Today, 17 September 2024, the Dutch Ministry of Finance published its 2025 Tax Plan (Belastingplan 2025). The plan contains several proposals that affect businesses operating in or with the Netherlands. Most provisions of the 2025 Tax Plan will enter into force on 1 January 2025 (unless otherwise indicated). In this note, we discuss the topics that we feel are most relevant to the international business community.
In addition, we highlight certain provisions that were included in the 2024 Tax Plan but will enter into force only as of 1 January 2025.
Please note that the proposals are currently subject to parliamentary review and are therefore subject to change.
Limited changes to the Dutch tax rates
No amendments are currently proposed to the Dutch corporate income tax (CIT) rates: The first bracket applies to taxable amounts up to € 200,000 and the rate remains at 19%. Companies will pay the top CIT rate of 25.8% on those taxable amounts over € 200,000.
A new real estate transfer tax (RETT) rate is introduced for residential real estate held by investors. The rate will be 8% and it will enter into force on 1 January 2026. This reduction is intended to attract real estate investors, thereby increasing the necessary investments in housing.
This means the following RETT rates shall apply:
- RETT on residential real estate where the owners use the property as their own residence. 2%
- RETT on residential real estate where the owners are investors (i.e., not use the property as their own residence) – as of 2026. 8%
- RETT on non-residential real estate. 10.4%
Two adjustments to the earnings stripping rules
The Netherlands implemented the earnings striping rule in Dutch tax law following the ATAD 1 directive. The earnings stripping rules currently limit the deduction of a Dutch taxpayer’s net interest expenses to the highest of (i) 20% of fiscal EBITDA and (ii) a threshold of € 1 million.
The Ministry of Finance announced two changes to the current system:
- an increase of the applicable percentage of tax-deductible interest from 20% to 25% of fiscal EBITDA; and
- the removal of the € 1 million de minimis threshold for companies that are leasing real estate to third parties.
Both changes will take effect on 1 January 2025. Because these changes have opposing effects, taxpayers should carefully consider the overall impact on their individual tax positions. Generally speaking, there seems to be no benefit anymore for real estate leasing companies to be taxed on a stand-alone basis compared to on a consolidated basis under the Dutch fiscal unity regime (save for the benefit for the CIT rate threshold).
"Cooperating group” is replaced by “Qualifying unity”
The Netherlands has a conditional withholding tax on dividends, interest and royalties that is generally due to “related entities in low-tax jurisdictions”. The “related entity” concept relies on a definition of “qualifying interest” (kwalificerend belang), which definition currently also includes parties acting in concert by using the concept of a "cooperating group" (samenwerkende groep).
This cooperating group concept was derived from a specific Dutch anti-abuse provision (i.e., the anti-base erosion rules of Article 10a of the Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969)). Feedback from the tax community has led to a reconsideration of the term cooperating group because the Dutch tax authorities were not able to provide advance confirmations on the absence of a cooperating group because of its potentially broad reach. Additionally, obtaining information about underlying participants proved to be challenging.
To address these issues, the Ministry of Finance proposes replacing the cooperating group concept for conditional withholding tax purposes (only) with a new definition of “qualifying unity” (kwalificerende eenheid). Such a qualifying unity is considered present in situations where entities act together primarily with the aim to avoid taxation. This new definition is being introduced to specifically target abusive situations and therefore aligns better with the original goal of preventing tax-free payment flows to low-tax jurisdictions. It also aims to protect genuine investments in the Netherlands from any adverse tax effects. The burden of proof for establishing a qualifying unity will rest with the Dutch tax authorities.
Debt waiver exemption and the set-off of tax losses
The 2025 Tax Plan makes a very specific change to the Dutch debt waiver exemption (kwijtscheldingswinstvrijstelling) and its interaction with the Dutch tax loss carry forward rules (compensabele-verliesregeling). The current overlap between the debt waiver exemption and the tax loss carry forward rules can complicate restructuring for loss-making companies, particularly when debt is waived.
Under the current rules, income from the waiver of loans can qualify for a tax exemption, but only after existing carry forward tax losses are fully absorbed. The tax loss carry forward rules have however been changed as of FY2022, as a result of which the tax loss carry forward is limited to 50% of the taxable profits to the extent that these exceed 1 million. This can result in a portion of the waived debt not qualifying for the debt waiver exemption and therefore in a tax payable position (i.e. if the debt waiver exceeds € 1 million). This reduces the effectiveness of the debt waiver exemption as it stems from the idea that debtors in an insolvent position should not be paying tax on waived debt but should utilise their tax losses (to the extent available).
