January 2021 not only means the end of Donald Trump as president but for many also the end of the 30% -facility. In this news alert we would like to inform you about the current state of affairs as well as the tax consequences and tax planning considerations.
Introduction
As of 1 January 2019, the maximum duration of the 30%-facility has been decreased to five years. This is a considerable decrease: until 2012 the maximum term was as much as ten years. Between 2012 and 2019, the duration was reduced to a maximum of eight years.
The last reduction from eight to five years also applied to all 30% rulings which were already granted before 1 January 2019 (the so-called “old” 30% ruling holders). However, the Dutch government introduced for these “old” 30%-ruling holders a so-called transitional period because for them the decrease to five years the ruling would abruptly cease as of 31 December 2018. As a result of this transitional law, these “old” 30% ruling holders for whom the ruling would now end by this reduction could still benefit from the 30% facility for another two years as of 31 December 2018. This transitional period now will end as of 31 December 2020. Schematically, the current situation is: :
| Original end date | New end date |
| During 2019 and 2020 | The end date of the decision (unchanged) |
| During 2021, 2022, 2023 | 31 december 2020 |
| 31 januari 2024 of later | 3 years earlier than the original date |
Those who will soon lose the 30% ruling as from 1 January 2021 will have to deal with far-reaching tax changes which we would like to summarize for you. We would also like to highlight some considerations to reduce these undesirable tax consequences.
Tax changes
–Change in salary tax burden
As of 1 January 2021, the 30%-facility may no longer be applied to the salary of the employee concerned. This will result in a sharp fall in the net labor income of these employees. For those with a higher gross annual salary than € 68,507, the negative effect will be most significant. For this group, every penny exceeding this amount is subject to the income tax rate of 49.5%.
–Changes in tax position
Another major effect is the amendment of the qualification of the tax position of the employee concerned in Box 2 and Box 3 of the Dutch income tax. Until 31 December 2020, he/she could be qualified as a foreign taxable person for these boxes leading to an effective taxation of only Dutch income sources. However, as of January 1, 2021 he/she is fully subjected under taxation of these boxes as a resident Dutch tax payer.
As a result hereof he/she will have to declare the worldwide savings and investments (value as of 1 January 2021) in Box 3 as of the taxable year 2022. Income tax will be due if the net value (assets less debts) exceeds the tax-free threshold of € 50,000 (€ 100,000, if he has a tax partner).
Furthermore, from the tax year 2021 onwards, the employee will be subject to the taxation of the benefits -dividends and capital gains- from his substantial shareholding (more than 5% participation) in foreign companies. The rate of income tax is 26.90% (2021).
A so-called pseudo immigration tax return (for Box 2 and Box 3) will need to by filed for the year 2021.
Tax considerations
As described above, the impact of the loss of the 30%-facility of the employees concerned per the end of this year will be significant not only for their net income position but also for the taxation on their equity.
We therefore would like to provide you with a few opportunities to minimize this coming loss below:
-It is advisable to examine whether the total remuneration for the last year for which the ruling applies (2020) can be maximized. We hereby refer to the employees who are entitled to annual bonus benefits. In general, these bonusses are paid in the following year, however it is advisable to examine whether and to what extent it is possible to pay this bonus to the employee in question in December of this year. Any bonus payments in 2021 – even relating to 2020 – fall no longer within the scope of the 30%-facility which will expire by the end of this year.
-It is also advisable to check whether and to what extent the private savings and investments which are the basis for the taxation in Box 3 of the employee concerned can be structured more favorably.
This may include a diversion of specific investments, in particular savings, with low returns towards investments which generate higher returns such as real estate (direct foreign real estate investments typically being exempt).
Another consideration is to remove the investments from Box 3. After all, the net assets (assets minus liabilities) of the taxable person in this box are considered to generate a deemed return, irrelevant what the actual return is. This deemed return is progressively taxed -using three brackets- up to more than 5% in that box! The tax rate on this deemed return is 31%. It may be advisable, from a certain level of investment and depending on the type of investments, to transfer these investments as capital to a limited liability company (B.V.) where the actual return is taxed at a lower corporate tax rate and/or dividend tax rate.
Are you such an “old” ruling holder? We will be very happy to advise you to investigate your possibilities to minimize your financial loss enabling you to make the right decisions before the end of this year.