In a letter The Government has informed Parliament that the Job-Related Investment Allowance (BIK) is to be withdrawn with retroactive effect. The reason for this is the fear that the European Commission will classify the scheme as unlawful state aid.
Investments
The BIK was intended for entrepreneurs who make investments. They would receive a reduction in the payroll tax payable amounting to 3.9% of the investment amount (for investments exceeding €5,000,000: 1.8%). This deduction would apply in addition to the existing small-scale investment allowance, energy investment allowance and environmental investment allowance.
The budget for the BIK amounted to no less than €4 billion!
Withdrawal
It all sounded almost too good to be true. And that turns out to be the case. The European Commission is not prepared to guarantee that the BIK will not be regarded as unlawful state aid. The Government is therefore scrapping the BIK.
The BIK formed part of the tax plans for 2021. These have already been approved by Parliament and published in the Government Gazette. Consequently, a bill will need to be tabled to repeal the BIK. This bill will have retroactive effect from 1 January 2021, the date on which the BIK came into force.
Reduction in contributions
The Government has decided to use the budget for the BIK to reduce the contributions employers are required to pay to the General Unemployment Fund (the AWf contribution). This reduction is due to come into effect as early as 1 August 2021. This will be formalised in a ministerial regulation.
These contributions are payable in full by employers. The reduction in contributions will lower labour costs. The resulting increase in liquidity and solvency will give business owners the scope to invest. However, even business owners who do not invest are now benefiting from the BIK budget.