2024 Tax Plan – Outline of wage and income tax

Outline of wage and income tax

Back to outline Tax Plan

Dutch version

Income policy

The new rates and tax credits are shown in the tables below:

Amendments to income-related combination tax credit (ICTC)

The 2023 Tax Plan envisaged the abolition of the income-related combination credit (IRCTC) for parents with children born on or after 1 January 2025. This will not take place in its current form. Instead, from 2027 the IRCTC will be phased out in nine annual steps for all target groups, including parents with children born or to be born up to 31 December 2024. Because of the delay in introducing the new childcare system, the phasing-out process does not start until 2027.

In addition, the shared parenting scheme for IRCTC purposes will be included in the Income Tax Act 2001 itself, while its contents will be amended. The proposal is to incorporate it in the Income Tax Act and amend it. The amendment is to take effect effective from 1 January 2024 and requires a child to reside in each of the two households for at least 156 days in a calendar year, thus safeguarding the effective equality of the shared parenting. The legislative amendment serves to repair a Supreme Court ruling.

Following on from the above, it is proposed to replace the formal registration requirement with a substantive test effective from 1 January 2025. The test is an assessment based on actual facts and circumstances, to see whether the taxpayer and the child belong to the same household for at least six months in the calendar year. Whether the taxpayer is registered at the same residential address as the child for at least six months is then no longer decisive.

Increase in box 2 rate

The 2023 Tax Plan envisaged the introduction of a two-bracket system in box 2 effective from 1 January 2024, with a basic rate of 24.5% up to a box 2 income of EUR 67,000 and 31% on the excess. However, by amendment the House of Representatives decided to increase the top rate by an additional 2 percentage points in 2024, raising it to 33%. A flat rate of 26.9% still applies in 2023.

Increase in box 3 rate and non-indexation of tax-free assets

The box 3 rate will be increased to 36% effective from 1 January 2024. Furthermore it was decided to freeze the tax-free assets at EUR 57,000 (this is EUR 114,000 for partners) effective from 2024 and thus not to index this amount. Both proposals are meant to absorb the budgetary loss due to postponed introduction of the new box 3 system until 2027.

Amendments to Box 3 Bridging Act

Effective from 1 January 2023, the Box 3 Bridging Act came into force following the Supreme Court’s so called Christmas ruling. Responding to a number of motions and commitments, the government has explored further refinements to calculating returns.

Expansion of categories of bank deposits
The government proposes to expand the categories of bank deposits to include membership rights in an association of owners and money in a civil-law notary’s or bailiff’s trust account. These assets currently fall under the category of other assets. However, assets generally consist of money held in a bank account, so the flat-rate return of the bank deposits category better reflects the return on assets.

Amendment of mutual receivables and debts with partners and minor children
The proposal is to have mutual receivables of and debts owed by tax partners and their minor children no longer qualify as a box 3 asset. Those receivables and debts were offset against each other under the previous box 3 scheme, but because of the differentiation between returns on receivables and debts this no longer applies under the Box 3 Bridging Act. Both amendments are retroactive to 1 January 2023.

Clarification of calculation of box 3 rate of return for partners
The bill likewise clarifies the joint calculation of the rate of return for tax partners. This will have retroactive effect to 1 January 2023. As a result, separate assets cannot be allocated between partners to create a favourable rate of return for one of the two partners and allocate the tax-free assets to the other partner. The government expressly does not amend the current calculation method. Instead, they clarify it.

Provisional assessments including box 3 income
For provisional assessments that include box 3 income, the calculation of the return on savings and debts will from now on be based on figures for the month of July of the previous calendar year (Section 9.5a ITA 2001). This is to ensure that the most up-to-date figures are used, also when determining a provisional assessment.

Depreciation restriction on buildings

The government proposes to remove the distinction between the depreciation restriction on buildings for income tax and for corporate income tax purposes. The actual effect of this proposal is that for all buildings used as business assets, the value under the Valuation of Immovable Property Act (WOZ value) will be regarded as the maximum depreciation point, which has already applied to taxpayers for corporate income purposes since 1 January 2019. Thus, for entrepreneurs for income tax purposes it no longer matters whether they hold property for their own use or for investment purposes. Likewise, it is irrelevant whether a building is used in a company for income tax purposes or in an entity subject to corporate income tax. The rationale of this measure is to prevent long-term tax deferral by using the reinvestment reserve and also to prevent arrangements where the broader depreciation possibilities available for income tax purposes are used in comparison to those available for corporate income tax purposes.

