Tax Plan 2012: Update of changes to payroll tax, remittance reductions, and social security 

On Budget Day, September 20, 2011, the following five bills were presented to the Lower House: The Tax Plan 2012, the Charitable Contributions Act, the Act on the Implementation of Tax Incentives for Fuel Efficient Cars, the Act on Applying Penalty Rules to Allowances, and the Other Tax Measures Act 2012. A number of memoranda of amendment and explanatory memoranda have now been published. Below we provide an update of the most important changes to payroll taxes, remittance reductions, and tax credits. The bills must still be debated in Parliament, which could result in amendments being made. We will start by discussing the relevant amendments contained in the Tax Plan 2012, and subsequently discuss the remaining bills. The proposals are intended to take effect as of January 1, 2012, unless another date (italicized) is expressly stated.

New tax rates 2012, including rates for social security contributions

Contribution threshold income-related contributions to health insurance under Health Insurance Act increased

The Cabinet has increased the maximum income threshold for income-related contributions from EUR 33,427 in 2011 to EUR 50,065 in 2012. The percentage for the income-related contributions has been lowered from 7.75% in 2011 to 7.10% in 2012.

Vitality package

·         Contributions to a vitality savings scheme will be tax deductible in Box 1. No tax will be levied until the balance is withdrawn. The tax levied will be withheld by the bank or insurer at a flat rate of 42%. To clarify: when calculating the personal income tax due the taxpayer will, subject to circumstances and dependent on the applicable marginal tax rate, either have to pay additional personal income tax or be entitled to a tax refund.

·         The transitional rules for the special leave plan have been amended as follows:

o    The bill initially proposed that, as of 2012, the special leave plan would continue to be made available to participants whose special leave account had a positive balance on December 31, 2011. As of January 1, 2013, the special leave plan would only be available to participants who had reached the age of 58 before January 1, 2013. This age limit has been abandoned.

o    The amended transitional rules are aimed at rewarding past efforts at saving. Participants with a balance of at least EUR 3,000 (including the return on investment) on December 31, 2011, can therefore continue to participate in the special leave plan under the current conditions.

o    However, as of 2012, no special leave tax credit will be accumulated. The rights accumulated up until then can be redeemed by withdrawing the savings balance or by converting the special leave balance to a vitality savings scheme. The accumulated special leave tax credit can be redeemed in the year in which the conversion took place by way of a provisional refund of personal income tax or by filing a personal income tax return for the year in question.

o    As of January 1, 2012, participants with a special leave balance of less than EUR 3,000 on December 31, 2011, will no longer be able to participate in the special leave plan. In 2012 or 2013 they can use the balance for leave, or they can transfer the balance to a vitality savings scheme in 2013. At the end of 2013, the special leave balance that has not been withdrawn or transferred will be made available after deduction of payroll tax and social security contributions.

·         Participants with a special leave balance of more than EUR 3,000 on December 31, 2011, can, as of January 1, 2012, continue to participate in the special leave plan under the current conditions. They can, however, transfer the balance tax-free to a vitality savings scheme in 2013, even if the balance exceeds the maximum of EUR 20,000, and after 2013 they can also arrange a tax-neutral transfer of their special leave balance to a vitality savings scheme. However, for those years the maximum amount of vitality savings for which a tax credit is available applies (2013: EUR 20,000). Payroll tax and social security contributions have to be paid on savings above this maximum and are to be included in the tax return for the year in question. In such situations, the special leave tax credit is also set off.

·         Measures will be introduced to discourage the use of the vitality savings scheme for early retirement. It has been proposed to fully tax the balance of the vitality savings scheme of taxpayers who withdraw more than EUR 10,000 in the calendar years after the calendar year in which they turn 61. Proposals to block the withdrawal of more than EUR 10,000 in these situations are being considered.

Employee savings scheme to be discontinued
From January 1, 2012, participants in the employee savings scheme may either withdraw their balance tax-free or leave it in the scheme. In the latter case, they may continue to apply the exemption for employee savings in Box 3. The four-year period in which the funds are frozen will cease to apply. This means that after an early withdrawal of part of the savings balance, the Box 3 exemption will, in principle, remain applicable to the remaining balance.

