Update 7 May
During the last weeks the Dutch government presented economic and tax measures aimed at mitigating the economic effects of the coronavirus (COVID-19). The Dutch government has chosen a targeted approach, mainly aimed at eliminating temporary liquidity issues to support businesses. Below we will briefly discuss some of these as well as several other tax measures and actions which can be considered to mitigate liquidity issues.
This includes the following measures:
- Deferral of taxes (last modified: May 6, 2020)
- Reduction of collection interest and tax interest (last modified: May 6, 2020)
- Reduction provisional assessment (last modified: May 6, 2020)
- Corona tax provision (last modified: May 6, 2020)
- Increase of tax-free allowance under the work-related cost scheme (last modified: May 6, 2020)
- Reduction of customary wage (gebruikelijk loon) (last modified: May 6, 2020)
- VAT on outsourcing healthcare staff (last modified: April 14, 2020)
- VAT on donation of medical supplies and medical equipment (last modified: April 14, 2020)
Deferral of taxes
Companies facing liquidity issues may apply for special deferral of payment of wage tax, VAT tax, income tax and corporate income tax. The possibility for deferring payment has now been extended to gambling tax, excise duty, the consumption tax for non-alcoholic drinks, insurance tax, landlord levy, energy taxes and other environmental taxes and comparable taxes in the Caribbean part of the Netherlands. For all aforementioned taxes, the deferral policy applies until at least June 19, 2020.
As soon as the request for deferral has been received (by regular mail or via the online form on the website of the Dutch tax authorities), collection of taxes will be put on hold. A 3-month deferral of payment is automatically granted. The deferral of payment does not only apply to existing tax debts, but also to debts that arise in the following 3 months. The obligation to file a tax return remains and deferral of payment can only be applied once a(n) (additional) assessment has been received from the Dutch tax authorities.
If deferral of payment for 3 months is too short, postponement can be requested for a longer period. For tax debts of less than € 20,000 deferral of payment will be granted by sending evidence that the turnover figures or orders/reservations have decreased significantly compared to previous months. For tax debts higher than € 20,000, the following conditions apply:
- An external expert such as an accountant or sector organization will have to state that it is likely that there are real liquidity issues at the moment of the request or shortly thereafter;
- An external expert will have to state that these liquidity issues are mainly caused by the corona crisis; and
- In addition, the request needs to include a liquidity forecast that is plausible according to the external expert.
In case of a deferral of payment for more than 3 months, such deferral will be withdrawn as soon as this is possible given the circumstances at that time (e.g. lockdown measures are mitigated or revoked). The tax authorities may also require interim repayments during the period of the extended deferral, if the cash position of the entrepreneur allows for that. If the extended deferral will be withdrawn, the tax authorities will offer an appropriate payment arrangement to the taxpayer.
Notification of inability to pay taxes
Notwithstanding the fact that the Dutch tax authorities will grant a deferral of payment of taxes and no default penalties will be imposed, the standard rules on the required notification of inability to pay taxes still apply. In case a company is no longer able to pay taxes or premiums, this must be reported immediately (but at the latest within two weeks after the taxes or premiums should have been paid) to the Dutch tax authorities. The submission of such notification limits the directors' liability for unpaid taxes and premiums. In the context of deferral of payment, the Dutch tax authorities announced on their website that a request for deferral of payments in principle also qualifies as a notification on inability to pay tax if (i) such a request is submitted by a director of company that is a legal entity, (ii) is subject to corporate income tax and (iii) is not able to pay wage tax and / or VAT. Such request will be reviewed by the Dutch tax authorities and they will inform the company separately regarding this request.
Imposing of penalties
Reduction for collection interest (invorderingsrente) and tax interest (belastingrente)
In general, if a tax assessment is not paid on time 4% collection interest (invorderingsrente) will be calculated on overdue tax for as long as the tax debtor is in default. The Dutch government proposed a significant relaxation by temporarily reducing the interest on overdue tax to 0.01% for all tax debts as from 23 March 2020.
