Budget Day 2013: changes to payroll tax, remittance reductions and social security

Publication date 01 October 2013

On Budget Day, September 17, 2013, the Cabinet presented four bills to the Lower House, including the Tax Plan 2014 and the Other Tax Measures Act 2014. Below, we address the most significant changes proposed for payroll taxes and remittance reductions. The proposals are intended to take effect on January 1, 2014, unless another date is explicitly stated. We will also discuss a number of other relevant developments.

Tax rates in the Tax Plan 2014

As a rule, the tax brackets and tax credits are inflation-adjusted annually. In 2014, indexation will be dispensed of, as a result of which incomes will sooner be included in a higher tax bracket.

Taxable salary more than

but not more than

Tax rate

National Insurance Contributions

-

EUR  19,645

   

EUR  19,645

EUR  33,363

   

EUR  33,363

EUR  55,991

42%

 

EUR  55,991

-

52%

 

The general tax credit
As of January 1, 2014, the general tax credit will be increased by EUR 138. The Tax Plan 2012 already included a reduction of the general tax credit by EUR 39 as of January 1, 2014, which, on balance, results in an increase of EUR 99. However, a 2% reduction will apply from the beginning of the second tax bracket until the end of the third tax bracket. As of 2015, the upper limit of the reduction will be canceled, so that the general tax credit will also be reduced in the fourth tax bracket until it reaches zero. In 2015 and 2016, the general tax credit will be increased further, as will the reduction percentage.

The general tax credit and the employee tax credit will be increased and will become income-related. On balance, the general tax credit will be increased by a total of EUR 196 over a period of four years. This will be achieved by amending the maximum general tax credit as follows:

  • as of January 1, 2014: an increase of EUR 99;
  • as of January 1, 2015: an increase of EUR 83;
  • as of January 1, 2016: an increase of EUR 14; and
  • as of January 1, 2017: a decrease of EUR 39.

On January 1, 2014, the general tax credit will amount to EUR 2,100 (without reduction).

As a result, the general tax credit will amount to EUR 1,363 from the beginning of the fourth tax bracket in 2014. In 2015, the general tax credit for an income of approximately EUR 120,000 or more will be zero, and in 2016 this will apply to taxpayers earning EUR 90,000 or more.

The employee tax credit
As of January 1, 2014, the employee tax credit will be increased by EUR 374 and be made more dependent upon income. The maximum employee tax credit will be increased in the following years. As of:

  • January 1, 2015 by EUR 103;
  • January 1, 2016 by EUR 229; and
  • January 1, 2017 by EUR 130.

This means that on balance, the employee tax credit will be increased by EUR 836.

The employee tax credit for higher incomes will be decreased in three stages and will ultimately amount to zero. As of January 1, 2017, income amounting to approximately EUR 110,000 will receive a zero employee tax credit.

Work-related costs rules

On January 1, 2011, the work-related costs rules (“WRCR”) took effect. The WRCR replaces the old system of tax-free allowances and reimbursements as it applied up to December 31, 2010. Under the transitional rules, employers could annually elect to apply the ‘old’ or the ‘new’ regime in 2011, 2012 and 2013. The mandatory implementation of the WRCR has been postponed by one year until January 1, 2015. The application of the WRCR is therefore still optional in 2014.

Extension of the employer’s levy on top salaries (the crisis levy)

In 2013, employers had to pay a one-off crisis levy of 16% on salaries (including one-off remuneration, such as bonuses) paid to an employee in 2012, to the extent that this salary exceeded EUR 150,000 on an annual basis.

The crisis levy will be extended once only in 2014 and therefore an additional 16% levy will also be payable in 2014 on salaries that exceed EUR 150,000 in 2013. Employers must report and remit the crisis levy in the payroll tax return for March 2014.

Special leave savings excluded from the crisis levy tax base?
On January 1, 2012, the special leave scheme was canceled. Under the transitional rules, participants taking part in the special leave scheme who had saved at least EUR 3,000 as part of this scheme as at December 31, 2011, can continue saving under the scheme. As an incentive for participants to withdraw the balance of their special leave savings in 2013, payroll tax is only due on 80% of the withdrawal. The withdrawal of the special leave balance under this favorable condition could result in the annual income of an employee exceeding EUR 150,000. As a result, employers could be faced with the crisis levy in 2014. Earlier this year, the Deputy Minster of Finance stated that the withdrawal of special leave savings would not be included in the crisis levy tax base. However, the bills announced on Budget Day have made no mention of this.

