Important Tax Changes and Legislative Developments for Entrepreneurs
The third Tuesday of September marks Budget Day, and this year it was a special edition. The outgoing Rutte IV administration has limited room for large-scale plans and financial generosity due to the fact. Moreover, government finances are under increasing pressure, and political parties are already gearing up for the Lower House elections in November. This translated into what politicians like to call a "policy-poor" budget, with few major decisions. Below is an overview of some of the most relevant plans and measures.
- SME profit exemption further reduced
The SME profit exemption will drop from 14% to 12.7% from Jan. 1, 2024. This exemption is a scheme that reduces taxable profits after entrepreneurial deductions. This affects entrepreneurs who use this scheme, as they will have a larger portion of their profits or income taxed. In particular, entrepreneurs with higher profits will be hit the hardest financially.
- Continued reduction in self-employment deduction
Since 2020, the self-employed deduction has been gradually reduced, and in 2024 it will drop by €1280 to €3750. Until 2027, this reduction will continue to an amount of €900. This is in line with the broader policy to create a level playing field between employees and the self-employed.
- Increase in untaxed travel reimbursement
In 2024, the untaxed mileage allowance will be increased from €0.21 to €0.23. As an entrepreneur, you may deduct this amount from the profit for business trips with a private car, motorcycle or bicycle. As an employer, you may also give untaxed compensation to your staff. This applies to commuting and other business travel by private vehicle.
- Austerity of Energy Investment Deduction
Are you investing in energy-saving measures and sustainable business assets? Then you are eligible for the Energy Investment Allowance (EIA), whereby a percentage of the investment costs may be deducted from profits. The EIA for entrepreneurs will be extended until 2028, but the percentage that can be deducted in the process will drop from 45.5% to 40% in 2024. The investment is minimum €2500 and maximum €136 million. So it may pay to make large investments in 2023 to take advantage of the higher percentage.
- Changes to Box 1 income
The tax rate for income in Box 1 will be changed. In 2024, people within that box will pay 36.97% tax on income up to €75,624, a slight increase from 2023. For income above €75,624, the rate remains at 49.5%. The amount of these writing limits increases less than inflation this year, so you'll reach the higher rate of the second bracket sooner.
- Changes to Box 2 income
In 2024, profits from shares in a company will be taxed in a two-tier system if you own 5% or more of the shares in a company. Up to €67,000 income pays 24.5% tax, above that 31%. For profit distributions up to about €106,000, the tax in Box 2 in 2024 is lower than in 2023, but at higher profit distributions one pays more tax. It may be interesting to distribute accumulated profits in your business as late as 2023.
- Income-related health insurance law contribution
Employers in 2024 will pay an employer health insurance law levy of 6.57% on up to €71,624, down slightly from 2023. Self-employed persons will pay an income-related healthcare insurance law contribution of 5.32% on the maximum contribution wage of €71,624, also a slight decrease. You will receive the (preliminary) assessment for the income-related healthcare insurance law contribution at the same time as the (preliminary) tax assessment.
- Further development of legislation and enforcement
The Ministry of Social Affairs and Employment is continuing to work on the bill to make a clearer distinction between self-employed workers and employees, with criteria such as "authority," "embedding," and "self-employment. The Tax Administration is working on improvements in enforcement to combat false self-employment. Work is continuing on the legal presumption of employment below an hourly rate of €32.24. At a lower hourly rate, there is a legal presumption of employment. It is then up to the employer to prove that this is not the case.
In short, Budget Day 2023 brought some important changes for business owners and taxpayers. It is advisable to consider these changes and discuss them with an advisor if necessary.