Extra cut in tax on business profits in 2006 (20 September 2005)
In 2006 a major improvement is made in the tax climate for enterprises. The tariffs in the corporate income tax will be further cut and capital duty will be abolished.
An additional cut in corporate income tax will be made in 2006, lowering the rate to 29.6%. For SMEs, the starting rate (levied on the first € 22,689 of profit) will be cut to 25.5%. This reduction is being made in addition to a series of cuts, launched at the start of this year. The extra cut of 0.9 percentage points will bring corporate income tax down to 29.6% in 2006 and 29.1% in the following year. The rate applicable to SME’s will drop to 25.5% in 2006 and to 24.5% in 2007.
Capital duty, the tax levied on share issues, will disappear as of 1 January 2006. It was increasingly forming an obstacle to companies in the Netherlands wishing to develop or expand activities by raising equity capital or wishing to strengthen their capital structure. Many neighbouring countries have already abolished this tax.
These measures will make the Netherlands more competitive in the European Union. The new tax structure will further encourage businesses to expand profitable activities.
This package of measures will result in a net reduction in the tax burden on business of € 275 million. The tax cuts will cost the Treasury € 375 million, on top of € 200 million due to the abolition of capital duty. Other tax measures will lead to a tax revenue of € 300 million. The deduction for ‘mixed expenses’ (for lunches etc.) will be reduced for businesses subject to corporate income tax. Similar restrictions have already been introduced for businesses subject to income tax. Companies will no longer be able to deduct write-down losses. Only a small number of companies actually do so at the moment.
A number of other beneficial tax measures for business are being proposed:
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The tax rules governing share buybacks are to be further relaxed. Five years ago, share buybacks were exempted from dividend tax. Problems have arisen in practice relating to the requirement that share buybacks may not be preceded by increases in capital. Listed companies increase or decrease their capital in accordance with their investment and financing policies. This dynamic is essential for healthy economic development. It is therefore proposed that share buybacks qualify for exemption even if they have been preceded by share issues.
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Tax benefits relating to research and development are to be extended with a view to enhancing companies’ innovative capacity. Another € 25 million will be added to the budget for this R&D-facility (“WBSO”).
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The ceiling applicable to donations that businesses may deduct for corporate income tax purposes is being raised from 6% to 10% of the profit.
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The favourable tonnage tax regime for ships is to be made simpler and more flexible. The flag requirement will be limited to ships that the taxpayer owns wholly or in part or charters on bareboat charter terms.
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In 2003, the Supreme Court ruled that cable networks were immovable property. An exemption from transfer tax is to be introduced so that purchasers of cable networks do not have to pay transfer tax.
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Investment institutions will be able to run life-course saving schemes, provided they satisfy financial supervisions requirements and meet the relevant objectives. Banks and insurance companies can already run schemes of this kind.