2022 Tax plan - Outline of wage and income tax measures

Article

Outline of wage and income tax measures

2022 Tax Plan - Budget Day (Prinsjesdag)

The following lists the measures proposed in the 2022 Tax Plan in respect of the wage and income tax.

18 October 2021

Outline of wage and income tax measures

Dutch version

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Rate structure

In wage and income tax (box 1), a two-tier system has effectively been in place since 2020, with a basic rate of just over 37% and a top rate of 49.50%. The basic rate will be reduced to 37.07% in 2022 (2021: 37.10%). The top rate remains 49.50%, but will start from a box 1 income of EUR 69,398 (2021: EUR 68,507) in 2022. The tables below provide an overview of the rate structure.
 

Bracket limits 2021 2022
End first bracket (born after 1 January 1946)
€35.129 €35.472
End first bracket (born before 1 January 1946)
€35.941 €36.409
End second bracket
€68.507 €69.398

 

Combined income/wage tax rates and national insurance contributions 2021 2022
Rate first bracket (under state pension age)
37,10% 37.07%
Rate first bracket (over state pension age)
19,20% 19.17%
Rate second bracket (under state pension age)
37,10% 37.07%
Rate third bracket
49,50% 49.50%



The maximum rate in box 1 for allowable deductions such as mortgage interest relief, entrepreneur’s allowance, SME profit exemption and personal allowance will be reduced to 40% (2021: 43%) in 2022. The self-employed tax deduction will be EUR 6,310 in 2022 (2021: EUR 6,670).

The rates in income tax box 2 (income from substantial interest) and income tax box 3 (income from savings and investments) will remain unchanged at 26.9% (box 2) and 31% (box 3), respectively in 2022. The tax-free allowance in box 3 will increase to EUR 50,650 (2021: EUR 50,000).

The tax-free allowance in box 3 will increase to EUR 50,650 (2021: EUR 50,000). The fictitious yield in yield class I is -0.01% in 2022 (2021: 0.03%) and for yield class II this is 5.53% (2021: 5.69%). This leads to the following calculation:
 

Savings and investments base Yield class I Yield class II Notional Yield
€0 – €50,650 67% 33% 1.82%
€50,650 – €962,350 21% 79% 4.37%
>€962,350 0% 100% 5.53%

Tax credits

Now that the purchasing power is rising again and expectations are positive, the legislator wants to ensure that the purchasing power development is distributed more evenly. To reduce the difference between one- and two-income earners, the phase-out of the employed person's tax credit will be lower when the income increases. The phase-out percentage will be reduced to 5.86%, down from 6%. Through a memorandum of amendment, the general tax credit has also been increased by an additional EUR 14, on top of the regular indexation, thus raising the cap to EUR 2,888 (2021: EUR 2,837).

The changes in the parameters of the general tax credit and the employed person's tax credit compared to the year 2021 are shown in the table below:
 

Tax credits Figure 2021 Figure 2022

Maximum general tax credit (under state pension age)

€2.837 €2.888
Maximum general tax credit (over state pension age)
€1.469 €1.495
Phase-out rate general tax credit(under state pension age)
5,977% 5,977%
Phase-out rate general tax credit(over state pension age)
3,093% 3,091%
Phase-out amount general tax credit 
€21.043 €21.317
Maximum employed person's tax credit (under state pension age)

€4.205 €4.260
Maximum employed person's tax credit (over state pension age) 
€2.178 €2.204
Phase-out amount employed person's tax credit 
€35.652 €36.649
Phase-out rate employed person’s tax credit (under state pension age)
6,00% 5,86%
Phase-out rate employed person’s tax credit (over state pension age)
3,105% 3,03%



A person who is neither a resident of the Netherlands nor a qualifying foreign taxpayer for income tax purposes is normally not considered to be a partner. As a result, taxpayers with a partner residing abroad may be entitled to the income-related combination tax credit, while they would not have been entitled to this tax credit had their partner lived in the Netherlands. The government wishes to combat this unequal treatment by not applying the exception to the tax partner concept to the income-related combination tax credit. Note that the maximum amount of the income related combination tax credit will be down to EUR 2,534 in 2022 (2021: EUR 2,815).

Grants for fixed costs untaxed

Entrepreneurs affected by the corona crisis have been able to claim certain grants under the Fixed Costs Grant Scheme (TVL). It is proposed that these grants should not be subject to income tax or corporate income tax, as this would partially cancel out the effect of the grants. This had already been arranged in a policy decision, but will now be enshrined in the law with retroactive effect to 1 January 2021.

