With the end of the year fast approaching, it may be worth taking a moment to review your tax position.
Debt recovery
Many business owners still have tax debts dating from the time of the COVID-19 crisis, for which the Tax and Customs Administration has granted special deferral of payment. These debts must be repaid in 60 monthly instalments (or sooner) from October 2022 onwards. Some relaxations have now been introduced; you can read about these in our factsheet Repayment of coronavirus-related debts. Always use the correct payment reference when paying your taxes; this will save you a lot of trouble. You can read more about this in our article Pay the tax authorities with the correct payment reference.
During the coronavirus crisis, the rate of recovery interest stood at 0.01%. Since 1 July 2022, collection interest has been charged again and the rate is now rising rapidly. It may therefore be advantageous to settle tax debts more quickly. The collection interest rate is:
- with effect from 1 July 2022: 1%;
- with effect from 1 January 2023: 2%;
- with effect from 1 July 2023: 3%;
- with effect from 1 January 2024: 4%.
Collection interest is also charged on the outstanding portion of the coronavirus-related debts. This interest is already included in the monthly repayment amount calculated by the Tax and Customs Administration. Repaying the debt sooner than within 60 months does not reduce the repayment amount (unless you request this), but it does shorten the repayment period and reduce the collection interest due.
If you are unable to meet your repayment obligations and the concessions mentioned above offer no or insufficient relief, take action as quickly and effectively as possible.
Excessive borrowing by a director and major shareholder
It appears that the bill on excessive borrowing by directors and major shareholders from their (“own”) private limited companies will come into force on 1 January 2023. We explain how this scheme works in our factsheet Excessive borrowing from own company law. If you borrow a total of more than €700,000 from your private limited company, you may become liable for substantial interest tax in 2023. Please also bear in mind any debts that your (grand)children and/or (great)grandparents have with your private limited company. As the first reference date is 31 December 2023, you still have plenty of time to take any necessary measures. We would be happy to discuss the options with you.
Incidentally, debts of up to €700,000 are not necessarily safe. If these debts cannot be repaid, the Tax and Customs Administration may, even following the introduction of the rules on excessive borrowing, successfully argue that this constitutes a disguised distribution of profits.
Housing debt
Home loan debt is not taken into account when determining excessive debt. However, this must be a debt that qualifies as the director-major shareholder’s own home loan debt for tax purposes. From 1 January 2023, new home loan debt must be secured by a mortgage right actually registered in favour of the private limited company.
If the interest rate on a mortgage held by your own private limited company is low, it may be worth transferring the debt from Box 1 to Box 3. One factor to bear in mind is that, in 2023, interest on your own home will only be deductible at the Box 1 rate within the first tax bracket. Naturally, the rules on excessive borrowing must be taken into account in this regard.
Box 3
Box 3 is almost certainly the most talked-about tax issue of 2022. For the years up to and including 2022, you will need to consider whether to submit requests for an ex officio reduction or (pro forma) objections in relation to tax assessments issued by the Tax and Customs Administration that include income from savings and investments (Box 3). We will probably only know whether this makes sense – or not – in a few years’ time.
Between 2023 and 2025 (and perhaps for another year or two beyond that, as a new system cannot be introduced at such short notice), income in Box 3 will almost certainly be calculated on the basis of the flat-rate savings option. It is highly likely that this variant will also be challenged before the tax court, but for the time being we must base our tax planning on it.
Incidentally, for anyone whose Box 3 assets consist mainly of bank balances, the flat-rate savings option works out very well. However, other assets are generally taxed at a much higher rate, particularly if there are debts, which leverage effect result in. This higher tax does not necessarily mean that it is not in one’s best interests to have the asset in question taxed under Box 3. That depends on the (expected) actual return generated by the asset.
The tax rate for Box 3 is set to rise. In 2022, this rate will be 31%. It will rise to 32% in 2023, 33% in 2024 and 34% from 2025 onwards.
