2021 Tax plan - Outline of wage and income tax measures

Article

Outline of wage and income tax measures

2021 Tax Plan - Budget Day (Prinsjesdag)

The following lists the measures proposed in the 2021 Tax Plan in respect of the wage and income tax.

18 November 2020

Outline of wage and income tax measures

Dutch version

Back to outline 2021 Tax Plan

Box 1 rate system

Since 1 January 2020, a two-bracket system with a base rate of 37.35% up to a taxable box 1 income of EUR 68,507 and a top rate of 49.50% applies. In 2021, this base rate will be reduced to 37.10% while the top rate will remain unchanged. There is a three-bracket system for persons entitled to an old-age pension, since they no longer owe state pension premiums. Up to a box 1 income of approximately EUR 35,000, the rate applicable to them will be 19.20% (2020: 19.45%).

 

Bracket limit 2020 2021
End first bracket (born after 1 January 1946)
€ 34.712 € 35.129
End first bracket (born before 1 January 1946)
€ 35.375 € 35.941
End second bracket
€ 68.507 € 68.507

 

Combined income/wage tax rates and national insurance contributions 2020 2021
Rate first bracket (under state pension age)
37,35% 37,10%
Rate first bracket (over state pension age) 
19,45% 19,20%
Rate second bracket 
37,35% 37,10%
Rate third bracket
49,50% 49,50%


In addition, the maximum relief rate for allowable deductions such as mortgage interest relief, entrepreneur’s allowance, SME profit exemption and personal allowance will be reduced to 43% in 2021 (2020: 46%).

Tax credits

The table below shows the changes in the tax credits in 2021 compared to 2020:

 

Tax credits Figure 2020 Figure 2021

Maximum general tax credit (under state pension age)

€2.711 € 2.837
Maximum general tax credit (over state pension age)
€1.413 € 1.469
Phase-out rate general tax credit(under state pension age)
5,672% 5,977%
Phase-out rate general tax credit(over state pension age)
2,956% 3,093%
Phase-out amount general tax credit 
€20.711 €21.043
Maximum employed person's tax credit (under state pension age)

€3.819 €4.205
Maximum employed person's tax credit (over state pension age) 
€1.989 €2.191
Phase-out amount employed person's tax credit 
€34.954 €35.652
Phase-out rate employed person’s tax credit (under state pension age)
6,00% 6,00%
Phase-out rate employed person’s tax credit (over state pension age)
3,125% 3,105%

 

Box 3 changes

As of 1 January 2021, the tax-free allowance in box 3 will be increased to EUR 50,000 per taxpayer (2020: EUR 30,846). For tax partners this will be EUR 100,000. On the other hand, the box 3 rate will be increased to 31% on 1 January 2021 (2020: 30%). At the same time, the lower limits for the classification into yield classes will be reset. Contrary to what was announced last year, the legislator therefore continues to assume fictions with regard to the composition of the box 3 assets. The notional yield in yield class I (savings) is 0.03% for 2021 (2020: 0.07%). For yield class II (investments) this has been set at 5.69% (2020: 5.28%).

 

Savings and investment base
Yield class I 
Yield class II 
Notional yield 
 € 0 – € 50.000 67% 33% 1,90%
€ 50.000 – 950.000
21% 79% 4,50%
> €950.000 0% 100% 5,69%

 

As a result of the above, approximately 900,000 taxpayers no longer owe box 3 tax. Taxpayers with assets between EUR 50,000 and EUR 220,000 (tax partners: EUR 440,000) will also benefit. Conversely, the tax burden will be slightly higher for taxpayers with a higher amount of box 3 assets.

At the same time, measures are being taken to prevent that the increase in the tax-free allowance leads to more allowances being claimed or affects the personal contribution for long-term care. For this reason, in future the assets test in these schemes will be based on the yield base in Box 3 rather than the savings and investments base, i.e., before deduction of the tax-exempt allowance.

To ensure that the implementing authorities have the correct information, taxpayers with a yield base in box 3 that exceeds EUR 31,340 must continue to submit tax returns, even if they are not liable for income tax. The invitation policy for filing tax returns and several administrative provisions in the General State Tax Act will be amended accordingly. In addition, going forward the Tax Inspector wille each year determine the yield base in box 3 by issuing an objectionable decision and indicate the respective amount in the income tax assessment.

