Tax Plan 2007: focus on labour market and income
The results of the reforms policy are becoming visible. The economy is doing well again. The competitive position of the Netherlands is improving, labour productivity and labour market participation are rising, unemployment is falling and income is distributed evenly. In 2007 the administration will give priority to further strengthening the economic structure and purchasing power. This is embodied in the following tax measures for 2007.
- The general tax credit in 2007 will be € 2,043 (2006: € 1,990)
- The labour tax credit in 2007 will be € 1,399 (2006: € 1,357)
- The supplementary combination tax credit (for working single parents or the least-earning parent) in 2007 will be € 700 (2006: € 608)
- The combined rate for income tax and social security contributions will be reduced from 34.15 per cent to 33.65 per cent in the first bracket and from 41.45 per cent to 41.40 per cent in the second bracket
- Directors/major shareholders will receive a reduction (applicable only in 2007) from 25 per cent to 22 per cent for the first € 250,000 income from a substantial interest. This tax reduction compensates them for the higher income-dependent contribution to healthcare insurance.
Two elements have been taken from the bill for Strengthening tax law enforcement and been incorporated in the Tax Plan 2007. That has been done in order to have these measures passed as swiftly as possible by the House of Representatives and the Senate to enable them to apply to 2006.
- Increase in the tax reduction for education component basic qualification (tax benefit for employers giving their employees an opportunity to obtain a basic qualification) from € 1,500 to € 3,000
- Within the tax reduction for education there will be a new tax reduction for employers offering work experience places for pupils in the vocational stream at upper secondary vocational education levels 1 and 2. The tax reduction will be € 1,200 if the work experience placement lasts a full year.
- The ´services at home´ regulation: a private individual is allowed to have personal services (e.g. cleaning, gardening, walking a dog, care, ironing or looking after children) performed during three days a week at the most without withholding wage tax or employee insurance premiums. Naturally, the service provider is required to report his or her earnings annually in the income tax return
- Employees following a procedure under which they convert skills acquired elsewhere (elders verworven competenties - EVC) into a diploma will qualify more readily for tax benefits
- Employers paying for such an EVC procedure for their employees will receive a tax benefit of 300 euros
- The training allowance for students will be expanded.
- The existing tax reduction for wage tax and social security contributions for seafarers will apply in the same manner to seafarers residing in another company in the European Union or the European Economic Area
- Seconding scientific personnel will be exempt from VAT.
Environment and mobility
- Dutch residents making use in the Netherlands of a foreign rental car will in future pay prorated private motor vehicle and motorcycle tax or BPM (instead of full private motor vehicle and motorcycle tax). The reason for this measure is a decision by the European Court of Justice holding that levying the full private motor vehicle and motorcycle tax in such cases infringes the free movement of services in the European Union.
- For reasons of efficiency a number of exemptions in motor vehicle tax and the private motor vehicle and motorcycle tax for vehicles for libraries, school dentist care, the Food and Consumer Product Safety Authority and vehicles used for the disposal and destruction of livestock will be eliminated. The sectors concerned will receive compensation.
- On 1 January 2007 a tax reduction was set to be introduced for providers of informal care. Applying this in the form of a tax reduction however entails major implementation issues. It has therefore been decided in consultation with the submitters of this proposal in the House of Representatives to convert the reduction for informal care into an expense regulation. The House of Representatives will be informed of this in detail.
- Entrepreneurs making private use of goods belonging to the assets of the business (e.g. a holiday home) will be fully entitled to deduct purchase VAT, but will then always have to include this private use in their VAT return. Until now a non-recurrent percentage for private use was used for this “mixed use”. No refund was possible on that percentage of the purchase VAT, as against which no VAT had to be subsequently remitted on the private use. The change is required owing to a decision by the European Court of Justice.
Tax incentive for business start-ups by persons disabled for work
Persons (partially) disabled for work who wish to start a business but fall short of the required number of hours of 1,225 per year will receive a separate deduction of € 12,000, € 8,000 and € 4,000 for the first, second and third year respectively. A reduced hours criterion of 800 hours will apply for this group of start-up entrepreneurs. This measure forms part of the Tax Plan 2007 and is in line with the administration’s policy of promoting business start-ups in receipt of welfare benefits. The Ministers of Finance and Social Affairs and Employment will assess the effectiveness of this deduction after five years.
Modification of tax treatment of motoring using natural gas as fuel
The tax treatment of natural gas used as motor vehicle fuel will be modified. Unlike other motor fuels, natural gas used as motor vehicle fuel is currently s ubject to energy tax on the basis of graded rates. Instead of those graded rates a fixed rate of 3 eurocents per cubic metre will apply. This is part of the Tax Plan 2007. At present mainly town and regional buses are natural gas-fuelled, but the use of natural gas may grow for passenger cars as well.
Tax reduction for inheritances
The top rate of 68 per cent for inheritance and gift tax is generally considered to be high. The Tax Plan 2007 contains a proposal to reduce this highest rate to the rate of the preceding bracket, 63 per cent. The highest rate applies to 'other beneficiaries'. These are recipients of an inheritance or gift which in terms of their degree of kinship do not come into the first bracket (including spouses, children, descendants) or the second bracket (brothers, sisters, blood relatives in a direct ascending line of consanguinity).
Tax exemption of foreign professional athletes
Foreign professional athletes, artists and groups of performers performing in the Netherlands will continue to be exempt from Dutch taxation as from 1 January 2007. A necessary condition is that the country where the athlete, artist or performing group resides has a treaty for the avoidance of double taxation with the Netherlands. The exemption also applies to athletes, artists and performing groups from the Netherlands Antilles and Aruba. The Netherlands is hereby renouncing the right to levy tax. This forms part of the Tax Plan 2007.
In the absence of a treaty, the Netherlands will continue to levy tax. The country of residence of the athlete, artist or performing group will then be able to prevent double taxation by exempting the income from taxation or by setting off the tax paid in the Netherlands.
With effect from 9 May 2006, the levying of tax has also been modified for a performance by foreign artists, professional athletes and groups that takes place under an agreement ' for another reason'. An example of such an agreement is a Champions League or UEFA Cup match played by a foreign footballer with his team in the Netherlands. The 'other reason' in this case are UEFA competition regulations.
Finally, domestic professional athletes will be exempt from wage tax. This means that representatives of those athletes will be saved a great deal of red tape. The athletes are however obliged to report their income in their income tax return.