The corporation tax rate will be increased from 25% to 25,8%. This is necessary to fund the reduction in the landlord levy and the increase in salaries in the healthcare sector.
Tiered pricing
We are referring here to the corporation tax rate applicable to the taxable amount above the so-called tax threshold. The tax threshold will be increased as of 2022 to € 395.000 (in 2021, this amounts to €245,000).
The portion of the taxable amount up to €395,000 is taxed (unchanged) at a rate of 15%. The rate increase to 25.8% applies only to the portion of the taxable amount above €395,000.
PLEASE NOTE: the tax rate increase is part of the 2022 tax plans, which have not yet been approved by Parliament. The increase in the tax bracket was included in the tax plans for previous years.
Fiscal unit
The tax increase may make it worthwhile for business owners whose taxable income exceeds €395,000 to dissolve the fiscal unity (PLEASE NOTE: the dissolution of a corporate tax group may result in tax penalties). After all, this means the tax bracket can be utilised multiple times (the maximum benefit per private limited company is: 10.8% * €395,000 = €42,660). Naturally, this only applies if the taxable amount can be allocated across several private limited companies on commercial grounds.
Conversely, groups of private limited companies (BVs) with a consolidated taxable amount of no more than €395,000 can reduce their administrative burden by forming a fiscal unity.
Balance
When the corporation tax rate for the taxable amount below the tax bracket was reduced from 20%, via 19% and 16.5%, to 15%, the substantial interest rate was increased from 25% (via 26.25%) to 26.9%. At the time, the Government justified this increase on the grounds that the overall balance between the tax on profits from a business and profits from a private limited company (BV) had to be maintained.
The increase in the corporation tax rate is, of course, a reason to call for a reduction in the ‘substantial interest’ rate. As only the corporation tax rate above the threshold is being increased, we fear that the Government will not heed this call.