Abolition of annuity exemption; discount for lump-sum payments in 2014

As of January 1, 2014, the annuity exemption will be abolished. It will then no longer be possible to use a life insurance policy, an annuity savings account, an annuity investment account or an annuity private limited liability company (stamrecht-bv) to spread the disbursement of the income received from a golden handshake. Redundancy packages will be lump sum payments and be immediately taxed at the progressive rate, with a maximum rate of 52%.

On January 1, 2014, the requirement that existing annuity entitlements must be disbursed in installments will no longer apply (‘unlocking’; ontklemming). As a result, taxpayers with existing annuity entitlements can opt to have the balance of the annuity entitlements paid out as a lump sum without deemed interest being levied.

Moreover, only 80% of a lump sum payment made in 2014 will be taxed. This applies regardless of where the annuity was deposited (self-administered at the former employer, at a bank, an investment institution, an insurance company or in an own annuity private limited liability company.

Abolishment remittance reduction for education

For the purposes of budgetary manageability, the education remittance reduction will be abolished and replaced by a subsidy scheme through the Ministry of Education, Culture and Science as of January 1, 2014. The new subsidy scheme will be announced no later than November 1, 2013.

Research and development remittance reduction

In order to stimulate research & development (“R&D”) at small and medium-sized businesses, the first bracket will be extended from EUR 200,000 to EUR 250,000, which means that the higher rate for the R&D remittance reduction will apply to a larger part of the payroll costs for research and development. However, the remittance reduction rate in the first bracket will be reduced from 38% to 35%.

To reduce the administrative burden, each R&D withholding agent will now be able to request an R&D certificate for a period longer than six months, but no more than one calendar year. This means that R&D withholding agents without a research or development department or that have not been granted an R&D certificate in the preceding calendar year can now also request a R&D certificate that is valid for one year. Withholding agents are also given the opportunity to set off the R&D remittance reduction, which could not be redeemed in the period to which the R&D certificate applies in other tax return periods that end in the calendar year for which the R&D certificate is valid.

Concession rules and the tax treaty with Germany

The new Netherlands-Germany tax treaty (expected to take effect on January 1, 2014) includes concession rules for Dutch resident taxpayers whose employment income is taxed in Germany. Most of these residents are covered by the German social security system and therefore do not pay any social security contributions in the Netherlands. It is possible that deduction items, such as the mortgage interest in respect of the owner-occupied residence, cannot be fully deducted. Taxpayers are entitled to compensation if they pay more income tax in Germany and social security contributions and premiums similar to those in the Netherlands, than would be the case in a comparable situation where the Netherlands has the right to tax the entire income. Under these rules, German premiums can, in certain situations, be regarded as deemed charges for the purposes of Dutch payroll tax and can be deducted from the Dutch personal income tax payable. The right to compensation relates to the difference between the taxes and premiums levied in the Netherlands and in Germany.

Revision of option rule for foreign taxpayers

The option rule offers taxpayers resident abroad the opportunity to be treated as a domestic taxpayer in the Netherlands. On January 1, 2015, this rule will be replaced by new rules. Under the new rules, the personal and family situation of foreign taxpayers may receive the same tax treatment as that of domestic taxpayers. This will bring the scope of the current rules more in line with EU law. The new rules will, in principle, be restricted to foreign taxpayers who are residents of an EU or EEA Member State, Switzerland, or one of the BES islands, and who earn 90% or more of their income in the Netherlands. The current rule is based on the taxpayer’s worldwide income.

However, under the new rules, qualifying foreign taxpayers will only be taxed on their Dutch income, and are, in principle, entitled to the same deductions and tax credits as domestic taxpayers. The new rules are therefore a greatly simplified version of the current rule. Before the new rules take effect, the consequences of the abolition of the option rule for migrating foreign taxpayers will be examined.

Tightening recipients’ liability

In order to combat mala fide agencies that hire out staff, the plan is to tighten the recipients’ liability for those doing business with non-certified agencies that hire out staff. Non-certified agencies are employment agencies that are not listed in the SNA Register (Stichting Normering Arbeid; “SNA”) and do not meet the SNA-standard, that is based on NEN 4400-1 or NEN 4400-2. At the moment, recipients can limit their recipients’ liability by depositing part of the invoiced amount on a frozen bank account (G account) of the agency that hires out staff. The proposal means that non-certified agencies will be required to maintain a deposit account with the tax collector. Recipients will be obliged to deposit at least 35% of the invoice amount on the deposit account. A recipient that fails to do this can be held liable for any payroll tax and VAT and social security contributions payable by the agency. This liability will also be set at 35% of the amount charged.