To address this issue, the proposed measure exempts debt waiver income fully, provided it exceeds the losses incurred in the same year.
ATAD1 GAAR implemented in law
The General Anti-Abuse Rule (GAAR) that was included in the ATAD1 directive will only now be implemented into Dutch tax law. The GAAR is aimed at preventing tax avoidance through artificial structures or arrangements. Previously, the (statutory) implementation of the GAAR was considered unnecessary because the Dutch "fraus legis" principle already sufficiently addressing tax avoidance. The formal introduction of the GAAR is not intended to create any substantive changes to how the Dutch anti-abuse concept is applied, but rather to align Dutch law with international anti-abuse standards.
Dividend tax facility for repurchasing listed shares
The dividend tax repurchase facility, which allows listed companies to repurchase their own shares without incurring dividend withholding tax under certain conditions, was originally set to be abolished by 1 January 2025 as part of the 2024 Tax Plan. However, the 2025 Tax Plan now proposes to retain this facility (i.e., reverse the removal included in the 2024 Tax Plan). This means that listed companies can continue to apply this facility on share repurchases beyond 2025, maintaining flexibility in capital management.
Changes to the Subject-to-Tax test in light of Pillar Two
With the introduction of Pillar Two, it is necessary to clarify how various subject-to-tax tests apply in relation to different (anti-abuse) provisions for CIT purposes. Specifically, it must be determined whether the Pillar Two top-up tax qualifies as a 'tax on profit’. The proposed changes clarify that a qualifying Pillar Two top-up tax is treated as a tax on profit under certain subject-to-tax tests, including:
- the Dutch interest deduction limitation rules;
- the Dutch participation exemption; and
- the Dutch object exemption for foreign permanent establishments.
Some subject-to-tax tests assess whether there is sufficient taxation, while others evaluate whether a portion of income is included in the taxable base (referred to as "gross basis tests"). For the gross basis tests, being part of qualifying income for a Pillar Two top-up tax does not automatically mean it is a ‘tax on profit’. However, if a 15% tax rate is applied, it will also be considered a ‘tax on profit’ for these gross basis tests.
Provisions of 2024 Tax Plan, applicable as of 2025
As mentioned, we also want to highlight certain provisions that were included in the previous 2024 Tax Plan and that will enter into force only as of 1 January 2025.
Foreign entity tax classification rules
Originally, the Dutch Ministry of Finance intended changing the Dutch entity classification rules as of 1 January 2022 to reduce mismatches with foreign entity classification rules. This was in relation to the classification of Dutch and foreign entities as either tax-transparent or opaque.
New entity classification rules are currently proposed, outlining the characteristics of Dutch legal forms and their foreign equivalents, and consist of two methods:
- Fixed method (for entities resident in the Netherlands): A non-Dutch entity that is resident in the Netherlands and whose legal form is not comparable to that of a Dutch entity will always be classified as non-transparent and therefore independently subject to tax.
- Symmetrical method (for entities resident outside the Netherlands): The Netherlands will follow the classification made by the foreign jurisdiction for non-Dutch-resident entities incorporated or entered into under foreign law that are not comparable to a Dutch entity.
The new Dutch entity tax classification rules are effective from 1 January 2025. Certain transitional arrangements are introduced as of 1 January 2024, which should allow funds for joint account, open limited partnerships and the participants in such entities to restructure tax-free during 2024.
Changes to tax classification rules for a CV and FGR
This proposal adjusts the definitions of Dutch limited partnerships (commanditaire vennootschap; CV) and the Dutch Fund for Joint Account (fonds voor gemene rekening; FGR).
The Netherlands will abolish the distinction between open (non-transparent) and closed (transparent) CVs. This change means that most CVs, along with comparable foreign limited partnerships such as the Luxembourg SCSp and Cayman LP, will be treated as transparent for Dutch tax purposes. The transition from non-transparent to transparent CVs will be considered a deemed transfer and cessation. To facilitate this transition, several transitional measures will be available, including a rollover facility, a share merger facility, and a deferral of payment.
For FGRs, the consent requirement (toestemmingsvereiste) will no longer be decisive when verifying their tax status. Instead, the status of an FGR will depend on the concept of “Fund for Joint Account” used in the Dutch Financial Supervision Act (Wet op het financieel toezicht; WFT) and has negotiable units of participation.
An FGR will be deemed non-transparent and thus treated as an independent corporate taxpayer if it qualifies as an investment fund under the Financial Supervision Act and has negotiable units of participation. Conversely, funds that do not meet these criteria will be considered transparent.
