Budget Day 2024
Hereby we would like to inform you again about the tax measures proposed by the Cabinet Sept. 17, 2024, on Budget Day.
Through the proposed measures, the Cabinet wants to contribute to sound public finances, improve the purchasing power of mainly vulnerable groups and working middle-income earners, and strengthen the business climate. In addition, the Cabinet sees the need for simplification of the tax system and more consistent taxation.
The submitted bills are not yet final. In the coming months, the Tax Plan 2025 will be debated in parliament. The second chamber can still make amendments. Subsequently, the measures will not take effect until the legislative amendments are published in the Official Gazette.
Below are some key proposed measures from the cabinet.
Additional tax bracket in box 1
There will be a third income tax bracket. The first tax bracket that applies to income up to €38,441 will be reduced to 35.82%. The second bracket of 37.48% applies to an income between € 38,441 and € 76,817 per year. With this, the cabinet improves the purchasing power for middle-income and various vulnerable groups.
Box 2 rate adjustment
The rate of the second bracket for income or gains from a substantial interest will be reduced from 33% to 31% in 2025. The rate for the first bracket will remain 24.5% for the first €67,000 (€134,000 for tax partners).
SME profit exemption
Clients who enjoy business profits for income tax purposes can take advantage of the SME profit exemption. This will be reduced from 13.31% to 12.7% in 2025.
Tax credits
A number of tax credits are being adjusted.
- The maximum general tax credit will be reduced, its reduction in percentage will be slower than in 2024;
- The labor discount goes up a fraction;
- The (single) elderly tax credit goes up a fraction;
- The income-dependent combination discount goes up a fraction, in addition, it will not be abolished as of 2025 but will be phased out from 2027. This will be related to an adjustment of the childcare allowance from 2027.
Adaptation of business succession schemes
The following four measures are proposed by the Cabinet for in the business succession scheme and the pass-through scheme:
- Limit scope of both schemes to regular shares with a minimum 5% interest in issued capital.
- The possession and continuation requirement in the business succession scheme is shortened to three years.
- Unintended use of the schemes will be addressed, such as walker investments and the double BOR.
Parts 1 and 3 have an intended effective date of Jan. 1, 2026, and part 2 should take effect Jan. 1, 2025.
Additional transportation expenses due to illness or disability
For visiting a doctor, hospital or pharmacy, a fixed amount of 23 cents per kilometer is deductible. People who have additional transportation costs due to a serious illness or disability may additionally deduct a fixed amount of €925.
Reduced VAT rate abolished
The reduced VAT rate for such things as culture, books and overnight stays in hotels and vacation homes will be abolished. The general rate of 21% will apply to these from January 1, 2026.
Housing Market
The transfer tax rate for homes, not for owner-occupancy, will go from 10.4% to 8% on January 1, 2026. This will apply particularly to homes purchased by investors for rental purposes.
Box 3 (wealth tax)
The Cabinet has decided on who is eligible for additional box 3 legal recovery following the Supreme Court ruling of June 6, 2024. A broad target group was chosen.
All taxpayers with a final assessment imposed or to be imposed after the Christmas ruling of Dec. 24, 2021, can file a notice of objection or request an ex officio review indicating that they wish to use the actual return form. As things stand, the form will be made available by the Tax Administration in the summer of 2025. Filing an objection or requesting an ex officio review will only be effective if it can be demonstrated that the actual return was lower than the assumed fixed return.
Closing
Any questions regarding these proposals and upcoming changes? Please feel free to contact us. We will be happy to assist you further!
