Companies and entrepreneurs

From the splitting of box 2 into two bands through to the reduction in the SME profit exemption, what do you
need to bear in mind as an entrepreneur?

Subjects

Reduction in SME profit exemption from 14% to 12.7%
Reduction in self-employed person’s allowance
Restriction on depreciation of buildings for income tax purposes
Box 2 split into two bands
Corporation tax rates and bands
Changes to business succession scheme (BOR) and transfer facility (DSR)
Expansion of reinvestment reserve in the event of discontinuation
Scrapping of gift deduction for companies
DAC7: obligation for digital platforms to provide information
General rate of VAT to apply to agricultural goods and services
Investment via family funds (FGRs) and open limited partnership taxed directly in box 3

Reduction in SME profit exemption from 14% to 12.7%

The SME profit exemption is a deductible from your taxable profit for income tax purposes. You are granted this exemption if you are an entrepreneur. From 2024 the SME profit exemption is being reduced from 14% to 12.7%. This means that entrepreneurs will pay tax on a larger proportion of their profit.

Tip!
Think about whether you could defer certain costs until 2024 so your profits will be lower and you will pay less tax on them.

Tip!
Ask your tax advisor whether your business being subject to income tax is still the best option for you.

Reduction in self-employed person’s allowance

The self-employed person’s allowance is an amount that entrepreneurs can deduct from their profit for income tax purposes, provided that they have worked as an entrepreneur for at least 1,225 hours in a calendar year. The reduction in the self-employed person’s allowance that started in previous years will continue and the allowance will be cut from € 5,030 in 2023 to € 3,750 in 2024. This annual tapering of the self-employed person’s allowance will eventually bring the allowance to a level of € 900 in 2027.

	Self-employed person’s allowance (€)
2023	5.030
2024	3.750
2025	2.470
2026	1.200
2027	900

A higher allowance applies to people who have started a new business, while the allowance is lower for entrepreneurs who have reached state-pension age.

Restriction on depreciation of buildings for income tax purposes

Entrepreneurs and recipients of income from other activities who are subject to income tax can only depreciate own-use buildings down to the WOZ value (value for purposes of the Valuation of Immovable Property Act).

For purposes of determining profits and results from other activities, depreciation of a building is only possible if the carrying amount is higher than the base value of the building. The base value for own-use buildings is 50% of the WOZ value and will now become 100% of the WOZ value. For buildings made available to third parties the base value is already 100% of the WOZ value. Have you already depreciated beyond 100% of the WOZ value? If so, this will be frozen.

This change will ensure that the base value for income tax purposes is treated in the same way as the base value for companies subject to corporation tax.

Box 2 split into two bands

Do you hold more than 5% of the shares, profit-sharing certificates or voting rights in a company? If so, you are considered to be a substantial shareholder. The income you receive from this holding (such as dividends) is taxed in box 2.

The rate in box 2 is being split into two bands from 1 January 2024: 24.5% on the first € 67,000 and 31% on the excess amount (in 2023 a single rate of 26.9% applies).

Rate applicable to substantial shareholdings in 2024
	Substantial shareholding of more than (€)	but no more than (€)	Rate for 2024 (%)
First band	-	67,000	24.5%
Second band	67,000		31%

The rate in box 2 applies to benefits from substantial shareholdings, such as dividends that are paid to a shareholder (director/major shareholder (DGA)) and become part of his private assets. Tax partners can apply the first band twice. This therefore comes to an amount of € 134,000 per year.

Example calculation with no tax partner
In the case of a dividend payment of € 500,000, the tax payable from 2024 will be as follows:

€ 67,000 * 24.5% = € 16,415

€ 433,000 * 31% = € 134,230

Total: € 150,645

Until the end of 2023 the tax payable on this will be € 134,500.

Example calculation with tax partner
In the case of a dividend payment of € 500,000, the tax payable from 2024 will be as follows:

€ 134,000 * 24.5% = € 32,830

€ 366,000 * 31% = € 113,460

Total: € 146,290

Until the end of 2023 the tax payable on this will be € 134,500.

Please note!
Dividend payments also affect the general tax credit, your box 3 assets and excessive loans. Talk to your advisor about whether paying a dividend now would be advantageous or whether it would be better to wait until 2024 or to pay a higher amount as a dividend later all at once.

Tip!
Does your partner have no income? If that is the case, pay out a dividend to take advantage of the general tax credit.

Please note!
Are you a substantial shareholder with a debt of more than € 700,000? If so, you have until 31 December 2023 to reduce this debt. If you do nothing, you will owe tax in box 2 on the amount above € 700,000.

