Box 2: Higher taxes expected for income from a substantial interest
If you own a substantial percentage of shares in a company, you should be aware of proposals to change the rules on how your income from or over these shares are taxed in the Netherlands.
People with 5% of the shares in a company – owned directly or indirectly – are taxed separately for this under a tax section known as Box 2. Currently, the tax rate on income of a substantial interest is 26.90%, but there has been pressure on the government to increase business tax rates.
An initiative bill has been proposed June. It wants to create two tax brackets for box 2, and also raise the higher tax rate. If the proposal passes through the lower and upper houses and becomes law, it will mean that dividends above €60,000 will be taxed at a higher rate of 40.59%. Income below this will gain slightly, with a reduced tax rate of 26%.
When reviewing the bill Blue Umbrella thinks that the bill in its current form will not pass the parliament. Due to the high percentage owners with a substantial interest will possibly be confronted with a higher tax bill than someone earning income through Box 1 (income from employment). Due to this disproportionate ratio a lower rate, but still an increase of the current rate in Box 2 is expected.
Box 3 compensation
The prospect was first discussed in February, when junior finance minister Marnix van Rij announced that the government was revising tax on assets, following a court case (known as the Christmas-judgement) that said the current situation taxing ‘estimated’ returns was in contravention of European law. Changes to Box 2 are seen as a way of the tax man making back some of the revenue lost from changes to Box 3, the tax on assets.
‘The Dutch opposition has pushed to increase taxes because wealth isn’t evenly divided, in their view,’ said a Blue Umbrella tax expert. ‘The first thing they want to do is to introduce a second bracket – if you have an income in Box 2 of more than €60,000 then it will be taxed higher than the first €60,000, similar to how things work in box 1, tax on income.
‘The second thing is that the opposition has said is that they would like to raise the second bracket much higher than the 26% average, to be 40% at least. Again this is all in discussion.’
The tax change is unlikely to affect you unless you have a substantial interest in a limited company – because these are the ones making such large dividend pay outs. "Every person owning a substantial interest can be affected by the new regulation, and it would be wise to already plan your salary and dividend payments for the future" added the expert.
"Thinking about planning to increase your directors salary in the future a bit more, with the potential increase of the tax rate in box 2 can be wise, or thinking about lending yourself money from your own company, to postpone the potential tax burden in the future and alongside of this loan distribute your profits over multiple years instead of one payment. These are all minor things to already think about when looking at the proposed initiative bill."
For advice on how the changes might affect you, contact Blue Umbrella.