Higher addition to taxable income for private use of zero-emission passenger cars

According to government estimates, many more emission-free passenger cars will be sold in the coming years. As a result, the budgetary costs of reducing the addition for private use of emission free passenger cars will be higher than expected. In order not to impede more environmentally friendly driving while keeping the costs within bounds, it is proposed to lower the list price over which the maximum discount - referred to as the cap - on the addition for emission-free passenger cars applies. By so doing, the government hopes to create more demand for cheaper emission-free cars. The cap for the addition will be down from EUR 40,000 to EUR 35,000 as of 2022 and further to EUR 30,000 as of 2023. In the climate agreement, it was previously agreed that the discount on the addition to taxable income will be reduced to 6% as of 1 January 2022.

Increase in environmental investment tax credit

The environmental investment tax credit is an additional deduction possibility in income tax and corporate income tax to support green investments. As of 1 January 2022, the support percentages of the environmental investment tax credit (MIA) will be increased. The reason for increasing the percentages is that the additional costs of environmentally friendly investments compared to common, less sustainable alternatives, have increased. The new percentages are 45% for category I (2021: 36%), 36% for category II (2021: 27%) and 27% for category III (2021: 13.5%). Green investments are categorised depending on their degree of environmental friendliness.

Changes to the homeownership scheme in situations of partnership and death

In order to prevent unintentional interest deduction restrictions, the homeownership scheme will become more balanced in partnership situations and in the event of death. It has been proposed to restrict transfer of the home equity reserve, if any, to the other partner in the event of partnerships subject to a general community of property regime. This will reflect the civil law and beneficial entitlement. On top of that, the maximum amount of the home acquisition debt and whether sufficient personal resources have been deployed will be assessed on a joint basis in the event of a joint purchase and financing of an owner-occupied home. This will be done taking into account the available home equity reserve and repayment balance. The transitional regime can also be used more flexibly in partnership situations.

In situations where estates are joined under matrimonial property law, after the amendment of the law the repayment balance will remain with the partner with whom it arose. This is because this repayment balance is not related to the division of property. Finally, it has been determined that upon the death of one of the partners, the home equity reserve and the repayment balance will no longer pass to the remaining partner. The latter amendment reverts to the principle that a home equity reserve is personal.

Annual review of box 3 rates of return

On 1 January 2017, the box 3 system was revised. Part of the revision is an annual review of the rates of return in box 3. The calculation methods underlying this annual review are not always clear to taxpayers. To address this and to guarantee transparency regarding the rates of return, the legislative text will set out the precise calculation methods for the box 3 parameters (in formula form) going forward.

In addition, the government wishes to align the law to the shift in base year of the Statistics Netherlands (CBS) price index for Existing Own Homes. After 1 January 2017, and thus after the revision of the box 3 system, CBS switched to a new base year. It is proposed to follow this switch for the application of box 3 with retroactive effect from 2020. Finally, it is proposed that, in the event of future adjustments to the base year, it will be possible to regulate the transition to a new base year by ministerial regulation.

Remedial legislation relating to box 3

The government observed that remedial legislation has become necessary following the entry into force of the box 3 Adjustment Act (Wet aanpassing box 3) on 1 January 2021. On the one hand, this concerns a procedural amendment to the Income Tax Act 2001 which relates to the imposition of an income tax assessment for box 3 in situations where exempt green investments are held. Exempt green investments held by a partner are only relevant for the application of box 3 if it concerns a so-called full-year partner or partners who have chosen to be considered a full-year partner. Based on the current legal text, however, an income tax assessment is also imposed with regard to exempt green investments held by a partial year partner. This means that the scope for imposing an assessment with regard to green investments is too broad. The government intends to remedy this with retroactive effect from 1 January 2021.

On the other hand, this concerns the adjustment of the provision in the General Act on Income Related Schemes (Algemene wet inkomensafhankelijke regelingen, Awir) for revision of allowances due to the fact that tax information becomes available or changes after allowances have been granted. If the box 3 capital is adjusted to an amount below or above the EUR 31,450 capital limit for housing benefit because of the subsequent availability of or changes to tax information, this will have consequences for the right to housing benefit. The government intends to amend the Awir in such a way that, as of 1 January 2022, the right to housing benefit can also be revised in these cases.

Amended tax treatment of stock option rights

Introduction

Companies that want to bind employees for a longer period of time and let them share in the business success often issue stock options to employees. This form of remuneration is particularly popular with start-ups, which often have little money available at the beginning. However, the Dutch tax regulations are not optimal, especially for start-ups. Responding to signals from the business community, the legislator will now amend the tax treatment of stock options by postponing taxation on option income until the moment when the shares can be traded.


