What does the Dutch Corporate Income Tax Act 2007 (Working on Profit) mean for you?
The drastically reformed Dutch Corporate Income Tax Act took effect on 1 January 2007. In the enclosed overview, you will find the main aspects of this Act.
Reduction in corporate income tax rate
One of the most important changes is the reduction in the rate at which corporate profits are taxed, from 29.6% to 25.5%. The rate for the first bracket for profits up to € 25,000 has been reduced from 25.5% to 20%. In addition, a second bracket of 23.5% has been introduced for profits from € 25,000 up to € 60,000. The tax rate reduction affects the valuation of deferred tax balances in the annual accounts.
Reduction in dividend withholding tax rate
The dividend withholding tax rate has been reduced from 25% to 15%. This reduces the administrative burden for dividend-distributing companies and their shareholders. They no longer need to apply for a reduction in the 25% rate to the 15% rate valid under treaties.
Loss relief restrictions
Carry-back of prior-year tax losses has been reduced from three years to one year (this does not apply to entrepreneurs who are subject to personal rather than corporate income tax), while carry-forward has been limited to nine years. This reform can lead to set off losses. To prevent this, profit for tax purposes should be created if at all possible or, alternatively, losses could be rejuvenated. This means that any profit for tax purposes realised now will result in higher tax losses in the future.
Property depreciation restrictions
Depreciation for tax purposes of buildings rented out to unrelated parties is no longer allowed if the book value of these buildings for tax purposes (including the value of the land) drops below the official property value, the so-called 'WOZ value'. This situation will occur often, as a result of which depreciation charges will not reduce profit (for tax purposes). Mitigating circumstances have been defined for buildings in use by the company itself. Buildings can then be depreciated to half of their official property value. This measure will largely finance the whole set of measures included in the Corporate Income Tax Act 2007.
Other important changes
New legislation for a group interest regime has been introduced whereby the balance of any interest paid and received by a group is taxable at a rate of only 5%. The moment of introduction of this legislation depends on approval of the European Committee. A patent box with its own rate of 10% has already been introduced. This box needed no approval from the European Committee.
Other changes relate to interest relief restrictions and the participation exemption, which has been relaxed on the one hand for trading subsidiaries and tightened for passive (financing or investment) subsidiaries on the other. In addition, regulations have been introduced for goodwill amortisation and the depreciation and amortisation of other assets, as well as for the valuation of work in progress. No rules have been introduced for tax group cross-border loss relief.
More information on Dutch Corporate Income Tax Act reform
PwC would be pleased to assist you in choosing the right location for your business and in reviewing tax-efficient corporate structures. Our excellent relations with Dutch Ministries and universities help us to continually increase and update our knowledge. We are more than happy to share this knowledge with you and to inform you of any planned tax reforms. You will find more information about the most important aspects of the Corporate Income Tax 2007 Act and our opinion on them in the overview that we have drawn up for your convenience.
