This is a partner blog written by NovioTax
As a Kadans Ecosystem partner, we wish to share our insight on the following tax topics, which could be relevant for fellow community members.
- 30% tax facility for expats;
- Innovation box regime for R&D activities;
- Tax credit (instead of exemption) for directors & board members (w.e.f. 1 January 2023);
- Review your preliminary CIT assessment in time to avoid interest charges.
Foreign employees and the 30% tax facility
If you are recruiting employees from abroad or thinking of doing so, you may want to acquaint yourself with the ins and outs of the Dutch 30% tax facility for expats. Under this scheme, highly skilled migrants recruited from abroad do not need to pay tax on up to 30% of their salaries, if the conditions below are met:
- the employee must be hired or transferred to work in the Netherlands from abroad;
- the employer must be a Dutch company, registered in the Netherlands as a withholding agent for payroll taxes;
- the employee must have been living at least 150 kilometers from the Dutch border for at least 16 months out of the 24 months before the first working day in the Netherlands;
- the annual taxable salary of the employee must exceed EUR 41,954 (in 2023).
The tax benefit of applying the facility to a gross annual salary of EUR 70,000 works out to a maximum of approximately EUR 5,053. Moreover, the qualifying employee can opt to be a “resident” only with regard to Box 1 (earned income and income from owner-occupied dwellings). This means the employee will be exempt from income tax with regard to Box 2 (substantial shareholdings) and Box 3 (income from savings and investments) for as long as the 30% facility applies.
Only 9% corporate income tax on innovative activities
The ‘Innovatiebox’ is a tax regime meant to encourage innovative research by entrepreneurs. If all requirements are met, a reduced effective corporate income tax rate of approximately 9% could apply on profits resulting from self-generated intangible assets derived from activities for which a research & development declaration has been granted. This may result in significant tax savings for companies that engage in innovative activities.
For instance, a company makes a profit of EUR 100,000 by using an intangible asset that qualifies for the innovation box. Only 9/25.8 of this amount will be recognized as taxable profit, resulting in a corporate income tax amount of EUR 9,000 instead of EUR 25,800. Therefore, the benefit of EUR 100,000 allocable profit to the innovation box regime is EUR 16,800. Effectively, the profit allocable to the innovatiebox is taxed at 9%.
Tax credit instead of exemption for foreign directors & board members
With effect from 1 January 2023, the Double Taxation Avoidance Decree for the application of tax treaties has been amended. Previously, the Netherlands approved the application of the exemption method for relieving double taxation on the income of directors and board members of foreign companies residing in the Netherlands (even if the applicable tax treaty prescribed the credit method). From 1 January 2023, this approval has been withdrawn, meaning that such income will no longer be exempt for Dutch income tax purposes. Instead, a tax credit will be available for relieving the double taxation (if any).
Under the exemption method, the actual tax levied abroad was not relevant. However, since a credit will be granted in the Dutch tax return for the foreign tax levied and the income will no longer be entirely exempt, the new method of relieving the double taxation may result in a higher tax burden (than before) in some cases. In case the Dutch tax rate is higher than the tax rate in the source country, a disadvantage occurs because the Netherlands will ‘top up’ the levy to the Dutch level.
Note that the amendment only affects situations where the applicable tax treaty prescribes a tax credit method for relieving double taxation and situations where no tax treaty applies. Dutch tax treaties with countries such as Austria, Greece, Hungary, Luxembourg and Norway are not affected by the amendment as the exemption method is prescribed for relieving double taxation on income of directors and board members in these treaties itself.
Reviewing your preliminary (C)IT assessment in time to avoid interest charges
In the beginning of 2023 (if the financial year corresponds to the calendar year, otherwise within four months after the end of the financial year), it is advisable to check whether the taxable amount in your preliminary assessment for 2022 differs from the actual taxable amount for 2022.
When the actual taxable amount is higher than the taxable amount stated in the preliminary assessment, it is recommended that you make a timely request to the tax authorities for an additional preliminary assessment. If you fail to do so, you risk having to pay an additional interest of 8% on the difference. If you submit the request before 1 May 2023, you will not be liable for any interest in terms of the preliminary return for 2022, provided the assessment is amended in accordance with your request.
These are our takeaways for a well-considered launch of 2023. In closing, we would like to add that nothing is more expensive than a missed opportunity. Please feel free to contact us to discuss one of the above topics or any other tax-related topic.