Furthermore, the tax interest (belastingrente) will also be temporarily reduced to 0.01% for all taxes on which tax interest is calculated. Tax interest is charged at the moment a tax assessment is imposed. Currently, 8% tax interest is still charged on corporate income tax liabilities and 4% on other tax liabilities. The temporary reduction of tax interest will take effect as of June 1, 2020, except for income tax, where the reduction will be effective as of July 1, 2020.
Reduction of preliminary assessments
In case a preliminary assessment is imposed and during the financial year it is appears that the taxable profit will be less than the estimated taxable profit on the preliminary assessment, a request can be submitted to lower the payable amount on the preliminary assessment. Insofar as the (expected) lower taxable profit is the result of the corona virus, the requests to reduce the preliminary tax will be granted by the Dutch tax authorities.
Corona tax provision
Based on the current loss compensation rules for corporate income tax purposes, losses incurred in a certain year can be offset against profits from the preceding year (carry-back) and the six subsequent years (carry forward). Carry-back of a loss is in principle possible after the corporate income tax return for the loss year has been submitted and the final tax assessment for the previous profit year has been imposed. Consequently, compensation of a 2020 loss with a 2019 profit can take place at the earliest in 2021 (or even later if an extension for filing the return has been applied). Given the current circumstances, the government considers it desirable for businesses to have liquidity available earlier. Therefore, the government announced to eliminate this timing mismatch by providing companies the possibility to set off the expected loss for the year 2020 as a result of the corona crisis via a so-called corona tax provision against the profit for the year 2019. In this way, companies can take into account the expected 2020 loss immediately upon calculating the 2019 corporate income tax liability. The corona tax provision is not allowed to be more than the profit over 2019.
Increase of tax-free allowance under the work-related cost scheme
Since 1 January 2020, under the work-related cost scheme employers can grant non-taxable allowances for wage tax purposes of 1.7% of the total amount of wages up to a maximum of € 400,000 (and 1.2% on the excess). Under the work-related cost scheme, part of the taxable wages may be spent on non-taxable allowances and benefits in kind to employees. This is referred to as the so-called tax-free allowance.
The percentage for the calculation of the tax-free allowance for the total amount of wages up to a maximum of € 400,000 will be increased from 1.7% to 3% in 2020, giving an employer the possibility to grant his employees tax exempt allowances and benefits (in kind).
Fixed travel allowance and working from home
As a result of the corona crisis, many employees are working (almost) completely from home. Employers who pay a fixed travel allowance to their employees do not have to adjust the fixed travel allowance despite the fact that the employees are working (almost) completely from home. As long as the crisis measures apply, the travel pattern on which the compensation was previously based may be used.
Easing of certain legal administrative obligations payroll taxes
Employers have certain statutory administrative obligations for payroll taxes. The current circumstances might result in the fact that employers are unable to fulfil these obligations on time or in full. For example, the employer's obligation to determine the employee's identity on the basis of the original proof of identity applies. If an employer cannot identify an employee in time, this can lead to an application of the so-called anonymous rate. This is a fixed rate of 52%.
The consequence of not being able to fulfil an administrative obligation is considered not desirable in these circumstances and therefore the Dutch tax authorities will take a flexible position in these situations if an employer or employee repairs the shortcoming in the administrative obligation as soon as possible. For the example of the obligation to determine the identify of an employee, this means that the application of the anonymous rate can be dispensed if the employer still determines the identity of the employee as soon as the employee is reasonably able to do so.
Reduction of customary wage (Gebruikelijk loon)
Individuals that hold a substantial interest (generally interests of at least 5%) in a Dutch company and who also work for this company must take into account a customary wage. The amount of customary wage depends on the relevant facts and circumstances, such as the remuneration for similar employment relations of employees not holding a substantial interest.
Previously, the Dutch government announced that the payment of customary wages may be temporarily halted as a result of the coronavirus. Further, it was approved that the customary wage for 2020 will be determined retrospectively. In addition, it is now announced that the customary wage may be reduced relative to the decrease of turnover of the company. Further clarification of this measure will be published in due course.
