We do feel that end-of-year tips are a bit like closing the stable door after the horse has bolted. But if we think of 2018 as the meal, it hasn’t quite been finished yet. Below are a few points to consider in terms of actions you might still take before or around the upcoming New Year.
Donate
What could be better than making a gift to your children, grandchildren or other people who are close to your heart? You can do so tax-free, with the “jubelton” – a gift tax exemption of no less than €100,000 – being the absolute highlight. You can find all gift tax exemptions in our fact sheet.
If you have no cash, or not enough, you can make a gift in writing. We call this an acknowledgement of debt. This must be recorded by a notary. It is then essential that you actually pay the agreed interest to the beneficiary every year. The evidence You must keep a record of this. The tax authorities will ask for it when processing inheritance tax returns.
Dissolve the corporate tax group
This can be done on request. You must submit your request before the date on which you wish to dissolve the fiscal unity. To dissolve the fiscal unity with effect from 1 January 2019, your request must therefore be received by the Tax and Customs Administration before the end of the year. We discuss the advantages and disadvantages of dissolving a fiscal unity in our article Dissolve a corporate tax group?. We set out the corporation tax rates expected for the coming years in our article Corporate tax to be cut even further.
You cannot dissolve a VAT group on request.
Forming a corporate tax group
Of course, you could also consider setting up a fiscal unity. The application to do so may have retroactive effect for a maximum of three months. If you wish the fiscal unity to take effect on 1 January 2019, the Tax and Customs Administration must have received your application by 31 March 2019 at the latest.
High profit: BV in / Lower profit: BV out
In and out of a private limited company – it can all be done tax-free, provided you keep a close eye on the conditions. When does it make the most sense, from a tax perspective, to operate as a private limited company? Or would a sole trader or general partnership offer you greater tax benefits in your situation? We We’d be happy to work it out for you.
Check your business structure
Is the legal structure of your business still optimal? If not, you can reduce the number of entities in your structure through mergers and liquidations. This will save you money.
Or perhaps it would be wise to expand the structure of your business by carrying out a demerger or a legal split.
Are all the assets still held within your business structure in the most appropriate places?
You should also check that the agreements within your structure are in order. These include, amongst others, management, current account and loan agreements. Do they still contain the correct amounts? Do the terms and conditions still reflect the current situation? Are the financial flows organised in such a way that all obligations are settled financially?
This is how you keep your business prepared for the emergencies you hope will never occur.
Will/Living Will
Your will is part of your estate planning: how should your assets be distributed after your death? Saving on inheritance tax is one aspect of this, but by no means the only one.
If something happens to you whilst you are alive that leaves you (temporarily) unable to make decisions for yourself, a living will is a sensible option. In it, you appoint the person or persons who can act on your behalf in such circumstances. Of course, in your living will you also set out your wishes regarding how your assets are to be managed in such circumstances. In addition, you can include medical instructions in your living will.
The continuity of your business, whether it consists of one or more private limited companies (BVs), can also be safeguarded by transferring the shares to a Trust Administration Office (STAK). By appointing competent replacement directors in the event of your death, you ensure, on the one hand, the continued operation of your business, whilst, on the other hand, your heirs continue to enjoy the financial benefits of the business. You can also use a STAK to transfer assets to your children.
Justify your hours
As a sole trader or a partner in a partnership (VOF), you are entitled to the self-employed person’s tax allowance. However, you must meet the hours criterion. This means that you must actually spend 1,225 (or more) hours working on your business in a calendar year. The burden of proof for this rests entirely with you. Make sure you have proper evidence of the hours you have worked.
Transferring your savings to a private limited company: it’s still worth it
The tax on your income from savings and investments (Box 3) remains high when compared with the actual returns that many people achieve. The fixed rates of return are higher for 2019 than for 2018. It may therefore still be advantageous to hold your savings in a private limited company (or a open fund on joint account). You’ll usually recoup the costs involved within the first year. We explain this in our article Box 3 in 2017: you can still minimise the damage!.
ODV: Are your affairs in order in the event of your death?
Many directors and major shareholders converted their self-administered pension scheme (PEB) into a retirement benefit obligation (ODV) in 2017 or 2018. In the event of death, the ODV is treated differently from a pension. It is therefore advisable to check that the settlement of the ODV upon the death of the ODV beneficiary has been properly arranged. See also our article Pension liability and death.
An alternative to a self-administered pension scheme
In 2017, a significant number of directors and major shareholders (DGA’s) decided to surrender their accrued pension under their own management at a discount or to convert it into a retirement provision (ODV). Now that directors and major shareholders are no longer accruing pension entitlements with their private limited companies, a shortfall arises in their retirement provision. This can be partly offset by making contributions to an annuity insurance policy or an annuity savings scheme. The disadvantage, however, is that the premiums or contributions must be drawn from the private limited company’s assets.
If you wish to claim these premiums or payments as a tax deduction for 2018, they must have been paid before 1 January 2019. Find out in advance how much you can claim.
