As of January 1, 2019, the tax rates for employees born on or after January 1, 1946 will be:

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1 Budget Day 2018: changes to payroll taxes On Budget Day, September 18, 2018, the government presented the package of measures for the 2019 Tax Plan to the Lower House. In this memorandum we address the most significant proposed changes to payroll taxes and a number of changes to personal income tax related to international employment. These changes are included in the 2019 Tax Plan and the Green tax measures The proposals are intended to take effect on January 1, 2019, unless another date is explicitly stated. We will also focus on a number of changes (tax credit for foreign taxpayers and addition to income for zero emission cars), which have already been adopted (2018 Other Tax Measures and the Motor Vehicles Memorandum (Implementation) Act II), as well as the introduction of the reporting obligation for service providers as of January 1, 2019, the future replacement of the Assessment of Employment Relationships Deregulation Act (Wet deregulering beoordeling arbeidsrelaties; DBA Act) and the changes to sectoral contributions. Tax rates and tax credits in the 2019 Tax Plan The combined tax rate in the second and third payroll tax and personal income tax brackets is 40.85% in As of January 1, 2019, the tax rate in both brackets will be decreased by 2.75 percentage points to 38.10%. The tax rate in the fourth bracket is 51.95% in 2018 and will be reduced by 0.2% to 51.75% as of January 1, In addition, the first and second brackets will be extended and the third bracket scaled back, which means that in 2019 just like in 2018 the fourth bracket will start at a taxable income of more than EUR 68,507. As of January 1, 2019, the combined rate in the first bracket will be 36.65%. As of January 1, 2019, the tax rates for employees born on or after January 1, 1946 will be: Taxable salary But not more Tax rate National Insurance Combined more than than Contributions rate - EUR 20, % 27.65% 36.65% EUR 20,384 EUR 34, % 27.65% 38.10% EUR 34,300 EUR 68, % % EUR 68, % % The rate structure for 2019 and 2020 anticipates the introduction of the two-bracket regime as of The general tax credit The maximum general tax credit will be increased by EUR 184. Adjusted for inflation, the maximum general tax credit will be EUR 2,477 as of January 1, The amount of the general tax credit is dependent on a person s income. The higher the income, the lower the general tax credit. For incomes of EUR 68,510 and above, the general tax credit will be nil.

2 Page 2 The labor tax credit The maximum labor tax credit will be increased by EUR 111. Adjusted for inflation, the maximum labor tax credit will be EUR 3,399 as of January 1, The amount of the labor tax credit is dependent on a person s income. The labor tax credit is gradually phased out for employment income of EUR 34,060 and above. For employment income of EUR 90,710 and above, the labor tax credit will be nil. Pursuant to EU law, residents of the European Union (EU), European Economic Area (EEA), Switzerland or the BES islands (Bonaire, St. Eustatius and Saba) are entitled to both the full tax component of the labor tax credit and the income-related combination tax credit, and the Dutch tax authorities take account of this. As of January 1, 2019 this will be regulated by law. To supplement this, it will be explicitly laid down in the Personal Income Tax Act (Wet op de inkomstenbelasting) that, for foreign taxpayers, the worldwide income from employment is the starting point for determining the amount of the labor tax credit (i.e. not only the part taxable in the Netherlands). Income-related contributions for health insurance under the Health Insurance Act As of January 1, 2019, the income-related contributions for health insurance under the Health Insurance Act payable by the employer will be increased from 6.90% to 6.95%. The maximum contribution base for the Health Insurance Act is EUR 55,923 as of January 1, Increase in untaxed remuneration/provisions for volunteers Under certain conditions, volunteers are not regarded as employees for the purposes of payroll tax and are eligible for the tax exemption for volunteers. In order to qualify as a volunteer, a person must not perform paid work for a public welfare institution (Algemeen Nut Beogende Instelling; ANBI), a sports organization or an organization that is not subject to or is exempt from corporate income tax. If this is the case, a maximum amount of EUR 150 per month and, on a calendar year basis, a maximum total of EUR 1,500 can be given to the volunteer as an untaxed reimbursement/provision. With effect from January 1, 2019, this amount will be increased to EUR 170 per month and EUR 1,700 per calendar year. If one of the two amounts is exceeded, the tax exemption for volunteers will not apply and it will have to be assessed whether there is an employment relationship or a deemed employment relationship. The increase will also apply for the purposes of employee insurance schemes. Fixed addition for company bicycle The scheme whereby a company bicycle is also made available for private use will be simplified with effect from January 1, At the moment, the actual benefit of the private use of the bicycle must still be determined on a case-by-case basis. As employers find this administratively cumbersome, from 2020 a fixed addition will apply to the private use of the bicycle that is made available, as is also the case with company cars. For the bicycle that is made available, the fixed addition will be 7% of the bicycle s recommended retail price. Bicycle accessories that form part of the recommended retail price and that are provided with the bicycle fall under the fixed