Outsourcing healthcare staff temporarily exempt from VAT
As a result of the corona crisis, the in- and outsourcing of healthcare staff increased. Normally, the outsourcing of staff is subject to VAT. The government considers it at this moment not desirable that the VAT rules for the outsourcing of staff results in an additional financial or administrative burden and therefore allows that during the period March 16, 2020 to June 16, 2020 (3 months), the outsourcing of healthcare staff will be exempt from VAT.
In order to make use of this measure, the following conditions apply:
- The hiring party is a healthcare institution or similar institution that renders VAT exempt services;
- The outsourcing party states on the invoice that this approval is applied and records the details related to the application of this approval in its administration.
- The outsourcing party may only charge the gross salary costs to the hiring party, possibly increased by an administrative cost reimbursement of a maximum of 5%.
- No profit may be aimed for or realized on the outsourcing.
This measure does not affect the outsourcer's deduction of input VAT. Outsourcing parties who normally provide taxable services for VAT (and can deduct input VAT on the purchase of goods) can still deduct such input VAT.
VAT on donation of medical supplies and medical equipment
Entrepreneurs who donate medical devices to healthcare institutions and similar institutions without consideration do not have to charge and pay VAT on these deliveries. An invoice needs to be issued however on which should be stated that this approval is applied. Furthermore, the data relating to the application of the approval must be recorded in the administration.
Also, this measure will not affect the deduction of input VAT for the period from March 16, 2020 to June 16, 2020 (3 months).
Reduced VAT rate for online sports lessons from gyms and similar entrepreneurs
The standard lower VAT rate of 9% is generally applicable to sports lessons given in a sports school or gyms. Since these sports schools and gyms had to close down because of the corona crisis, sports lessons are currently being given via online platforms. Until the sport schools and gyms will be allowed to re-open, the VAT on these online sports lessons will be charged with the reduced VAT rate of 9%.
Relaxation of hour criterion
Individuals that are entrepreneurs subject to Dutch individual income tax and are spending at least 1225 hours per year on their business are entitled to certain types of entrepreneur allowances. To this end, the entrepreneur must have spent at least 1,225 hours on activities for the benefit of his business(es) during a calendar year. In order to prevent that entrepreneurs will no longer be entitled to these entrepreneur allowances as a result of the corona crisis, the tax authorities will assume that for the period 1 March 2020 to 31 May 2020 entrepreneurs have at least spent 24 hours a week for the benefit of their business(es). It is not relevant if these hours are actually spent.
Postponement of the Act on excessive borrowing from own company
The intended entry into force date of the announced bill on the Excessive borrowing from own company act will be postponed until January 1, 2023 (previously January 1, 2022). On the basis of this bill, in short, debts in excess of € 500,000 (excluding home acquisition debts) that a substantial shareholder (generally interests of at least 5%) owes to its own company will be taxable. Due to the corona crisis, it may be more difficult for a substantial shareholder to repay its debts to his company before this legislation will enter into force. In order to give substantial shareholders more time to repay their debts, the government wants to delay the entry into force of the bill until 1 January 2023.
Relaxation of mortgage obligations
Interest paid on mortgage loans taken out after 2013 is only deductible, if the total amount of the loan is repaid within 360 months under an annuity repayment schedule. Under current rules, late payments in 2020 should be made up within six months at the latest. The following two approvals will be included in a policy statement: firstly, the repayment arrears do not have to be paid before December 31, 2021, but can be (directly) spread over the remaining term (of a maximum of 360 months). Second, a borrower can choose to split the remaining loan. As a result, the maximum of six months of repayment arrears does not necessarily have to be spread over the remaining term, but can also be paid separately within, for example, five years.
