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Solutions for Dutch import VAT due after Brexit

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Solutions for Dutch import VAT due after Brexit

The United Kingdom has left the European Union on January 1st 2021 (Brexit). This has consequences for, among other things, VAT.

When importing goods from outside the EU to the Netherlands, VAT is due on these goods immediately upon import. Although this VAT may later be reclaimed, this will lead to a cash flow problem for the UK company.

However, there is a possibility to only first report this import VAT when filing a VAT return. This is beneficial, because this import VAT can then be reclaimed as deductible input VAT in the same VAT return. On balance there is no VAT payable over the import.

To be able to make use of the above arrangement, you must be in the possession of what is known as an “Article 23 permit“. As a foreign entrepreneur, you cannot request for an Article 23 permit yourself. For this purpose you must have a tax representative (‘fiscaal vertegenwoordiger’) in the Netherlands or have a Dutch company which is a tax resident of the Netherlands (just setting up a Dutch B.V. is not enough).

The tax representative of the foreign entrepreneur is responsible for meeting the obligations regarding VAT (and therefore also liable for the financial risks). These obligations are the result of performing activities in the Netherlands which are subject to VAT. In practice, the tax representative relieves the entrepreneur of all administrative burdens that arise from these activities. This gives the entrepreneur the freedom of doing business. The conditions for a tax representative to be met are as follows:

  1. This tax representative must be established in the Netherlands;
  2. The tax representative must provide financial security for VAT (bank guarantees, etc.) towards the tax office.

As an alternative a Dutch B.V. can be incorporated which will take over and perform the UK company’s trading activities within the EU. In order to make use of the above mentioned article 23 permit, the factual management (or majority part thereof) of the Dutch B.V. should be located within The Netherlands.

Brexit has other consequences for VAT as well. For example reclaiming local VAT imposed within the EU, as of 2021 a UK company will have to make use of paper forms instead of the EU online refund procedure.

TaxAble is your one stop shop for tax, accountancy and legal when setting up a Dutch company. We have advised and assisted various UK companies with setting up a Dutch B.V. company. We also advised on the related VAT matters.

 

Lower compulsory salary for substantial shareholders in 2021

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In 2021, substantial shareholders may take out a lower compulsory salary (“gebruikelijk loon”) if there is a decrease in turnover of their company. The Dutch Tax Authorities have published a new formula for this purpose.

Substantial interest holders may use this formula without prior permission from the Dutch Tax Authorities to lower the compulsory salary. However several conditions apply before the salary may be lowered:

  1. The estimated turnover for the whole of 2021 will be compared to the actual turnover for the whole of 2019.
  2. An entry threshold applies: reduction of the customary wage is possible with a loss of turnover of at least 30% in 2021 compared to 2019.
  3. The salary may not be lowered retroactively.
  4. It is not allowed to take out Dividends and/or to take out funds through a current account loan due to the lowering of the salary.
  5. The turnover of both reference years 2019 and 2021 may not be influenced by incidental events (e.g. merger, acquisition, liquidation)

The formula is as follows:

Compulsory salary 2021= compulsory salary for 2019 * (the whole turnover(excluding VAT) of 2021 / the whole turnover(excluding VAT) of 2019)

Changes in Dutch real estate transfer tax as of 2021

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Changes in Dutch real estate transfer tax as of 2021

As per January 1st 2021, there are changes in the Dutch real estate transfer tax. If the buyer is between 18-34 years of age, on a one-off basis, no Dutch real estate transfer tax is due when purchasing a home where the buyer will live him- of herself as a main residence, meaning the aim to live there for a longer and majority period of time.

An additional rule to the above applies as of April 1st 2021: The purchase price of the house may not exceed an amount of € 400.000. In case the purchase price does exceed this amount, as of April 1st 2021, a 2% real estate transfer tax rate will apply on the full amount of the purchase price.

Finally, the Dutch real estate transfer tax rates have been adjusted. A buyer with the age of 35 or older, who buys a house in which he/she him/herself is going to live, the real estate transfer tax rate remains at 2%. However for the purchase of a residential house for investment, or commercial immovable property, an increased rate of 8% applies for the real estate transfer tax.

After purchasing a home as your main residence, you may request the tax office for a preliminary tax refund of mortgage interest deduction. We assist with requesting these preliminary tax refunds as well as with preparing the annual personal income tax returns over the year in which such property was bought.

Dutch real estate held by foreign residents, is subject to Dutch personal income tax. We assist various foreign residents with preparing their personal income tax returns. In addition we can directly handle all related correspondence with the tax Dutch office by serving as our clients’ correspondence address.

Dutch withholding tax on interest and royalties 2021

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As per January 1st 2021, a Dutch withholding tax on interest and royalties is introduced. As a result, interest and royalties paid by a Dutch withholding agent established in the Netherlands, to an affiliated entity established in a low-tax jurisdiction or in a normal jurisdiction where there is an abusive situation, will be taxed in the Netherlands.

