Prinsjesdag is an annual event in the Netherlands where the government presents its plans for the coming year, including budget proposals and policy measures. Note that these are proposals and have yet to be approved by the Parliament. Here’s a summary of key proposals from Prinsjesdag 2023 aimed at understanding the complex Dutch system.
Supporting Low-Income Households
- Action: Increase of the labor tax credit for low-income households.
- Funding: Funded by changes in the tax rates for higher-income households.
- Impact: Collects €1.6 billion to support low-income families.
Achieving Climate Goals
- Action: Measures such as CO2 taxation starting 2025 and changes in energy tax rates.
- Target Sector: Primarily the greenhouse farming industry and heavy industry.
- Objective: Accelerate progress toward climate goals.
Promoting Electric Vehicles
- Action: Increase of the base rate of the vehicle registration tax by €200 starting 2025.
- Objective: To encourage the adoption of emission-free cars.
Addressing Financial Shortfalls in 2024
- New Revenue Sources:
- Higher excise duties on cigarettes and alcohol.
- Maintaining the tax-free allowance in box 3 at €57,000 for 2024.
- Increasing box 3 tax from 32% to 34%.
Changes to Business Taxation
Changes primarily for small business entities (sole proprietorships and partnerships).
- Action: Lower the small business profit exemption from 14% to 12.7%.
- Objective: Make higher-income entrepreneurs pay more tax on their profits.
Retaining Business Succession Plans
- Action: Retain the Business Succession Regulation (BOR) and Deferral Scheme (DSR) in modified form.
- Objective: Facilitate smoother business transitions without heavy inheritance or gift taxes.
Certainly, here’s a simplified summary of the key tax changes announced on Prinsjesdag 2023:
Dutch Limited Partnerships (CVs)
- Starting in 2025, CVs will be transparent* for tax purposes, meaning they won’t be taxed as separate entities.
- Existing CVs need to wrap up by the end of 2024. Special tax rules will help with this transition.
- A specific type of CV, called ‘reverse hybrid CVs,’ will not see changes.
*In tax terms, “transparent” means that the entity itself is not subject to tax. Instead, all of its income, deductions, credits, and other tax items pass through to the owners or partners. They report these items on their personal tax returns.
For example, if a Dutch CV becomes transparent, it won’t pay corporate taxes. The tax obligations shift to the individual partners. They must report their share of the CV’s income, expenses, and other relevant items on their own tax returns.
This change will affect how entities like CVs are used in tax planning and business operations.
Foreign Limited Partnerships
- If they’re similar to Dutch CVs, they’ll also become transparent for tax purposes.
- Dutch owners of these foreign partnerships will lose certain tax benefits.
Funds for Mutual Account (FGRs)
- The definition of FGRs is changing. Only regulated investment funds will now qualify as non-transparent.
- New rules will allow other collective investment funds to be “transparent.”
- Existing FGRs have special tax rules for transitioning.
Non-resident Trusts and Similar Entities
- Foreign business structures that don’t match Dutch types will be transparent if their home country doesn’t tax them.
- This will affect some trusts and specific business forms from the UK, Ireland, and Germany.
- Dividend Stripping: Tax rules are tightening. Owners must prove they genuinely hold shares to claim tax benefits.
- Lucrative Interest: Changes will counteract a court ruling that made it easier to dodge certain tax rules. These changes will apply retroactively from June 26, 2023.
These changes will have implications for how businesses and investments are structured for tax purposes in the Netherlands.
These proposals aim to address various challenges from social inequality to climate change. Though these are initial proposals, they set the direction for Dutch policy in the coming year.