Amendment of the 30% ruling

Current legislation on the 30% ruling requires that the person requesting application of the ruling prove they possess a specific expertise and that this expertise is scarce on the Dutch labor market. The Tax Plan 2012 has introduced a salary threshold of EUR 50,619 (EUR 72,313 including the tax-free allowance) that will apply to this specific expertise. The introduction of this salary threshold as an eligibility criterion for the 30% ruling has been criticized on many fronts. The Deputy Minister of Finance has decided not to accommodate this criticism and stands by his proposal. Employees who do not meet this threshold can, however, receive a tax-free reimbursement of the actual extraterritorial costs incurred.

Under the new legislation, an employee meeting the salary threshold will be assumed to possess expertise that is scarce on the labor market; an assumption that can be made sooner than is currently the case. However, an exception is made for specific professional groups where all the employees meet the new salary threshold. By way of example, the Deputy Minister of Finance refers to professional football players: in such cases the scarcity criterion will always have to be assessed.

Under current legislation, employees temporarily seconded to the Netherlands within a group are considered to have met the criteria of specific expertise and labor market scarcity. The Tax Plan 2012 does not mention whether this condition will continue to apply. The Deputy Minister of Finance has now indicated his intention to maintain the ‘group rotation provision’, but still provided that these employees also meet the salary threshold. The added value of maintaining the group rotation provision is therefore extremely limited and only amounts to removing any uncertainty relating to the fulfillment of the scarcity criterion.

Employees who live within a 150 kilometer radius of the Dutch border will no longer be eligible for the 30% ruling. This new assessment criterion has been introduced to avoid the ruling from adversely effecting Dutch citizens on the labor market in the border regions. This proposal also remains unchanged.

Adjustment R&D remittance reduction: reduction salary threshold first bracket

The remittance reduction for research and development work (“remittance reduction”) is a tax credit for withholding agents who carry out research and development work (“R&D”). This tax incentive consists of a reduction of payroll tax and social security contribution remittances. In order to qualify for this incentive, the relevant withholding agent must hold an R&D certificate. For budgetary reasons, the salary thresholds and percentages will be adjusted annually. In 2012, the remittance reduction amounts to:

·         42% (2011: 50%) over the first EUR 110,000 (2011: EUR 220,000) in R&D salary costs for the withholding agent;

·         60% (2011: 64%) over the first EUR 110,000 (2011: EUR 220,000) in R&D salary costs for a start-up withholding agent;

·         14% (2011: 18%) of the remaining R&D salary costs;

The remittance reduction amounts to a maximum of EUR 14,000,000 per calendar year for each withholding agent. As of 2013 the maximum amount will be reduced to EUR 8,500,000. The salary threshold in the first bracket will then be EUR 150,000 and the percentage will be 45. For start-ups the percentage in the first bracket will remain at 60.

Work-related costs rules

An interim evaluation of the work-related costs rules has taken place. The results are:

·         As of January 1, 2013, (expected implementation of the Uniform Definition of Salary Act) the fixed allowance will be increased from 1.4% to 1.6% of the total salary costs for tax purposes.

·         It will no longer be necessary to individually record employee contributions for salary in kind, for example canteen meals, if this salary is designated as part of the final levy. The total amount of employee contributions can be deducted, but this must not result in a negative amount.

·         For the time being, no additional specific exemptions will be introduced, given the objective of the work-related costs rules to include less detailed rules than was the case under the old regime.

·         The follow-up evaluation of the work-related costs rules announced for 2013 will be brought forward.

Directors of stock exchange listed companies

Under the Management and Supervision Act that will take effect on January 1, 2012, directors of stock exchange listed companies will no longer be regarded as having a civil law employment relationship. This fact will also directly affect the position of those directors as regards payroll tax and social security contributions. Because a civil law employment relationship is, in principle, decisive for the purposes of payroll tax and social security contributions, the directors in question would therefore no longer qualify as employees for the purposes of that legislation. As such, a withholding and an insurance obligation would no longer apply to these directors. The government considered this to be an undesirable situation, and therefore as of January 1, 2012, directors of stock exchange listed companies will be regarded as having a deemed employment relationship with the company.