
The self-employed person’s tax allowance will be reduced further. The government will compensate this, so that most self-employed people will still be better off next year (through the employment tax credit and the change in income tax rates). The government will reduce the self-employed person’s tax allowance at a faster rate and in bigger steps, on top of the measures already initiated last year. From next year, the allowance will be reduced annually, reaching €3,240 in 2036. The original aim was to reduce it to €5,000 in 2028. This will reduce the differences in the tax burden borne by employees and self-employed people.
Multinationals will bear a fairer share of the tax burden, but the business climate will be kept in mind. At present, some businesses do not pay any tax on the profit they make in the Netherlands because they can offset losses or make other deductions. In difficult economic times, it is particularly important that some companies do not have more scope to reduce their tax burden than others. To tackle this problem, two measures will be taken that were recommended by the Ter Haar Advisory Committee on taxation of multinationals.
These measures are as follows:
- The scope for companies to offset losses will be reduced as of 2021, generating €555 million on a structural basis. This means that businesses will pay a more constant amount of corporation tax, and that fewer businesses will pay no tax at all in a particular year.
- Informal capital structures will be tackled from 2022, generating €173 million on a structural basis. These arrangements enable companies within a group to avoid taxation by exploiting the differences between tax systems. This undesirable practice will be curtailed.
We are also exploring how to ensure more equal tax treatment of debt and equity. At present, debt financing is used a great deal by businesses, which makes them vulnerable. But companies that borrow capital currently enjoy a tax advantage. We are examining whether this can be tackled effectively by means of an equity allowance, including the tightening of a general interest limitation rule (earnings stripping measure).
In addition to the Tax Plan, the bill on the liquidation and termination loss release was sent to the House of Representatives on Budget Day. Under this scheme it will no longer be possible as of 2021 to deduct certain losses without limit in the Netherlands upon the termination of business activities in a foreign country.
Taxes for the climate
Under the National Climate Agreement, industrial companies will be encouraged to invest in cutting their CO2 emissions. Companies that do not reduce their emissions sufficiently will pay a CO2 tax. The tax will enable the target for 2030 to be achieved without undermining Dutch companies’ competitiveness and the Netherlands’ position as an attractive business location. The more efficient a company’s production processes, the less tax it will have to pay. As things stand at present, companies that fail to achieve the agreed reduction in CO2 emissions risk paying €125 in 2030 for each excess tonne of CO2 emitted. If new insights emerge, the rate will be reviewed, after a recalculation by the Netherlands Environmental Assessment Agency (PBL). The CO2 tax takes account of how the coronavirus pandemic is impacting industry. The expectation is that industry as a whole will start paying for their emissions in 2024, unless they have cut their emissions sufficiently. Companies that do not produce efficiently enough will pay for their emissions sooner.
Vehicle taxes will be adjusted in line with the more stringent environmental standards. Electricity at charging stations for electric vehicles will remain relatively cheap until 2022. Ships will be encouraged to use greener shore-side electricity (instead of their own generators) by reducing the applicable tax rate.
The government is working to improve the benefits system. The Tax Plan contains proposals for achieving a fairer system, with more focus on the human dimension. The proposals will improve the position of claimants in relation to the Benefits Office of the Tax and Customs Administration. The Benefits Office will soon be better able to provide customised solutions in cases where benefit has to be repaid. And more account will be taken of individual circumstances. For instance, people can receive more childcare benefit if their spouse is admitted to a nursing home. These are the first steps towards an overall improvement. Further measures will be taken in the future to prevent the benefits system causing financial difficulties for parents.