If the actual tax and premium payable is less than 35%, the liability can be reduced to that lower percentage. If the recipient does not meet the deposit obligation, a default penalty of up to

EUR 4,920 may be imposed. The deposit obligation and liability do not apply to certified agencies. This change will enter into force after the system of deposit accounts has taken effect. The expected effective date is January 1, 2016.

New criminal provision concerning the deliberate non-payment of remittance-based taxes

As of January 1, 2014, it will be possible for employers to face criminal prosecution if they have filed the correct returns for payroll tax, but deliberately do not pay the payroll tax due. At the moment, a tax penalty may be imposed but no criminal prosecution will be pursued.

Differentiated Sickness Benefit premium for flexi-workers and employers electing to bear their own risk

As of 2014, employers will also be responsible for the costs of employees who previously held temporary or flexible employment contracts and have joined the company under the Return to Work (Partially Disabled Persons) Regulations (Werkhervatting gedeeltelijk arbeidsgeschikten; “WGA”). The differentiated WGA premium will now become the differentiated Return to Work Fund premium (Werkhervattingskas; “Whk”), and consists of the following three premiums:

  1. the current differentiated WGA fixed premium;
  2. the differentiated Sickness Benefit flex premium;
  3. the differentiated WGA flex premium;

The level of the combined differentiated Whk premium depends upon the size of the employerʼs company.

The Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, “UWV”) will send employers an overview of the sickness benefit payments made to (former) flexi-workers in 2012. It is important to check whether the overview is correct, as the decision from the Dutch Tax and Customs Administration on the differentiated Sickness Benefit flex premium that employers will receive at the end of the year is based on this overview. Employers, who have not received an overview by the end of October 2013 and are certain that one or more (former) flexi-workers received a Sickness Benefit, are advised to contact the UWV.

As of January 1, 2014, the own risk for the WGA only applies to employees on a permanent contract. Employers who elect own risk for the WGA in 2014 have to pay the WGA flex premium and the Sickness Benefit flex premium, but not the WGA fixed premium. Employers that elect own risk for Sickness Benefit do not pay the differentiated Sickness Benefit flex premium.

It will not be possible in 2014 to elect ‘own risk’ for the WGA for flex workers. Employers that do not yet bear own risk for the WGA or Sickness Benefit, but would like to do so as of January 1, 2014, are obliged to file a request with the Dutch Tax and Customs Administration before October 2, 2013. It is possible to initially file a pro forma request. The Dutch Tax and Customs Administration has stated that employers filing such a request will be given two months to complete their request.

VAR web module postponed until 2015

The current method for requesting a Certificate of Employment Relationship (Verklaring Arbeidsrelatie; “VAR”) will not change for the moment. The intention to replace the current VAR procedure with a web module as of 2014 could not be realized in time. The web module will be used by self-employed persons without employees and their clients in order to assess the employment relationship. The client is required to use the web module to assess whether, in each individual case, the facts and circumstances mean that the VAR provides indemnification. The VAR web module will only become operational in 2015. Before the web module is introduced, the matter of how an employer can be made jointly responsible for the facts and circumstances listed in the VAR request will be examined. As yet, no announcements have been made about this.

Addition for electric cars

As of January 1, 2014, an addition of 4% applies to electric (zero emission) cars, instead of the 7% proposed earlier.

Cuts in accrual of supplementary pensions as of 2014

As of 2014, the standard retirement age will be raised to 67 years. The raising of the standard retirement age will also be linked to the increase in life expectancy, which means the standard retirement age will be raised even further in the future. At the same time, the maximum accrual of pension rights will be reduced. As of 2014, the maximum pension rights that can be accrued for tax purposes in respect of a final pay plan will be 1.9% per annum (was 2%) and 2.15% per annum in respect of an average pay plan (was 2.25%). New lower premium tables have been drawn up in respect of defined contribution pension plans.

As of 2015, it is expected that the accrual of pension rights will be further limited and it will no longer be possible to accrue exempt pension rights on salaries exceeding EUR 100,000 per annum.