Corporation tax rates and bands

No changes are being made to the corporation tax rates and bands for 2024. For entrepreneurs subject to corporation tax this means that the same rates and bands that apply in 2023 should be taken into account, namely:

Low rate	19%
Profit threshold	€ 200,000
High rate	25.8%

Tip!
Is the expected profit of a tax entity for 2023 or 2024 higher than € 200,000? If so, you may obtain a tax advantage by terminating the tax entity. That is because you will then be able to benefit from the lower rate several times. Although the tax advantage appears simple to calculate, it may be outweighed by unforeseen drawbacks that result from terminating the tax entity. You should therefore check with your tax advisor in good time whether this is an attractive option for you.

Changes to business succession scheme (BOR) and transfer facility (DSR)

When gifting business assets you can take advantage of the schemes available in the area of income tax (transfer facility (DSR)) and gift or inheritance tax (business succession scheme (BOR)). The aim of these schemes is to prevent situations in which, in the event of business assets being gifted or inherited, the tax payable on genuine business transfers puts the continuity of the company at risk, due to insufficient funds being available to pay this tax. You can make use of this fiscal incentive to pass on the baton to the next generation.

The 2024 Tax Plan includes changes relating to the business succession scheme in the area of gift and inheritance tax and the transfer facility in the area of income tax. A set of measures is being taken, the introduction of which will be spread over 2024, 2025 and 2026. These measures will result, on the one hand, in the scaling back and tightening up of the schemes, and, on the other, in a relaxation of the rules in one particular area.

Tip!
Are you considering gifting your business and applying the BOR? If so, it may be advisable to speed up this process.

Measures effective from 1 January 2024

Renting out of immovable property
At present the facilities are only applicable to so-called business assets. All the assets of your company that can be regarded as an investment fall outside these schemes. As far as property that you are renting out is concerned, in practice there will be a discussion with the Tax and Customs Administration to determine whether this constitutes a business or investment asset. With effect from 1 January 2024 property rented out to third parties will be classified as an investment asset. By default, such property will therefore not qualify for the application of the BOR or DSR.

The following are excluded from this measure:

Immovable property that is used for your own business operations (within your own group).
Property made available for short periods in the services sector, e.g. hotel rooms and bowling alleys.
Short-term crop-lease agreements due to crop rotation.

Measures effective from 1 January 2025

1. Change to exemption under the BOR
From 2025 the exemption under the BOR will be increased to 100% of the going-concern value (or higher liquidation value) of the business assets up to € 1,500,000. In 2023 this exemption amounts to € 1,205,871 and in 2024 to € 1,325,253. For the amount above this the exemption will be reduced from 83% (2023 and 2024) to 70% (2025) of the business assets.

2. Abolition of efficiency margin for investment assets under BOR and DSR
The 5% efficiency margin under the BOR and DSR is being abolished. This efficiency margin means that companies’ investment assets are regarded as business assets up to a level of 5% of their business assets. This measure will take effect from 1 January 2025 in the case of the BOR. For the DSR it will become effective at a later date. The precise date is not yet known.

3. ‘Free choice assets’ will only qualify for BOR/DSR if used within the company
The BOR and DSR only apply to business assets. Assets that are used for both business and other purposes (e.g. private purposes or a purpose that performs no function in relation to business operations) – referred to in Dutch as keuzevermogen (‘free choice assets’) – currently also qualify for these facilities. This is set to change. Assets will only qualify for the BOR and DSR if they are used for business purposes within the company. This measure will relate solely to assets with a market value of at least € 100,000 whose use for purposes other than business purposes exceeds a proportion of 10%.

4. Employment requirement under DSR to be scrapped
For purposes of the DSR the acquirer is required to have been employed by the company for at least 36 months. This requirement will be scrapped for the DSR relating to substantial shareholdings. The employment requirement will continue to apply to the DSR relating to companies subject to income tax.

5. Application of BOR and DSR if acquirer is at least 21 years old
The starting point for the government continues to be the facilitation of genuine business successions. As the succession is probably not genuine if a business is gifted to very young children, a minimum age of 21 is being introduced for the acquirer of a gift for purposes of the BOR and the DSR relating to substantial shareholdings. No age limit is being proposed for business successions in the event of death.

Please note!
The Council of State has advised that the proposal should not be submitted to the Lower House. It considers the changes made to the BOR and DSR to be too limited and, in its view, the decision to make such limited changes requires further substantiation. The Council of State would like the business succession scheme to be scaled back further and more tax to be paid in the event of business assets being gifted or inherited. In around three quarters of cases there are sufficient funds available to pay the inheritance or gift tax immediately when a business is transferred. From an economic perspective, there is therefore no reason to have a tax facility in place, according to the Council of State.