Amendment of ESIC, EIC and arbitrary depreciation

Budgetary reasons have prompted the proposal to structurally reduce the energy-saving investment credit (ESIC) from 45.5% to 40%, effective from 1 January 2024. In addition to this reduction, it is proposed to structurally increase the budget available for the ESIC from 2025 onwards. Also to promote energy-efficient and sustainable business decisions the government proposes to postpone the application of the sunset clause in both the ESIC and the environmental investment deduction (EIC) and the arbitrary depreciation of environmental investments (‘willekeurige afschrijving milieu investeringen, or ‘Vamil’) by five years until 31 December 2028. Under a sunset clause an act will cease to exist after some time, unless, as is now proposed, the period of operation is extended.

Electronic application for R&D withholding agents and application for ESIC, EIC and Vamil

Under the bill on the Electronic Administrative Communications (Modernisation) Act, an administrative body may only communicate electronically with withholding agents and taxpayers if they have given their consent, unless it is only a message to a single addressee.

However, the Salaries Tax and National Insurance Contributions (Reduced Remittances) Act requires R&D income taxpayers and R&D taxpayers to apply electronically for the R&D remittance reduction. In addition, taxpayers in entities for income tax and for corporate income tax purposes who want to apply the arbitrary depreciation of environmental investments (‘willekeurige afschrijving milieu investeringen, or ‘Vamil’), the energy-saving investment credit (ESIC), or the environmental investment credit (EIC), are obliged to apply for their investment electronically with the Netherlands Enterprise Agency.

To ensure that these obligations will remain in place even after the Electronic Administrative Communications (Modernisation) Act comes into force, the Income Tax Act 2001 and the Salaries Tax and National Insurance Contributions (Reduced Remittances) Act will be amended accordingly.

Expansion of reinvestment reserve in case of government intervention

Currently, a reinvestment reserve (RIR) can only be applied per company. As a result, an entrepreneur with multiple companies cannot use an RIR formed in one company for a reinvestment in another company. The government proposes to amend this and to allow an RIR for entrepreneurs for income tax purposes who have exceeded the company limit, to the extent that government intervention has caused a partial cessation. An RIR can then be formed if a partial cessation occurs - provided there is an intention to (re)invest -, which can then be written off on another company. Please note, the tax claim can be rolled over to either a new or an already existing company of the relevant taxpayer. This proposal should be seen in light of the termination arrangements for farmers.

Reduction of SME profit exemption

Budgetary reasons, in this case the lower-than-previously-anticipated revenue from the so-called Pillar 2 measures, have prompted the proposal to reduce the SME profit exemption in 2024 from 14% to 13.31%.

Repair of lucrative interest scheme

The lucrative interest scheme for income tax purposes refers to the holding of property rights acquired partly as a remuneration for activities. For there to be income from a lucrative interest, the property rights must have such favourable conditions that there is (or there is a chance of) excessive remuneration that is disproportionate to the capital contributed or the risk run. This income is taxed in box 1, as income from other activities. On 14 April 2023, the Supreme Court issued a ruling on the application of Article 3.92b(4) of the Income Tax Act 2001. It ruled that loans, too, can be included in the assessment whether the leverage effect of the interest held by the natural person is in excess of 1 in 10. This is relevant for the question whether the interest falls under the lucrative interest scheme. However, loans can only be included if and to the extent they qualify as informal capital for the application of tax legislation. As a result of this criterion, positions using, for example, a shareholder loan that does not qualify as informal capital, do not qualify as a lucrative interest, while such loans may bear many similarities to cumulative preference shares. These loans’ leverage may be such that, viewed from the objective of the scheme, their treatment should be the same as that of informal capital loans. The proposed repair regulates that loans that also contribute to the remuneration objective, are also relevant under the lucrative interest scheme. This is because they will be included in the total issued share capital. What’s more, in determining the leverage such loans will be treated as a separate type of loan.

Repair of home ownership scheme

Effective from 1 January 2022, a number of legislative amendments within the home ownership scheme came into force, on the joint purchase and financing by tax partners of an owner-occupied home. One of the amendments regarded the use of the repayment balance at a joint level up to at least the amount of the share in the debt of the partner who has the repayment balance. This ensured that at the joint level, it was assessed whether the repayment balance had been used sufficiently.