A state is considered a low-tax jurisdiction if it applies a statutory rate of less than 9% for profit tax or if it is included in an EU list of non-cooperative jurisdictions for tax purposes in that period.

An abuse situation exists when an entity is entitled to the benefits for the primary purpose of avoiding the imposition of tax and there is an artificial arrangement or a set of transactions that can be considered artificial.

The withholding tax rate corresponds to the highest percentage in corporate tax: 25%.

The taxpayer is the beneficiary and the tax is levied on the benefits in the form of interest and royalties. The tax is levied by deduction from the benefits. The Dutch withholding agent withholds the tax at the time when the benefits are received.

Proposed changes Dutch income tax rates 2021 and further

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Proposed changes Dutch income tax rates 2021 and further

Income tax (box 1)
As per January 1st 2020, a two-bracket system was introduced for the personal income tax. The lowest tax bracket (up to an income of EUR 68.507) is taxed against a rate of 37,35%. The highest bracket (for an income exceeding EUR 68.507) is taxed against a rate of 49,50%. These tax rates apply for the fiscal year 2020.

The Government has announced that they will reduce the tax rate in the lowest bracket in stages. The tax rate in the highest bracket will remain 49,50%:

  2020 2021 2022 2023 2024
Bracket 1 37,35% 37,10% 37,07% 37,05% 37,03%
Bracket 2 49,50% 49,50% 49,50% 49,50% 49,50%

 

People entitled to an AOW pension do not pay any AOW premium. For that reason, the three-bracket system still applies to them:

 

  2020 2021 2022 2023 2024
Bracket 1 19,45% 19,20% 19,17% 19,15% 19,13%
Bracket 2 37,35% 37,10% 37,07% 37,05% 37,03%
Bracket 3 49,50% 49,50% 49,50% 49,50% 49,50%

 

Tax credits

  • As per 2021, the general tax credit (algemene heffingskorting) will be increased from EUR 2.711 to a maximum of EUR 2.837. This tax credit is income related;
  • As per 2021, the employed person’s tax credit (arbeidskorting) will be increased from EUR 3.819 to a maximum of EUR 4.205. This tax credit is income related;
  • As per 2021, the elderly person’s tax credit (ouderenkorting) will be increased from EUR 1.622 to a maximum of EUR 1.703;
  • As per 2021, the single elderly person’s tax credit (alleenstaande ouderenkorting) will be increased from EUR 436 to EUR 443;

 

Self-employed deduction

Last year, the Government already announced the phasing out of the self-employed deduction. This phasing out will be accelerated as from 2021. The current self-employed deduction of EUR 7.030 will be reduced with EUR 360 every year until 2027, after which the reduction will be EUR 110 every year until EUR 3.240 in 2036.

Income tax (box 3 = equity tax)

A legislative proposal has been submitted to increase the tax-free threshold in the context of the investment yield tax (box 3). The tax-free threshold previously was EUR 30.846 (2020), and will be EUR 50.000 in 2021. For fiscal partners this is EUR 100.000.

In order to be able to finance this higher tax-free threshold, the applicable tax rate in box 3 will be increased from 30% (2020) to 31% in 2021.

Because the tax rate of 31% is being calculated on a notional yield (and not on the actual realized yield), the effective tax burden in box 3 will be as follows:

 

Assets for an amount of to Effective tax burden
0 50.000 0
50.000 100.000 0,59%
100.000 1.000.000 1,40%
> 1.000.000   1,76%

 

Corporate income tax

Last year, the Government announced that the corporate income tax return would be lowered from 16,5% to 15% (low rate), and from 25% to 21,7% (high rate). These plans have slightly changed. As from 2021 the high rate will remain 25%. Also the bracket limits are changing:

 

  2020 2021 2022
Tax rate bracket 1 16,5% 15% 15%
Tax rate bracket 2 25% 25% 25%
Bracket limit EUR 200.000 EUR 245.000 EUR 395.000

 

AirBNB rental income taxed also in case only part of a home is let

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AirBNB rental income is taxed also in case when only part of the main residence home is let. The awaited verdict of High Council (“Hoge Raad”) has recently followed. Whilst it was already clear that income from temporary renting through e.g. airbnb is taxed in case an entire main residence house or apartment is let, the lower courts were of the opinion that income from renting out parts of main residence apartments/houses could not be taxed.

It is now clear that the tax office is also allowed to tax income derived from temporary letting of parts of main residence apartments and houses. The taxation method is that 70% of the rental income (related expenses are deductible) is to be added to the deemed income of home ownership in box 1.

In case the house or apartment is not your main residence, it will most likely (if it is a so-called passive investment) fall into the equity tax system in which a deemed – and not the actual – rental income is taxed.

We can assist with the preparation of your personal income tax return as well as any other required tax, legal, accountancy related service.