Fiscal Year-End tips for private individuals and entrepreneurs in The Netherlands

November 11, 2024

As 2024 draws to a close, it’s prudent to evaluate your tax situation and, where possible, optimize it. Below you will find our year-end tax tips for individuals and entrepreneurs in the Netherlands, with a focus on deadlines expiring at the end of 2024 and anticipated changes in the 2025 Tax Plan.

Individuals

1. Advancing personal deductions: Before year-end, you can advance expenses eligible for personal deductions, such as healthcare or educational costs. This deduction may reduce your taxable income.
2. Tax-deductible donations: Consider donating to recognized charities before the year ends. These donations are deductible from your taxable income if they meet specified conditions, which may change in 2025. Certain gifts, for example to children, may also be exempt from gift tax. A donation can also reduce your Box 3 taxable base.
3. Optimizing pension accrual: Consider accruing additional pension through annuity products. Premiums are deductible, lowering your taxable income. The actual pension payments are taxed when paid out. Be mindful of the annual allowance and ensure room for additional deduction.
4. Actual return in Box 3: Assets in Box 3 generate a fictional income subject to tax. In June 2024, the Supreme Court ruled that taxing fictional income on assets other than savings (such as securities or real estate) contravenes European law. Only actual returns may be taxed. If you own assets other than bank savings, it is advisable to document the actual returns in your records annually.

Entrepreneurs

1. Optimizing the investment deduction (in Dutch: Kleinschaligheidsinvesteringsaftrek (KIA)): Consider investments in 2024 to benefit from the small-scale investment deduction (KIA). The KIA reduces an entrepreneur’s taxable income. The KIA percentage decreases with larger investments, so spreading them over several years could be advantageous.
2. Using the work-related costs scheme (in Dutch: Werkkostenregeling (WKR)): As an employer, you can make tax-free allowances and benefits (in kind) to staff within the WKR’s discretionary scope (In Dutch: vrije ruimte). The unused portion of the discretionary scope will expire after 31 December 2024.
3. Postponing dividend payments: For substantial shareholders (≥ 5%), postponing dividend payments or alienation of substantial shareholdings until 2025 might be beneficial due to a proposed rate reduction in the 2025 Tax Plan could reduce the tax burden.
4. Considering business transfer: If considering a business transfer, doing so in 2024 may be advantageous due to proposed changes in the business succession scheme (BOR) for 2025.
5. Sale of investments: If you have claimed investment deductions in the past five years, selling these investments within this period may trigger a divestment surcharge. For example, if a qualifying investment was made in 2019, the divestment surcharge applies until 31 December 2024. Selling after this date would avoid surcharge, though a capital gain may still be taxable.
6. Purchasing a business delivery van: Consider purchasing a new delivery van for your business in 2024, as the BPM exemption (tax on vehicles) for new delivery vans will be abolished in 2025, potentially increasing (tax deductible) costs.
7. Applying for the Research tax credit (in Dutch: Wet bevordering speur en ontwikkelingswerk (WBSO)): Innovative companies can apply for the WBSO tax credit for 2025 as of November 5^th 2024. This scheme provides wage cost subsidies for R&D activities.
8. Meeting the hours criterion: Self-employed individuals may qualify for various tax facilities if they spend at least 1,225 hours annually on their business. Ensure you can demonstrate meeting this criterion through a time record.
9. Avoid expiring reinvestment reserves: Upon alienating an asset, book profits may remain untaxed if there is an intent to reinvest within three years. If a reinvestment reserve was created in 2021, it must be used before December 31^st 2024.

Taking timely action and consulting with a tax advisor is recommended to fully leverage these tax opportunities. If you have any questions, please contact Maarten Tervoort via maarten.tervoort@hbnlawtax.com or Giordy Janga via giordy.janga@hbnlawtax.com.