November 30, 2021
With the end of the year approaching fast, we would like to take this opportunity to offer you some general information about possibilities for tax savings which may be implemented before the end of the year as well as some advice to avoid any additional tax costs when preparing for the end of the tax year.
Wage Tax
Cost Allowances
Under certain circumstances it is possible to provide tax free cost allowances to staff members. Examples of these cost allowances include:
Please note that the employer, if desired, can make tax free contributions to the pension plan of the staff members.
Optimizing the cost allowances within the conditions set in the tax law, may lead to significant tax savings.
Benefits in Kind Valuation
When an employer provides benefits in kind, these benefits are considered to be taxable wages. However, under circumstances, the prescribed method to calculate the benefit of the use of certain company assets, such as a car or a house or even a company meal, can lead to tax savings for the employer and employee.
Optimizing the salary package with fringe benefits may lead to tax savings.
Expat Ruling and Administration
Additional tax-free allowances and other benefits are available for employees who have not worked in the BES for a period of at least 5 years and will earn at least USD 83.500 per year.
These benefits include:
Also, the employer and employee can agree upon a net wage contract. The wage tax will then be calculated on the net wages and not be grossed up.
Applying for the expat ruling can allow for a more competitive offering to potential candidates overseas.
Salary of the Director-Shareholder
Director-shareholders are obliged to take into account a market salary (“gebruikelijk loon”) for their services to the company they hold at least 5% of the shares in.
The market salary is considered the highest of:
Please note that the legislation allows for a taxpayer to deviate from these conditions if they can prove why the salary should be set at a different amount.
It is important to correct any omissions in the correct calculation of the salary of the Director-Shareholder or to administer why the salary deviates from the conditions described above.
Reconciliation of Wages
It is important to ensure that the wage tax summary and the wage costs in the annual accounts are reconciled and accounted for to avoid corrections and penalties in the future.
ABB
Refund of input ABB for manufacturers
The ABB allows for manufacturers to receive a refund of the ABB charged to them by other manufacturers or on import of goods when these goods are used by the manufacturer as raw materials or semi-finished products to produce their products.
Please note that refunds are only allowed if the invoices and import documents are prepared according to the prescribed format and the documents are available in the administration of the manufacturer.
It is important to ensure all input ABB has been refunded.
Combination of services and supplies, what rate to use?
A lot of services provided are a combination of the supply of goods and services. For instance, the repair of a boat demands goods as well, the installation of a new bathroom is a combination of supply of goods and services and even the delivery of food by restaurants is a combination of both supply of goods and services.
Since the supply of goods is only taxable when delivered by a manufacturer, but taxed at a higher rate, it is important to verify the correct taxation of the combination of services and supplies and whether an entrepreneur should be considered a manufacturer.
In principle, all deliveries should be considered on a standalone basis, even if the combination is charged in one price. However, if the average consumer won’t distinguish the various stages, the combination of supplies and services are closely related and do not have any purpose on their own, the combination will be taxed on the basis of the main component. Therefore, it should be determined whether the provision of services or goods is the main component.
To avoid additional taxation at a later stage it is important to assess all combinations of supply of goods and delivery of services prior to the end of the year.
Refunds on ABB from bad debts and discounts
Please note that the ABB will be refunded upon invoices that are not (fully) paid and which will not be paid in full, as well as with regard to discounts provided on invoices.
It is important to check before the end of the year if a refund has been requested for all discounted invoices and bad debts.
Cost sharing agreements
The ABB does not have the possibility for affiliated entities to join in a so-called fiscal unity to avoid ABB on intercompany transactions.
However, when a group of affiliated companies have certain expenses that are incurred by one entity, but have been used by multiple entities, a cost sharing agreement may provide a solution to avoid ABB-taxation of intercompany transactions.
A cost sharing agreement is a legal agreement whereby the costs of services or intangibles are shared by the group in a pre-defined manner based on the utilization of these services by the other entities and the entity incurring the costs passes on the exact costs for the services to the other group entities.
In certain situations, for example when wage costs are incurred by one entity within a group, no ABB is levied due to this agreement despite the lack of a fiscal unity. Since the allocation of the costs has to be
pre-defined it is important to ensure that the agreement has been entered into and the allocation key has been provided for before the year-end.
Income Tax
Deductible Costs Main Residence
The costs of any interest on loans for the main residence are deductible for Income Tax purposes up to an amount of USD 15.364. Furthermore, the premiums for fire and natural disaster insurances are deductible,
as well as maintenance costs to an amount of USD 1.676 or 2% of the value of the main residence.
It is important to spread out the maintenance costs over a period of time to ensure maximum deduction of these costs.
Cost Deduction for Study and Children
The costs for study for a job and the costs for study and necessary cost of living for children can be deductible for Income Tax purposes.
It is important not just to keep the invoices of these costs, but also the proof of payment, since for deduction purposes you need to prove you have paid the expense.