Expansion of reinvestment reserve in the event of discontinuation

If a company is discontinued, the surplus value of the company (hidden reserves and goodwill) forms part of the profit. In certain cases the tax on this profit can be deferred by forming a reinvestment reserve. Application of the reinvestment reserve is being expanded in cases where part of a company is discontinued as a result of government intervention. This will make the reinvestment reserve more accessible for farmers who are discontinuing operations, for example.

The expansion means that, in the event of a (partial) discontinuation due to government intervention, it will be possible to use a reinvestment reserve at another of the entrepreneur’s businesses. Under the current scheme the reinvestment reserve can only be used by the same company.

Scrapping of gift deduction for companies

Companies that are subject to corporation tax are able to deduct business expenses. These include business expenses incurred in connection with CSR policy, sponsorship or advertising, for example.

In addition, there is a scheme that applies to non-business gifts in the area of corporation tax. These are gifts that are made without a direct business interest in mind.

In the 2024 Tax Plan it has been decided that the deduction of gifts for corporation tax purposes will be scrapped. Non-business gifts will therefore no longer be deductible from your taxable profit. On the other hand, the amount that the company can no longer deduct from its profits will no longer be regarded as a fictitious payment to the shareholder’s private assets on which income tax is levied.

Tip!
Do you want to make a gift from your company to a public benefit organisation (ANBI) or social benefit organisation (SBBI) of up to 50% of your profit and not exceeding € 100,000? If so, do this in 2023.

Please note!
Do you want to make a gift from your company to an ANBI or SBBI that exceeds 50% of your profit or is above € 100,000? In 2023 the shareholder will pay income tax on this and it is not deductible for corporation tax purposes. From 2024 income tax will no longer be payable by the shareholder in such cases.

DAC7: obligation for digital platforms to provide information

The DAC7 Directive entered into force on 1 January 2023. This is a new European Directive that aims to improve tax transparency in the digital economy. The application of this Directive means that digital platforms will be required to collect information from their sellers and supply this to the Tax and Customs Administration. Platform operators will have to report this information for the first time in 2024.

For new sellers who started using your platform in 2023 you will have to collect the information immediately with effect from this year. You must then supply this to the Tax and Customs Administration by no later than 31 January 2024. For sellers who were already registered with your platform before 2023 the collection of information will commence one year later, which means that, as a one-off measure, you will have to supply it to the Tax and Customs Administration by no later than 31 January 2025.

General rate of VAT to apply to agricultural goods and services

The reduced rate of VAT on agricultural goods and services has been evaluated. Based on this evaluation, it has been decided that the general rate of VAT will be applied to supplies of certain agricultural goods from 1 January 2025.

Up to the end of 2024 supplies of certain agricultural goods will be taxed at a reduced VAT rate. Examples include pulses and grains that are not classified as foodstuffs, propagating material, livestock, beetroot, agricultural and horticultural seed, roundwood, straw, animal feed (e.g. rabbit feed), flax and wool (both raw and unwashed).

Investment via family funds (FGRs) and open limited partnership taxed directly in box 3

From 1 January 2025 mutual funds (FGRs) will be fiscally transparent if they do not hold a licence from the Dutch Authority for the Financial Markets (AFM) and they fall under the supervision of De Nederlandsche Bank (DNB). These include so-called family funds, for example. This means that the investments held by the fund will be taxed directly at the level of the participants in box 3 instead of in box 2. The fund itself will no longer be subject to tax. Transitional facilities will apply in relation to the (income) tax due as a result of this change.

Please note!
With effect from 1 January 2025 the definition of the exempt investment institution (VBI) will also change. Some investment institutions that fall under AFM supervision qualify as a VBI.

The open limited partnership is a legal form that is often used for privacy structures and investments. At present, a distinction is made for tax purposes between an ‘open’ limited partnership and a ‘closed’ limited partnership. The closed limited partnership is fiscally ‘transparent’. An open limited partnership, on the other hand, is fiscally ‘opaque’. In principle, it is therefore independently liable for corporation tax in relation to the share of the profit accruing to the limited partners. This distinction is being removed, which means that, from 1 January 2025, all existing open limited partnerships will be regarded as fiscally transparent. This will have the following consequences in terms of tax:

Immediately before its tax liability is terminated, the open limited partnership will be deemed to have sold all of its assets to its partners at market value. Existing hidden reserves, tax reserves and goodwill will be subject to corporation tax.
The limited partners will be deemed to have sold their share in the limited partnership at market value. This will result in the levying of income tax (natural persons) or corporation tax (legal entities).

Transitional arrangements will, however, apply in certain situations. These arrangements will not apply to situations in which an open limited partnership has been established after 3.15 p.m. on 19 September 2023.

Do you have questions about the consequences of the measures for you or your company?

Our professionals are ready to support you with your issues.

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