Deferral of energy taxes and local levies
A separate arrangement has been introduced for energy taxes, so that the deferral of payment is not only beneficial for energy suppliers but also for consumers of electricity and natural gas facing liquidity issues. Energy suppliers can decide to grant businesses an extension on their monthly payments of energy tax and Sustainable Energy Surcharge (ODE) for the months April, May and June 2020. In October 2020 the energy tax and the ODE (increased by VAT) will be charged by means of an additional invoice.
Furthermore, in consultation with the Association of Netherlands Municipalities (Vereniging Nederlandse Gemeenten), the Dutch government will (temporarily) stop imposing (provisional) assessments of local levies on businesses and withdraw assessments that have already been imposed on businesses. This particularly concerns tourist tax.
Special rules for blocked accounts (G-rekening)
Companies that outsource, lend or second employees and make use of blocked accounts can request the Dutch tax authorities to unblock the balance on these accounts. In order to accommodate companies affected by the corona crisis, it is also possible to temporarily release amounts reserved for payroll tax or VAT instead of only the surplus amounts on these blocked accounts.
VAT refunds for bad debts
It is advised to make an assessment to what extent trade debtors or customers able to meet their payment obligations as a result of the coronavirus. Under certain conditions, the VAT remitted in that regard can be reclaimed.
Secondary tax liabilities for insourced personnel
Further, businesses making use of insourced personnel might be faced with secondary tax liabilities for payroll tax and social security contributions where the outsourcing party fails its tax liabilities. Also in view of the possibility that has been given to staffing agencies to release (part of) the amounts reserved on blocked accounts it advised for businesses insourcing personnel to assess the financial position of these agencies or (insofar) as possible at this stage take appropriate measures to mitigate the risks to be faced with such secondary tax liabilities.
Cancellation costs in relation to business trips and office events
In the last couple of weeks, many employers have decided to cancel scheduled business trips or office events in order to prevent the spread of the corona virus. From the perspective of the employer, the cancellation costs in this respect, will in many cases not be (fully) refundable. Insofar the related costs were (intended) 'benefits' to employees, the question could arise if such costs are taxed under the so-called work-related costs scheme. The scheme enables employers to spend part of their total taxable wage on allowances, benefits in kind and provisions for their employees without tax liability. In our view the costs in relation to the cancellation of business trips or office events are not eligible for the work-related costs scheme. After all, the employees do not receive an actual benefit. In certain other specific situations where employees will be compensated by their employer for personal losses this might be different at the costs might be taxed under the work-related costs scheme.
In addition, the question could arise if costs incurred in relation to the cancellation of scheduled business trips or office events are excluded from VAT deduction under the so-called BUA (Besluit Uitsluiting Aftrek van voorbelasting). The BUA is a mechanism for adjusting the deduction of VAT on costs attributable to goods and services destined to be used for business purposes, but which are also used for private purposes (consumption). In our opinion, the costs in relation to the cancellation of scheduled business trips or office events fall not within the scope of the BUA and therefore no VAT adjustment needs to be made, because the cancellation does not actually provide goods or services that are used for the personal purposes of the employees.
Sett-off preliminary losses
In case a (taxable) loss for the financial year 2020 is expected, regardless if the (taxable) loss result from the economic effects of the coronavirus, it is advised to submit the corporate income tax return immediately following to the end of the financial year and request for setting-off this (taxable) loss against the (taxable) profit of the financial year 2019. The taxable loss reported will then be taken into account for 80% as a result of which the tax payable over 2019 can be (partly) reduced or refunded.
Lower interest deduction capacity due to lower profit
The Netherlands has a general interest deduction limitation, based on which interest is not deductible to the extent the difference between interest paid and received exceeds 30% of the EBITDA of the company involved (or EUR 1 million if higher). If as a result of Covid-19 the EBITDA turns out to be lower, the threshold of 30% will also be lower and a larger part of the interest will not be deductible. Note that, non-deductible interest may still be deductible in a later year (if sufficient profit is made).
Further tax related developments will be monitored closely. Please do not hesitate to contact us in case there are any further questions on (one of) the above items. Of course, we would also be able to provide assistance on the submission or implementation of (one of) the above measures.