In the situation where a home is first purchased jointly by tax partners, where the home and debt would be part of the matrimonial property, after which only then the home of the partner with the repayment balance was sold, the legislative amendment could lead to a deduction limitation of mortgage interest. The proposed amendment as yet prevents this undesirable outcome, with retroactive effect to 1 January 2022.

Repair of excessive borrowing

The Excessive Borrowing from One’s Own Company Act came into force at the start of this calendar year. Under this act, if a substantial interest holder borrows in excess of EUR 700,000 from their own company, the excess part is taxed as a notional regular benefit in box 2. The maximum amount is subsequently increased by the amount of this notional regular benefit. The introduction of this act has led to undesirable outcomes in situations where a substantial interest holder has emigrated and has been imposed a protective assessment.

This proposal contains reparations for specific situations. The proposal envisages that deferral of payment granted to an emigrated substantial interest holder with a protective assessment, will not be partially terminated if an increase in debt has already previously led to cancellation of the deferral of payment. In addition, the proposal envisages that collection of the protective assessment after emigration will not take place to the extent of excessive borrowing from companies in which the taxpayer acquired a substantial interest after emigration and the benefits from those companies are excluded from the taxable substantial interest income of the tax debtor. Thus, an emigrated substantial interest holder is treated in a similar manner to a Dutch resident substantial interest holder. The proposal is to have these amendments have retroactive effect until 1 January 2023.

Scale-back of 30% facility

The 30% facility will be scaled back effective from 1 January 2024. Although the facility will remain applicable for a 60 month period in total, the percentage of the salary that can be designated as reimbursement for extraterritorial costs will only continue to be 30% during the first 20 months. This will be 20% in the following 20 months and only 10% for the last 20 months. A transitional arrangement applies for employees who are already using the 30% facility in the last pay period of 2023. We also refer to our alert on this topic.

Abolition of partial foreign tax liability

The partial foreign tax liability for expats will be abolished effective from 1 January 2025. As a result, employees using the aforementioned 30% facility can no longer opt to be considered non resident taxpayers for the purposes of box 2 and box 3 taxation. However, a transitional arrangement applies for expats who are already using the 30% facility in the last pay period of 2023. They can continue to opt for the partial foreign tax liability until the end of 2026 at the latest.

Increase of targeted exemption travel allowance

The maximum untaxed travel allowance for business mileage (commuting and business trips) will be increased from EUR 0.21 per km to EUR 0.23 per km effective from 1 January 2024. This proposed increase is more than the EUR 0.22 per km announced in the 2023 Tax Plan, but it aligns with the Coalition Agreement. The same increase, for that matter, is proposed for some flat rates included in the Income Tax Act 2001 that match the amount of the maximum untaxed travel allowance. These include the deduction of specific care costs for travel costs relating to visits to sick persons, the kilometre allowance for weekend expenses for the disabled, and the gift deduction if a volunteer waives travel expenses.

Repair of discretionary margin work-related expenses scheme

Based on the 2023 Tax Plan, the rate of the first bracket of the discretionary margin of the work-related expenses scheme was increased from 1.7% to 3% for the calendar year 2023 and will be reduced from 3% to 1.92% effective from 1 January 2024. The amendment to the work-related expenses scheme in the 2023 Tax Plan did not change the maximum amount of discretionary margin in the first bracket. The proposed amendment will as yet change the maximum amount for the calendar year 2023, with retroactive effect to 1 January 2023.

Expansion of exemption for public transport subscriptions and off-peak discount passes

By expanding the exemption for public transport subscriptions and benefit cards, the government proposes to make it easier for employers to provide their employees with public transport subscriptions. Contrary to the current practice, this expansion results in the difference between the reimbursement and the actual cost of business use, i.e. actual private use of the public transport card, will no longer be taxed. If the proposal is adopted, no tax will be due on the public transport pass provided if the employee also uses the pass (to whatever extent) for business trips.

Abolition of payment discount for income tax purposes

Effective from 1 January 2023, the payment discount in the Collection of State Taxes Act 1990 for provisional corporate income tax assessments was abolished. In the 2024 Tax Plan, the government proposes to also abolish the payment discount for provisional income tax assessments, effective from 1 January 2024.