Adjustment to tax allowance for self-employed persons

The Tax Plan 2020 already provided for a gradual reduction of the tax allowance for self-employed persons. This reduction will be accelerated by EUR 110 a year, bringing the allowance to EUR 3,240 in 2036. For 2021, this tax allowance is EUR 6,670. This additional reduction is offset by an increase in the employed person’s tax credit for all workers in 2021. With these measures, the government aims to reduce the difference in tax burden between employees and self-employed persons.

Simplified calculation method for small projects investment credit

Following recent Supreme Court case law, the Government proposes to clarify and change the method of calculating the small-scale investment allowance (KIA). This proposal is relevant for taxpayers who are part of a collaborative venture and for taxpayers who have several companies. In the first situation, taxpayers are always entitled to a proportionate part of the maximum amount of the KIA for their share in the total investments in the collaborative venture. Unlike the Supreme Court, the Government sees no room for an exception to this proportionality approach if the total of a taxpayer's investments in their own company in itself entitles to the fixed maximum amount of the KIA. The adjustment to the calculation method will thus apply in all situations where a taxpayer is part of a collaborative venture. If a taxpayer has several businesses, the amount of the small projects investment credit per company will be determined on the basis of the amounts the taxpayer has invested in each company.

Lower addition for electric cars with solar panels

Electric cars

Currently, a discount on the additional tax liability is granted for electric cars. This discount is based on a percentage of the list price of the car. However, the list price that may be taken into account for the calculation of the discount is capped. In 2020, this cap was EUR 45,000 and it will be reduced to EUR 40,000 for 2021. The applicable discount rate will be reduced from 14% (2020) to 10% (2021).


Solar cell cars

From 2021 onwards, no cap will be used to calculate the discount for solar cell cars. For these cars, the discount rate will therefore be calculated over the full list price. A similar discount already applies to zero-emission cars with hydrogen-fuelled engines.

Tax exemption for TOGS compensation and Subsidy for Fixed Costs

Various support measures have been taken in an effort to deal with the effects of the corona crisis. The Compensation for Entrepreneurs in Affected Sectors COVID-19 (TOGS) is available to companies to compensate them for the losses sustained as a result of the corona measures. On top of that, companies can receive a subsidy for their fixed costs for a period of four months under the Subsidy for Fixed Costs scheme. Since companies are liable for income and corporate income tax on their aggregate profits, these government subsidies would, in principle, also be taxed. To avoid this, it is laid down by law that the state aid received is exempt from both taxes. However, the exemption does not apply to the Extension of Temporary Emergency Bridging Measure for Sustained Employment (NOW scheme).

Job-related Investment Credit (BIK)

The BIK is intended to stimulate new investments in previously unused business assets and applies to investment commitments entered into on or after 1 October 2020. Manufacturing costs and expenditures for improving existing business assets do not qualify for the scheme. An additional condition is that the investments involved must be fully paid for during the period from 1 January 2021 through 31 December 2022 and put into use within six months of that full payment at the latest. The BIK will be terminated on 1 January 2023, after which the available budget of EUR 2 billion a year will be used in another way to reduce employers' contributions.

The BIK’s design is that of a wage tax remittance reduction. The government thus wants to ensure that the investment credit only benefits companies whose wage bill is sufficient and, hence, offer employment. An additional advantage is that the scheme can also benefit companies that do not generate profits. A graduated scale has been opted for, to ensure that most of the available budget (approximately 60%) will benefit SMEs. According to this graduated scale a 3,9% discount applies up to an investment level of EUR 5,000,000 per calendar year and a 1,8% discount for the excess. An investment counts in the year in which the last payment was made.


Related article - House of Representatives has adopted the Tax Plan 2021

Discretionary margin under the work-related expenses scheme

The work-related expenses scheme (WKR) determines the scope within which employers can provide allowances and benefits in kind to their employees without being taxed, the so-called discretionary margin. Since 1 January 2020, the discretionary margin for each employer is 1.7% of their wage bill for tax purposes up to and including EUR 400,000 plus 1.2% of the remainder of the wage bill. As part of the corona measures, it was previously approved that in 2020 the discretionary margin would be increased to 3% over the first EUR 400,000. This is now laid down by law. The extension should make it easier for employers to give their employees a bonus during the difficult corona period. However, as of 1 January 2021 the discretionary margin for the wage bill in excess of EUR 400,000 will be reduced to 1.18%, down from 1.2%. This is not a temporary measure, but is intended to finance the extension of the special exemption for training expenses.