Make the most of your free space
Under the work-related expenses scheme (WKR), there are many options for providing tax-free allowances and benefits to employees. These include what is known as the ‘discretionary allowance’: Check your free space!. And perhaps you could structure allowances and benefits in kind in such a way that you have more of your discretionary allowance left over.
The measures announced in the 2019 tax plans cycle scheme will not come into force until 1 January 2020.
If your employees live outside the Netherlands, the way in which payroll tax is deducted may change from 2019 onwards. You can read more about this in our article Find out where your employees live.
Have your financial plan updated
The message from the Rutte III Cabinet regarding the 2019 budget and tax plans is that (almost) everyone will be better off. In this regard, they refer to the so-called ‘purchasing power charts’. These are calculations of how the plans will affect the incomes of large groups of Dutch people. Quite apart from the fact that these calculations never turn out to be accurate in hindsight, what matters to you, of course, is your own purchasing power.
If you want to avoid any financial surprises in the coming years, have your financial plans reviewed.
Bring forward your tax deductions
Corporation tax rates are set to fall. And, as regards income tax, most deductions will soon be calculated at the lowest rate rather than the highest. Where possible, it may therefore be worth bringing forward the timing of these deductions.
One example is the option to pay your mortgage interest in advance. If the advance payment covers no more than half a year’s interest, the amount paid in advance is already tax-deductible.
Defer income
The fall in tax rates also makes it an attractive option to defer the receipt of income, as far as possible, to a later date.
Pay a dividend
The rate of income tax on income from a substantial interest (Box 2) is to be increased. This rate currently stands at 25%. In 2020, it will be 26,25% and from 2021: 26,9%. Paying out a dividend in 2018 or 2019 therefore results in a tax saving of 1.9%. On the other hand, you pay the tax earlier. Naturally, your private limited company must be permitted to pay out dividends. The scope for this may, for example, need to be created by converting a self-administered pension scheme into a retirement benefit obligation.
The payment of dividends may or may well need to be combined with the “current account measure“. Directors and major shareholders are given three years to prepare for this measure. We describe the current account measure in our article DMS pays AB tax on debts to BV.
Investment plan
With a view to the Small-Scale Investment Allowance (KIA), it may be advisable to defer investments until 2019. However, it may also be beneficial to enter into firm commitments in 2018. We would be happy to assess which option is most advantageous in your situation.
For environmental and energy investments, the MIA and EIA schemes apply in both 2018 and 2019. The environmental and energy list for 2019 will not be published until the very end of 2018. If you suspect that the investment you wish to make is no longer innovative enough to be included on the list for 2019, you can secure your right to a tax deduction by entering into a definitive investment commitment before the end of 2018. PLEASE NOTE: you must also report the investment in good time.
Bear in mind the provisional tax assessment
The interest rates applied by the Tax and Customs Administration remain exorbitant. You pay 4% per annum on income tax assessments and as much as 8% on corporation tax assessments. The intention is that, as a taxpayer, you should monitor for yourself how much tax you are expected to owe. And that you should take action yourself to avoid having to pay tax interest. You do this by requesting a provisional assessment in good time. ‘On time’ means that the assessment must be dated before 1 July of the year following the tax year (for tax on 2018, the assessment must have been issued before 1 July 2019).
Tax arrears may not be included in the tax base for income from savings and investments (Box 3). To avoid having to pay Box 3 tax on the tax due in 2019, you must have paid the tax to the Tax and Customs Administration before 1 January 2019. In that case, you must apply for the provisional assessment well before the turn of the year.
Plan ahead for the higher standard VAT rate
The reduced VAT rate will be increased from 6% to 9%. If you deduct all VAT on services purchased, you will of course not be affected. However, exempt businesses and private individuals can benefit from a significant VAT saving if they purchase or pay for services in advance before 1 January 2019. See our article ‘Increase in the reduced VAT rate’.
Businesses providing services to which the reduced VAT rate applies must amend their records.
VAT on bad debts
You can claim back VAT on bad debts provided that the debtor has not paid within one year of the invoice becoming due. If you yourself have outstanding invoices that are more than one year old, you must repay the VAT you have deducted to the tax authorities. In both cases, this is not a year-end procedure; instead, the VAT must be reclaimed or repaid during the course of the year. See also our factsheet on this subject.
Sport and VAT
With effect from 1 January 2019, the VAT exemption for sport extended. This will put an end to many of the arrangements that make VAT on sports (facilities) deductible. The government is channelling the money it saves as a result back into the economy in the form of a grant scheme. However, it is expected that this will not be sufficient. Sports administrators would therefore be well advised to investigate – or have investigated – what financial implications the relaxation of the VAT exemption will have for their situation and what solutions might be found to address this.
Heritage tax relief abolished
The tax deduction for the costs of maintaining listed buildings will cease to apply from 1 January 2019. Instead, there will be a grant scheme. If you still wish to benefit from the tax deduction, you must pay the maintenance costs before 1 January 2019.