June 20th, 2013
This week, a report has been published in which is advised to restructure the Dutch tax system. The report is drawn up by the committee Van Dijkhuizen.
Even though the report contains recommendations only to the current government, it is nevertheless interesting to take a look at these recommendations.
The government is facing the challenge of another € 6 Billion on budget cuts for the coming period, and some of these cuts may be found here.
Dutch tax brackets income tax box 1
Currently, we have 4 tax brackets, that run from 37% up to 52% (for taxable income above € 56,000). The committee recommends to reduce the number of tax brackets back to 2: a bracket of 37% and a bracket of 49%, starting a taxable income above € 62,500. In later years, further lowering to 34% and 46% should take place.
Dutch mortgage interest deduction
Mortgage interest can only be deducted in the first bracket, against 37%.
The deduction of mortgage interest on both “old” and “new” mortgages should be reduced through a (if applicable deemed) annuity scheme, whereby 50% of the total loan is (deemed) paid of.
Longer term (and assuming the housing market recovers), the “primary residence” should move to box 3, where the mortgage interest can no longer be deducted.
The deduction for the maintenance cost on listed (monumental) properties should be abolished and be replaced with a (non tax) subsidy.
Other deductions box 1 income tax
The committee advises to abolish most deductions in income tax, such as cost of support for children, alimony paid to an ex-partner and medical cost.
Laws for Director/substantial shareholders
Individuals who have at least 5% shares in a company and are director, are deemed to earn a “regular” salary. Currently, a diversion of 30% of the “regular” salary is accepted. The committee advises to tighten this to a maximum of 10% deviation.
At present, the director shareholder can defer box 2 (substantial shareholding) taxes by leaving the profit reserves in the B.V. in stead of paying them out. The committee suggests to introduce a deemed yield in box 3 for the director shareholder on the reserves in the B.V.
Dutch tax Box 3 Deemed yield
The committee proposes to adjust the “deemed yield” of 4% on net assets in box 3 on which the current annual tax of 1.2% on net assets (4% yield x 30% tax) is based on. As a basis, the 5 year average yield on savings accounts should be used, currently this would mean 2.4%.
