Dutch Dividend Withholding Tax remains in force and Corporate Income Tax Rate will be further reduced

The Dutch government decided to maintain the current Dividend Withholding Tax (DWT) and use the funds that were reserved for the abolition of this measure for other tax measures that benefit the investment climate. The government’s decision followed last week’s announcement on the reconsideration of its plans to abolish the DWT.

The tax measures proposed yesterday are amendments to the 2019 Tax Plan and aim to improve the investment climate in the Netherlands. Accordingly, the new proposal includes the following measures:

  1. Further reduction of the corporate income tax rate The corporate income tax rate will be further reduced than was proposed in the 2019 Tax Plan. The headline corporate income tax rate will gradually be reduced from 25% to 23.9% in 2020 and to 20.5% in 2021. The 20% rate for profits less than EUR 200,000 will gradually be reduced to 19% in 2019, to 17.5% in 2020 and to 15% in 2021.
  2. Withholding taxes The current DWT will remain in force. The proposed new withholding tax on dividends is postponed and will be subject to review. However, the government still plans to propose a new withholding tax on interest and royalties paid to low-tax jurisdictions to enter into force in 2021.
  3. Transitional rules for the depreciation of buildings in own use Based on the 2019 Tax Plan, the depreciation of buildings in own use will be limited to 100% of the immovable property value (‘WOZ-waarde‘) for corporate income tax purposes. Transitional rules are proposed now to mitigate the effects of this limitation for corporate taxpayers that recently invested in real estate. Accordingly, if a building is placed in own use before 1 January 2019 and has been subject to depreciation for less than three years, the taxpayer will be entitled to depreciate the building under the current rules within this three-year period.
  4. Shortened retroactive effect of the ‘remedial legislation’ for the fiscal unity regime On 6 June 2018, the Dutch government published a legislative proposal that eliminates certain benefits of the fiscal unity regime (‘remedial legislation’) in order to neutralize the impact of the European Court of Justice’s decision in Case C-398/16 (judgment of 22 February 2018). The remedial legislation would have retroactive effect from 25 October 2017. However, in order to avoid complications for the corporate income tax return of 2017, the retroactive effect of this legislation will now be limited to apply as of 1 January 2018.
  5. Transitional rules for 30% rulings In the 2019 Tax Plan, the period of the 30% ruling for expats would be reduced from eight years to five years for both existing and new rulings. However, the government proposes transitional rules for existing rulings to remain applicable in 2019 and 2020.
  6. Direct investment in Dutch real estate by fiscal investment institutions Based on the 2019 Tax Plan, fiscal investment institutions (‘fiscale beleggingsinstellingen’) would no longer be allowed to directly invest in Dutch real estate. However, as the DWT is maintained, the taxation of the profits derived from Dutch real estate by such investment vehicles is adequately provided for. As a result, the proposed prohibition of direct investment in Dutch real estate by fiscal institutions is abandoned.

The proposed measures, together with the measures of the 2019 Tax Plan, will be discussed in Parliament and, when adopted, implemented effective 1 January 2019 (unless otherwise indicated).

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