Current scheme

Options are subject to payroll tax at the moment an employee exercises them. Then, the shares obtained upon exercise are no longer subject to payroll tax and are usually taxed in box 3 (income from savings and investments).

The current scheme is unattractive for start-ups in particular, because payroll tax can be levied at a time when the employee cannot yet sell the shares, for example because the start-up is not yet listed on the stock exchange, or because employees are bound by sales restrictions. When exercising their option, an employee owes tax on a benefit that cannot (yet) be cashed (‘dry tax charge’). The employee must pay the tax from their own resources. This makes option schemes unattractive for start-ups in the Netherlands.


Proposed scheme

To address these concerns, it has been proposed to shift the taxation date to the moment the employee can trade the shares. If the shares are immediately marketable at the moment the options are exercised, the taxation date will be the same as under current legislation and nothing will change. If the shares are not marketable at the moment of exercise, employees can choose to be taxed immediately rather than at the later moment when the shares become marketable.

Marketability means the moment at which any legal or contractual restrictions on alienation are lifted and the employee concerned can dispose of the shares obtained upon exercise. Whether or not the employee chooses to actually dispose of the shares is irrelevant. It should be noted that the dividends paid on the shares up to the time at which the shares can be traded are taxed as salary at the level of the employee in the situation that the employee is taxed at the time at which the shares become marketable.

In order to avoid an overly long tax deferral, option benefits in situations where employees cannot yet sell their shares will be taxed no later than five years after the acquisition of the shares (for listed companies), or five years after the IPO (for initially non-listed companies). This five-year period does not apply to legal sales restrictions.


Broad scope

With the proposal the legislator meets the problems of start-ups, which initially do not have a market for their shares. In addition, this regulation can also apply to companies whose shares are marketable, for example on the stock exchange. If the employer contractually obliges the employee to keep the shares for a certain period of time after exercising the option, taxation is also postponed until the time when the sale restriction expires. Even in this case, the employee can still opt for taxation upon exercise of the option. With the introduction of the proposal, the legislator abolishes the facility for companies with an R&D statement.

Targeted exemption for homeworking expenses

In the light of the new norm of hybrid working (partly at home, partly at the office), the government wants to offer the possibility to employers to provide a home-working allowance. By introducing a new targeted exemption, it will soon be possible to grant home working allowances free of payroll taxes. The exemption applies to a fixed amount of up to EUR 2 per day worked from home. This amount can be used to reimburse, for example, the expenses incurred for extra water and electricity consumption, heating, coffee, tea and toilet paper. Costs incurred for the furnishing of the home office do not fall under the exemption, as targeted exemptions already exist for this type of costs.

The home-working allowance cannot be applied at the same time as the commuting allowance. If an employee works both at home and at the permanent workplace on a given day, the employer can only apply one of the two allowances for that day. The employer and employee can agree on how many days they will work at the office and at home and agree on a combination allowance based on this division. An incidental change in the distribution of days does not lead to an adjustment of the allowance. This is only necessary in case of a structural change of the agreed work pattern.

Temporary increase of the discretionary margin in the work-related expenses scheme

The work-related expenses scheme defines the scope within which employers can give their employees allowances and benefits in kind free of tax, the so-called discretionary margin. For the calendar year 2021, the discretionary margin is 3% up to an amount of EUR 400,000 of the wage bill for tax purposes, and 1.18% above that amount. The percentage in the first bracket used to be 1.7%, but has been increased to 3% in 2020 and 2021 due to the corona pandemic. For 2021, this had already been approved in a decree, but had not yet been enshrined in the law. This will now be done.

Extension of customary wage scheme for innovative start-ups

The temporary measure allowing director-major shareholders of innovative start-ups to set their customary wage at the statutory minimum wage is extended by one year to 1 January 2023. The term of the provision has been extended because the evaluation of the scheme has not yet been completed. The scheme aims to stimulate innovative start-ups by improving their liquidity position. If the evaluation is positive, the measure will enter into force permanently. Otherwise, the scheme will expire on 1 January 2023.

Simplification and clarification R&D tax rebate system

The Salaries Tax and National Insurance Contributions (Reduced Remittances) Act (Wet vermindering afdracht loonbelasting en premie voor de volksverzekeringen, WVA) provides for a tax rebate for research and development work. As of 1 January 2022, companies can always submit a new application for a tax rebate starting in the next calendar month, even if an application for that calendar month has been submitted previously. The maximum number of applications will remain limited to four per year.

Companies must report the costs incurred for research and development work at the end of the year. When stating these costs, it is no longer necessary to specify to which application these costs relate. Furthermore, it has been clarified that only those costs that were already anticipated and included in the application may be included in this declaration.

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