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Taxpat’S NEWSFLASH SEPTEMBER 2010

Dutch Government presents tax measures for 2011

The Budget 2011, as prepared and presented by the Dutch caretaker Government on September 21, 2010, can be regarded as a provisional Budget for 2011. Overall the Budget is aimed at reducing the budget deficit. It is expected that the new Cabinet will propose additional measures to further cut the budget deficit in 2011 and beyond. Below we provide a selection of the proposed tax measures as well as earlier proposed measures that are expected to take effect in 2011. Detailed information can be gathered through www.minfin.nl/belastingplan2011 or http://www.minfin.nl/english

Income tax

Extension of the mortgage interest deduction period

The maximum period of the mortgage interest deduction with respect to the former primary residence (house) which is up for sale (and empty), will be extended until three calendar years after the year in which the house is put on sale.

In addition to this rule, the extended period of three years will also be applicable on the mortgage interest regarding the future primary residence which is still empty or under construction.

The extension of these periods is meant to stimulate the real estate market and will be applicable for two years. As of January 1, 2013 the original period of two years will apply again.

Rent of the former primary residence

Since January 1, 2010, it is (temporarily) possible to reclaim a mortgage interest deduction for the remaining period in which double mortgage interest deduction is possible with respect to a former primary residence that is on sale and that was rented out for a certain period. Said deduction can be reclaimed after the rental period has ended. The Cabinet has decided to prolong this measure until January 1, 2013.

Deemed income from home ownership

When owning a house in the Netherlands that is considered a principle residence, a deemed income (“eigenwoningforfait”) from home ownership has to be taken into consideration for Dutch income tax purposes. This deemed income is subtracted from the mortgage interest paid.

In most cases the mortgage interest is much higher than the deemed income, resulting in a deduction (and ultimately a tax refund). However, in case the mortgage interest is lower than the deemed income, this will in principle result in a positive (= taxable) income. To prevent this, there is the possibility to claim a deduction because of no or low home ownership debt resulting in a nil addition.

Within the current system it is possible to make use of this deduction by paying the mortgage interest in advance or afterwards. According to the Cabinet, this is an unwanted effect of the current system since it – basically – allows taxpayers to claim an additional tax deduction with respect to the primary residence. Therefore the Cabinet has proposed to change this and eliminate the unwanted effects.

Similar measures have also been announced in situations of loans to personnel.

Deduction of expenses for national monuments

The facility for deduction of expenses for national monuments will be expanded. Under the proposal, the expenses made for an own house (that qualifies as a national monument), which is no longer used as primary residence, can be deducted in the situations where the house:

• is kept empty and up for sale;
• still qualifies as a primary residence for 2 years based on the divorce facility;
• is kept during a stay in a AWBZ-institution;
• is kept during a temporary stay elsewhere.

Income Tax rates

The tax rates will not change substantially. The highest tax rates remains 52% and starts at a taxable income of € 55,694. For a more detailed overview of the brackets and rates, please click to: www.minfin.nl/belastingplan2011

Box 3 taxation

An earlier measure proposed is that as of January 1, 2011 the valuation method for determining taxation on savings and investments (Box 3 income) will be simplified. Instead of an average valuation based on values on January 1 and December 31, the value as of January 1 of the tax year will be used.

In arrival or departure years, this means that the values as January 1 will be used. However the deemed annual income of 4% will be pro-rated over time.

Wage tax

Work cost regulation (“Werkkostenregeling”)

As of 2011 a new system will be introduced (we refer to the Budget 2010) The work cost regulation that will enter into force on January 1, 2011 will be relaxed for certain business allowances and reimbursements. In the first place, an exemption for technical literature and costs of memberships of professional associations will be added to legislation. In addition, an exemption (in the form of a ‘nil’ valuation) will be added for company clotheswear with a logo of at least 70cm2. As mentioned in our earlier Newsletter, there is a transitional period of 3 years to implement this new set of rules. (see the earlier newsflash: http://www.taxpat.com/uploads/pdf/newsflash_september.pdf)

VAT

Lower VAT rate for costs of renovation / recovery

As of October 1, 2010, the lower VAT rate of 6% will temporarily be applicable on labour costs that are charged with respect to renovation and recovery of homes that are at least two years old. The lower rate is not applicable on the materials. The lower rate on the labour costs is only applicable to labour carried out on or after October 1, 2010 and finished before July 1, 2011. The regular applicable VAT rate is 19%.

Gift tax

Expanded exemptions for costs related to primary residence

An earlier proposed measure will further expand the possibilities to allow parents to give a one-time tax free gift of up to € 50,000 to children between the ages of 18 and 35 for purposes of financing the purchase, construction and/or renovation of a (future) primary residence.

For further information on the proposed tax measures for 2011, please contact your regular Taxpat Advisor or our office at +31 (0) 20 675 0050 (Amsterdam) or +31 (0) 70 338 0600 (The Hague).