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Coronavirus Tax Measures
Subsequent to the economic measures previously introduced by the government in support of entrepreneurs during the intelligent lockdown, new tax measures have recently been announced offering them extra assistance. A measure has also been adopted in relation to lending, which an estimated 60,000 mortgage-holders can take advantage of. These measures are aimed at providing extra financial room for entrepreneurs and accompany earlier announced measures such as the NOW scheme. In this blog we will briefly discuss the new measures that have been taken.
Relaxation of the hour criterion for the self-employed
Self-employed individuals who qualify as entrepreneurs for income tax purposes are currently able to make use of all kinds of entrepreneur’s allowance, including the private business ownership allowance, provided that they meet the hour criterion. This means that they devote at least 1225 hours on an annual basis to company activities. In order to ensure that entrepreneurs do not lose the right to this entrepreneur’s allowance due to the corona crisis, the Tax Authorities are assuming for the period from 1 March 2020 to 31 May 2020 that entrepreneurs have spent at least 24 hours per week on their business, regardless of whether these hours have actually been worked. In addition, this relaxation also applies to entrepreneurs who perform seasonal activities, such as festival organisers.
Reduction in compulsory salary
Entrepreneurs themselves working in companies where they hold a substantial interest are legally obliged to pay themselves a salary matching the extent of the work they deliver, the so-called compulsory salary. Of course, tax must also be paid on this salary, in the form of payroll tax. In order to compensate entrepreneurs facing a drop in turnover due to the corona crisis, it has been determined that they may temporarily adopt a lower salary for the purposes of payroll tax. This requires that the company has less or no turnover as a result of the corona crisis. The lower pay must also be in proportion to the decrease in the company’s turnover.
Broadening of the work-related costs scheme
The work-related costs scheme is a tax scheme where employers have the freedom to provide tax-free allowances to their employees, such as gift vouchers. This is normally equivalent to 1.7% of the employee’s taxable pay. This freedom has now been extended to 3% of the employee’s taxable pay for the employer’s first € 400,000. Consequently, the normal rate of 1.7% applying to the freedom under the work-related costs scheme will apply to that the portion of the employer’s wage bill exceeding € 400,000. Here, the government’s aim is to give an indirect boost to some affected sectors.
Deferral of implementation of the Bill on Excessive Borrowing from one’s own Company Act
The Bill on the Excessive Borrowing from one’s own Company Act seeks to limit tax deferral for tax purposes by director-major shareholders (DGAs). The entry into force of this bill will be postponed by 1 year to 1 January 2023. In this way, DGAs will have more time and space to pay off the debts they owe to their own company that amount to more than € 500,000.
Earlier settlement of losses in corporate taxation
In order to ensure that companies retain more funds in cash and, as a result, have a better cash flow position, it will now be possible for companies to take expected losses for 2020 into account in their corporate tax return for 2019; otherwise entrepreneurs would have to wait until 2021 to offset these losses. In relation to expected losses in 2020, a so-called fiscal corona reserve can therefore be created, with which losses for 2020 can be charged to the profit for 2019. This is subject to the condition that the loss that can be offset for 2020 is less than the profit for 2019.
Tax relief for mortgage obligations
Banks and other lenders will be able to offer their customers the opportunity of benefitting from a break in payments of principal and interest due where payment obligations cannot be met during the corona crisis. This payment break will have a maximum of six months.
In addition, repayment of unpaid sums during breaks in payment of mortgage obligations will be extended where there is also a tax repayment obligation. Tax regulations still require that repayment must be made no later than the year following the break in payment. The adjustments give mortgage-holders the opportunity of choosing from two options. The first option is to divide the payment arrears over the remaining term of the mortgage up to a maximum of 360 months. The second option is to split the repayment obligation of the mortgage and agree on a separate repayment over, for example, 10 years.
Are you unsure whether your company qualifies for any of the above measures or how to apply them? If so, why not contact a tax consultant?
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