Reference Date Arbitrage
An obvious trick to avoid the high tax rate in Box 3 on other assets is to convert your securities into bank deposits just before 1 January and then put the money back into your securities portfolio after the turn of the year. The legislator has recognised this ‘reference date arbitrage’. That is why this trick only works if the money remains in the bank account for at least three months. Incidentally, there is still extensive debate in the House of Representatives as to whether this measure is sufficient to prevent reference date arbitrage.
Savings BV
You can find out whether your savings company can be wound up in our article Can the savings company be dissolved?. We’d be happy to help you assess your situation, of course.
It might actually be worth considering putting your investments – rather than your savings – into a “Spaar-BV”. We’d be happy to help you weigh up the options.
The BV could also be brought under the exempt investment institution (VBI) regime. A VBI is exempt from corporation tax, but insofar as no actual dividends are paid out, a flat-rate return is taxed annually under box 2 (in 2022: 5.53%; in 2023 most likely well over 6%). However, the rate in box 2 is lower (in 2023: 26.9%) than the rate in box 3 (in 2023: 33%). One of the conditions for a VBI is that there must be at least two shareholders.
Paying out a dividend?
The tax rate in Box 2 (income from a substantial interest) will be increased with effect from 2024. This rate currently stands at (and will remain at in 2023): 26.9%. From 2025, income tax of 31% will be payable on income from a substantial interest. In view of this rate increase, it seems worthwhile to pay out dividends before 2024, as this will save 4.1% (possibly in combination with resolving the issue of excessive borrowing outlined above). Do bear in mind, however, that you will then be paying the tax earlier.
However, from 2025, there will also be a lower rate in Box 2: income from a substantial interest up to €67,000 will be taxed at a rate of “only” 24.5% (for tax partners, this rate applies to income from a substantial interest up to €114,000). Within this range, deferring dividend payments actually yields a tax rate advantage (2.4%) and, in addition, the tax liability is deferred.
Corporate tax
Corporation tax rates are set to rise significantly. The “standard” rate remains unchanged at 25.8%, but from 2023 onwards, this rate will once again be applied to the taxable amount above €200,000 (which was €395,000 in 2022). From 2023, corporation tax of 19% will be payable on the taxable amount up to €200,000 (2022: 15%).
Employees
Probably the most notable change in relation to payroll tax is the increase in the tax-free allowance for the costs of commuting and business travel from €0.19 to €0.21 per kilometre. It should be noted, however, that this change does not oblige employers to pay their employees a higher allowance.
For 2023, a one-off increase in the discretionary allowance under the work-related expenses scheme will again apply to the total wage bill up to €400,000, bringing it to 3% of the total wage bill. The allowance for the total payroll above €400,000 remains at 1.18% of the total payroll.
Many employers are not (yet) making the most of the discretionary allowance under the work-related expenses scheme. Before the end of the year, take stock of which allowances and benefits in kind you have included within this allowance. If this allowance has not yet been fully utilised, you may still be able to do something nice for your employees (in the form of a lease bike, measures aimed at making the employee’s home more sustainable, and the like).
Employers must take into account a significantly higher burden in respect of employees’ insurance (the premiums for these insurance schemes are borne entirely by the employer). This is because the maximum contributory salary is being increased from €59,706 to €66,952. These additional costs could amount to as much as €1,600 per employee.
The standard salary scheme, which applies to directors and major shareholders (DGA) and their partners, will be further restricted with effect from 1 January 2023. Please check whether you may need to adjust your salary to remain compliant with this scheme.
Donate
The standard gift tax exemptions apply anew each year. For gifts made in 2022, this exemption amounts to €5,677 where the recipients are children and €2,274 where the recipients are others. For the (one-off) increased and other exemptions, please refer to our factsheet Gift tax exemptions.
The one-off increased tax-free allowance for gifts used for one’s own home (also known as the “jubelton”) will be reduced to €28,947 with effect from 1 January 2023 (meaning it will effectively be abolished for gifts to children) and will be completely abolished with effect from 1 January 2024. You can read about how to still make use of the ‘jubelton’ in our article Will there still be celebrations in 2022 or 2023?.