Extension of special exemption for training expenses

Under the current law, employers can - under certain conditions - reimburse employees for attending a training course or study without being liable for payroll taxes. Due to the current crisis, the government now wishes to extend this exemption. As a result of this extension the exemption will also apply to training costs incurred for former employees. This will have an effect, for example, in the case of an allowance or provision for a training course or study for employees who have left or will leave the company. Another example is the reimbursement of training costs incurred under a social plan. The objective of the measure is to ensure that employers and employees also focus on training when an employment contract is terminated.

Bonus for health care professionals

This scheme results from the Government's promise to pay a net bonus of EUR 1,000 to healthcare professionals who have directly or indirectly suffered the consequences of the coronavirus outbreak in their work. Employers may pay out this bonus to their employees and designate it as a final levy component under the work-related expenses scheme. The national government reimburses both the bonus and any final levy due if the discretionary margin has been exceeded. For non employees of healthcare institutions, including the self-employed and outside cleaning staff hired, a similar tax treatment has been opted for. In this context, it is proposed that the bonuses of non-employees should be paid by their principals (e.g. the hospital). The principals also designate the bonus as a final levy component for them. Current legislation already provides for such a final levy scheme for non-employees, but this scheme only applies to benefits in kind. On this point, the law will be amended so that this bonus can also be designated under the WKR. The principal will receive the bonus and the final levy due from the national government.

Temporary Bridging Scheme for Flexible Workers

Flexible workers who have suffered a substantial loss of income as a result of the corona crisis qualify for an allowance. A flexible worker who was not entitled to a social security benefit and did not have sufficient means to make ends meet could receive a gross montly benefit of EUR 550 for the months of March, April and May 2020. This scheme is called the Temporary Bridging Scheme for Flexible Workers. The tax treatment will now be laid down by law. To facilitate implementation, the allowance will be taxed as income from previous employment. The Employee Insurance Agency UWV will withhold the wage tax and the wage tax credit will apply by default.

Transitional law on life-course savings scheme amended

The life-course savings scheme for tax purposes in the 1964 Wages and Salaries Tax Act was cancelled on 1 January 2012. In this context, transitional law applies which also provides that all life-course savings entitlements that have not yet been taken into account as wages must be taxed at their fair market value by 31 December 2021 at the latest. Only the - former - employer of an employee with a life-course savings entitlement can be designated as the withholding agent. However, this application of the law meets with a number of practical objections, including the lack of correct information, the possibility that the employer no longer exists, and the lack of sufficient powers to recover the wage tax and national insurance contributions due. On top of that, the deemed moment when paid may cause box 3 issues to the employee’s disadvantage. To address these complications, the Government proposes to adjust the transitional law on two points. First of all, the entity implementing the life-course savings scheme will be designated as the withholding agent. Secondly, the Government wants to bring forward the deemed moment when paid to 1 November 2021. This will give the withholding agent two months to recover the wage tax and national insurance contributions due from the employee. Also, the (timely) payment of this tax debt will reduce the employee’s box 3 assets. The possibility to have the value of the entitlement paid will then remain open until 31 October 2021.

Clarification R&D tax rebate for public knowledge institutions

The Salaries Tax and National Insurance Contributions (Reduced Remittances) Act (WVA) provides for a tax rebate for research and development work carried out by private companies. Public knowledge institutions are excluded from this rebate. A public knowledge institution is, among other things, a non-profit institution that carries out research activities with the aim of expanding general scientific or technical knowledge. Because some public knowledge institutions do qualify as corporate income tax payers, the criterion “not-for-profit” has led to a lack of clarity. The Government emphasises that the assessment of whether there is a corporate income tax liability is separate from the assessment of whether there is a profit motive, and proposes to remove the ambiguity by removing the words “without a profit motive” from the definition of the term “public knowledge institution” in the WVA.

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