Dutch job-related investment tax credit: strengthening the Dutch tax incentive toolbox

Jian-Cheng Ku, Gabriël van Gelder, & Mehdi el Manouzi, DLA Piper Nederland N.V.

The Netherlands introduced a new tax incentive scheme as of 1 January, the so-called job-related investment tax credit (baangerelateerde investeringskorting). 

The job-related investment tax credit allows Dutch companies that make certain qualifying investments, for example acquiring new equipment, to use a tax credit against their payroll taxes (wage tax and social security contributions).

Introduction

Against the background of uncertain economic times due to the COVID-19 pandemic, one of the main priorities of the Netherlands Tax Plan 2021 is stimulating new business investment. Please see our earlier MNE Tax article addressing the Tax Plan 2021. 

The Tax Plan 2021 introduced the tax incentive scheme as a crisis measure to stimulate Dutch investments and contribute to economic recovery in the Netherlands.

The goal of the job-related investment tax credit is to encourage companies (multinationals and small and midsize companies) to make new investments. The incentive tries to achieve this goal by effectively reducing the costs for companies that invest.

The Dutch government has made a budget available for the tax incentive of EUR 4 billion (approximately USD 4,853,140,000) in total for the years 2021 and 2022. At the end of 2021, it will be estimated to what extent the EUR 2 billion budget for 2021 will be used. Depending on the remaining available budget, the amount of tax credit will be increased or decreased for 2022.

How does the Netherlands job-related investment tax credit work?

The Dutch job-related investment tax credit is designed as a tax credit against the payroll taxes of a company. As a result of this choice, the incentive is reserved for companies with employees.   

The advantage is that companies in a loss-making position due to the COVID-19 pandemic can still realize a tax benefit via the tax credit against payroll taxes. Another advantage is that as payroll taxes are generally due monthly, the scheme results in a direct liquidity advantage.

Tax benefit

The tax benefit depends on the investment amount. For investments up to and including EUR 5 million, the tax credit is 3.9% of the investment amount per calendar year. The tax credit for the investment amount exceeding EUR 5 million amounts to 1.8% for the excess (above EUR 5 million). 

A graduated scale has been built in so that smaller investments receive a larger allowance than larger investments. Depending on the available budget, the percentages may be higher or lower for the year 2022.

Fiscal unity

It is common for businesses to be structured so that the personnel of a group of companies is not placed in the same company that invests in operating business assets. In such a situation, the company that employees the personnel cannot use the Dutch job-related investment tax credit as the company has not made any investments. 

To rectify this problem, the Dutch government has applied the job-related investment tax credit at the level of the fiscal unity for corporate income tax. Consequently, an investment can be made by a group company instead of the company (wage withholding tax agent) requesting the tax credit, as long as both companies are part of the same corporate tax fiscal unity.

As the Dutch job-related investment tax credit aims to stimulate investments made by companies in the Netherlands, investments attributable to a permanent establishment outside the Netherlands do not qualify for the incentive. 

The exclusion of investments made by companies outside the Netherlands may be in conflict with EU law. The conflict with EU law is more apparent when other Dutch group companies’ investments within the corporate tax fiscal unity qualify for the new investment tax credit. 

Therefore, the Dutch government has applied to the European Commission seeking confirmation that the extension of the scheme to the fiscal unity level is lawful state aid. If the European Commission approves the scheme, the job-related investment tax credit will be applied at the corporate tax fiscal unity level (with retrospective effect) on 1 January 2021.

If the European Commission does not approve the extension of the incentive at the level of fiscal unity, the scheme will only apply at a standalone company level. The budget reserved for the application of the incentive at the fiscal unity level will be used to increase the percentages from 3.9% to 5% for investments up to EUR 5 million and from 1.8% to– 2.08% for the excess (above EUR 5 million).

We comment that a European Commission’s decision to approve the job-related investment tax credit scheme at the level of the corporate tax fiscal unity is no safeguard nor confirmation that the incentive is in line with European law.

What are the conditions?

Companies that are subject to corporate tax and pay wage tax for personnel are, in principle, entitled to apply for the new tax incentive. The job-related investment tax credit applies to investments in new (not previously used) business assets in 2021 or 2022. The minimum investment value for which the incentive can be applied is EUR 20,000 (approximately USD 24,266), with a minimum investment of EUR 1,500 (approximately USD 1,820) per business asset.

To benefit from the job-related investment tax credit, the company must have made the investment decision (contractual obligation) on or after 1 October 2020. The investment must be paid in full ultimately on 31 December 2022. The business asset must be put into use within six months after the last payment has been made.

Qualifying investments

The Dutch job-related investment tax credit is a generic investment scheme and aims to achieve a broad investment boost. The scheme, therefore, does not specifically aim to promote investments in sustainability, climate, or the environment. Hence, in principle, all assets that are put in use for (operational) business activities qualify for the incentive. 

Investments in certain assets do not qualify as an investment in business assets. These excluded assets are:

• houses, land, animals, vessels for representative purposes, securities, receivables, goodwill, and public law permits;
• passenger cars not intended for professional transport (e.g., taxi companies, courier companies);
• business assets intended for rental or for use abroad;
• business assets transferred from the private sphere for which you enter into obligations towards persons belonging to your household, relatives by blood and affinity in the direct line or persons belonging to their household to the assets of the company investments;
• business assets that are intended to be used directly or indirectly for the forest industry;
• business assets that are used for business activities for which derived profits a regulation to prevent double taxation applies; and
• business assets that are intended, directly or indirectly, to be mainly made available to third parties. 

Application process

Companies that wish to apply for the Dutch job-related investment tax credit must submit a  statement to the Netherlands Enterprise Agency (” RVO”). The RVO statement includes the investment discount that can be included in the monthly payroll tax. The beginning of the application period is expected to be 1 September 2021. Companies can make up to 4 applications per calendar year with a maximum of 1 per quarter.

Formal aspects

The wage tax credit can be applied only after the RVO receives the statement. It would apply to the payroll tax return period (e.g., monthly basis) in which the statement is dated (by definition after 1 September 2021). 

The tax credit can be applied to the full amount in the first qualifying payroll tax return period, or the tax credit can be spread over the remaining payroll tax return periods in the concerning year. 

If the tax credit cannot be fully used over the remaining payroll returns, the tax credit can be realized by correcting the filed payroll returns for earlier periods that year. This correction can be made via a correction notice and only after the last payroll tax return of that concerning year has been submitted.

Note that the payroll taxes (wage tax and social security contributions) due cannot be reduced beyond nil.

Strengthening the Dutch tax incentive toolbox

The job-related investment tax credit is a welcome addition to the broad range of Netherlands tax incentive schemes. 

This new tax incentive will appeal to companies that already have activities in the Netherlands and those seeking a new business location to set up shop in the EMEA-region. 

Companies should factor in the combination of the tax incentives available, including the new Netherlands job-related investment tax credit, when deciding to make new investments or choosing a business location.