Just a few more weeks to go and we’ll be celebrating Christmas 2021. A week later, we’ll be seeing out 2021 and welcoming in 2022 – with or without fireworks. What tax matters should you be thinking about as the year draws to a close?
Below, we briefly outline a number of options, some of which include links to articles in which we have explored these options in greater detail. If you would like to know how these end-of-year tips apply to your specific situation, or if you are curious about what other options are available, please contact with us.
Donate
Make the most of the gift tax exemptions: make your gift before 1 January 2022.
For gifts to children and other beneficiaries, the exemption for 2021 has been increased by €1,000 on a one-off basis. These exemptions amount to:
- gift to children: €6,604;
- gifts to other beneficiaries (e.g. grandchildren): €3,244.
Subject to certain conditions, (substantially) higher exemptions may be available. You can find more information about gifts in our factsheet: Gift tax exemptions.
The amounts of the gift tax exemptions for 2022 have not yet been announced.
You can find other recent news items on donations in the articles Gifting property without paying stamp duty, One visit to the notary for multiple donations and A gift, but on paper.
Estate planning
Many people wonder whether their legal and tax affairs will be properly sorted out when they pass away. This might include how their marriage, civil partnership or cohabitation is arranged (see also our articles Minimise the income tax payable after death and Passing on your assets to your partner free of inheritance tax), as well as wills and living wills.
Estate planning: what, for whom, why, when?
Annuity
An annuity insurance policy or an annuity savings product can be an excellent way to invest your (spare) funds. The premiums, contributions or lump-sum payments are tax-deductible, subject to certain limits. The payouts are subject to tax.
Any premium, contribution or single premium that you wish to claim as a tax deduction in 2021 must have been paid by 31 December 2021 at the latest (apart from single premiums paid in connection with the cessation of a business).
You can find out more about the options for annuities (bank savings) in our article Is an annuity savings account right for you?
If you have taken out an annuity in the past (for example, a “single-premium policy”), you may need to decide how the accumulated capital is to be used. There is a deadline for making this decision. See our article Maturing annuity policy.
Deductions
The mortgage interest on your own home, personal allowances and business-related deductions are deductible for income tax purposes in 2022 at a rate of 40%. In 2021, you may still deduct these items at a rate of 43%. It may therefore be advantageous to deduct these costs in 2021.
In the case of tax deductions subject to an income-related threshold, it may be advantageous to concentrate the expenditure in a single year. The threshold is then applied only once. This applies in particular to charitable donations and extraordinary expenses. Please note: for charitable donations, a maximum deduction of 10% of the aggregate income applies.
The tax deduction for study costs will be abolished with effect from 1 January 2022 (with the exception of study costs that can be charged against business profits). It is therefore important to incur these costs in 2021 as far as possible. From 2022 onwards, the STAP budget may be utilised.
Box 3
Box 3 (income from savings and investments) is coming under increasing scrutiny. See our article A bomb under Box 3?. Protect your rights by lodging a pro forma objection within six weeks of the date of a final income tax assessment. You can do this in writing or online (via the Tax and Customs Administration’s tax return portal).
In view of the returns set for 2022 (see our article Box 3 is plodding along quietly) it can still be well worth transferring assets on which income tax is payable under Box 3 to a (savings) private limited company. Our article Can the savings company be dissolved? refers to 2020, but remains fully applicable to the situation in 2021 and 2022.
Corporate tax
The corporation tax rate is highly likely to be increased from 25% to 25.8%. It may therefore be advantageous to realise profits as early as 2021 and defer expenses until 2022.
However, the corporation tax rate is also being reduced. In 2022, the reduced rate of 15% will apply up to a taxable amount of €395,000 (in 2021: €245,000); this is the tax bracket threshold.
The significantly higher tax bracket makes it even more advantageous to distribute profits across several private limited companies. The maximum tax saving, per private limited company where the tax bracket is fully utilised, amounts to: (25.8% -/- 15%) * €395,000 = €42,660. In this context, one might consider dissolving a fiscal unity; however, it is essential to carefully assess whether any penalty provisions would come into effect.
Payroll tax
Have you already made full use of the allowance under the work-related expenses scheme for 2021?
This allowance amounts to 3% of the total wage bill up to €400,000 and, for the portion of the total wage bill above €400,000, 1.18%. Within this allowance, certain elements of remuneration may be designated as exempt from payroll taxes. However, this is subject to the condition that the allowance or benefit in kind is not significantly (30% or more) out of the ordinary. Allowances and benefits in kind up to €2,400 are not assessed by the Tax and Customs Administration against the ‘customary’ criterion.
Not all salary components need to be included in the discretionary allowance. Salary components to which a specific exemption or a zero valuation applies are also exempt from payroll tax. The most commonly used specific exemption relates to travel expenses (€0.19 per business and commuting kilometre or the cost of public transport). For this specific exemption, the approval granted in response to the coronavirus crisis – which meant that (in many cases) the actual travel pattern did not need to be taken into account – will cease to apply from 1 January 2022.
With effect from 1 January 2022, a new targeted exemption for home working expenses will be introduced. See our article Reimbursement of home working expenses. Employers would be well advised to review their policies on (fixed) travel allowances and working from home.
Companies that form part of a group may apply the work-related expenses scheme as a group. However, due to the increased tax-free allowance, this is not always advantageous. After all, without the group scheme, the tax-free allowance for each group entity on the first €400,000 of the wage bill is 3%.
VAT
With effect from 1 January 2022, the old business portal on the Tax and Customs Administration’s website will be closed to most taxpayers. The return for the final period of 2021 (4th quarter of 2021 / December 2021) can still be submitted via the old portal. From the first period of 2022 onwards, the new portal must be used, and eHerkenning level 3 is required to access it. Please ensure you have access to the new portal in good time. Naturally, this does not apply to business owners who submit their returns using tax return or accounting software.
The Small Business Scheme (KOR) has, for some time now, been an exemption that must be applied for in advance. If you expect your turnover for 2022 to be less than €20,000 and wish to remain outside the VAT scheme, you must submit your application to apply the KOR with effect from 1 January 2022 before the start of December 2021. Do check in advance, however, that applying the KOR will not result in any disadvantages (such as a reassessment of VAT previously deducted). Once you opt for the KOR, you are bound by this choice for at least three years.
The final VAT return for the year is slightly different from the returns for the other periods. You may need to include the adjustment scheme and the BUA in it.
Tax interest
The tax interest rate has been set at 4% for some time now. This rate also applies to corporation tax up to and including 31 December 2021, but with effect from 1 January 2022, the interest rate on corporation tax will be increased to 8%. If you wish to avoid your private limited company having to pay 8% in tax interest, you should ask the Tax and Customs Administration in good time for a provisional assessment (which must, of course, then be paid). See also our article Apply for a provisional tax assessment in good time.
Deferred payment
Many business owners have been granted a special deferral of payment for tax debts incurred during the coronavirus crisis. From 1 October 2021, new payment obligations must be met again, unless the Temporary Supplementary Allowance (TAT) is utilised.
The rate of recovery interest – which is calculated over the period during which a deferral of payment is granted – will also be increased in the near future:
- as of 1 January 2022: 1%
- as of 1 June 2022: 2%
- as of 1 January 2023: 3%
- as of 1 January 2024: 4%
You can find all the current rules regarding special payment deferrals in connection with the coronavirus crisis in our factsheet Special deferral of payment.