3 Page 3 allowance. If the employee is charged for the private use of the bicycle, this may be deducted from the addition to income, although the net result cannot be negative. There is no legal definition for bicycle and this should therefore be in line with normal usage. To avoid any doubt, a provision will be included in legislation stipulating that in this context speed pedelecs are also regarded as bicycles if they are partly powered by human effort and are equipped with an electric motor (legally they are mopeds). In principle, the tax inspector must prove that a bicycle has also been made available for private purposes. However, for the sake of simplicity, practicability and enforceability, a bicycle will in any case be considered to be available for private purposes if it is also available for commuting. The RAI Association and the BOVAG will design a website where the current and historical recommended retail prices will be available online. If no recommended retail price is available, the price of the most comparable bicycle should be used. 30% ruling shortened to five years as of January 1, 2019 The 30% ruling is a form of tax relief for employees coming to the Netherlands who are recruited from abroad and who possess specific expertise that is not present or is scarce in the Dutch labor market. Under this tax relief, employers can remunerate roughly 30% of the salary untaxed (tax-free reimbursement). As announced, the 2019 Tax Plan includes a measure shortening the period for which the 30% ruling is granted from eight to five years as of January 1, Of vital importance is the fact that this change also applies to employees currently using the 30% ruling. This effectively means that, for existing cases, the end date of the 30% ruling decision is brought forward by three years, but obviously not before December 31, Under the 30% ruling, it is possible to opt for partial foreign taxpayer status in the personal income tax return. This means that for the purposes of taxation in Box 2 (substantial interest) and Box 3 (income from savings and investments), the employee is regarded as a foreign taxpayer and is therefore only subject to tax in Box 2 and Box 3 to a limited extent. Due to the shortened duration of the 30% ruling, the period during which the option for partial foreign taxpayer status can be taken will also be shortened from eight to five years. Tuition fees for an international school may, in addition to the 30% ruling, also be reimbursed tax-free. In 2019, tuition fees relating to the 2018/2019 school year may be reimbursed tax-free to employees who at that time would have been able to make use of the 30% ruling if the term of the grant had not been shortened as of January 1, 2019.

4 Page 4 Transitional provision protective assessments for annuities and pensions (personal income tax) In the event of emigration, the Dutch tax authorities may impose a protective assessment for annuities and pension entitlements. A protective assessment is an assessment that is imposed but not yet collected. Collection only takes place when a tainted transaction (such as surrender, selling, lending, pledging and the waiving of enforceable entitlements) takes place within a ten-year period after the year of emigration. On July 14, 2017, the Supreme Court ruled that, for certain periods, expenses, entitlements or contributions relating to annuities and pensions may not be taxed by means of a protective assessment if a tax treaty allocates the right to tax future payments exclusively to the taxpayer s state of residence. The 2019 Tax Plan proposes to regulate this by law as follows: Pension: entitlements and contributions for which tax relief was granted by the Netherlands will not be taken into account when imposing the protective assessment insofar as these relate to the period through to July 15, Annuities: contributions for which tax relief was granted by the Netherlands will not be taken into account when imposing the protective assessment insofar as these relate to the period through to December 31, 1991 or to the period from January 1, 2001 through July 15, Capping of the discount for the addition to income for zero emission cars (Motor Vehicles Memorandum (Implementation) Act II; Wet uitwerking Autobrief II) A reduced addition to income percentage of 4% applies to zero emission cars (cars that do not emit CO2). As of 2019, new zero emission cars will fall under the regular addition to income percentage of 22% insofar as their list price exceeds EUR 50,000. An exception applies to hydrogen-powered cars: these continue to be included in full under the reduced addition to income percentage. Application of tax component of payroll tax credit (2018 Other Tax Measures) Last year s Tax Plan included a change to tax credits. As of January 1, 2019, only the tax component of the labor tax credit and not the tax component of the other tax credits (such as the general tax credit) may be taken into account in the payroll tax (payroll records) for foreign taxpayers. As an additional condition for the application of the tax component of the labor tax credit in the payroll records, the employees must reside in a country within the EU/EEA, Switzerland and the BES islands. Employees who do not live in the abovementioned countries are not eligible for the labor tax credit. In this context, the employer must therefore establish the tax residence of its employees. This means that employees who are not tax residents of the Netherlands must be included in the Dutch payroll records with their foreign home address (even if they are staying at a Dutch address). As a result of this already adopted change to how the tax credit is applied in the payroll records, the Dutch tax authorities have stated in their 2019 Payroll Tax Newsletter that the anonymous persons tax rate applies if the

5 Page 5 employer enters the Dutch address instead of the foreign home address in its payroll records. Since the employer cannot distinguish between qualifying and non-qualifying foreign taxpayers, the employee will have to use the personal income tax return to claim the tax component of the other tax credits if the employee qualifies as a qualifying foreign taxpayer. The above can be represented schematically as follows: 1. Employees outside EU/EEA, Switzerland, BES islands 2. Employees within the Group 1 territories and non-qualifying foreign taxpayer 3. Employees within the Group 1 territories and qualifying foreign taxpayer Entitlement to tax component of labor tax credit? No Yes, applied in payroll tax No Entitlement to tax component of other tax credits? No Yes, applied in payroll tax Yes, cannot be applied in payroll tax, claimed via the personal income tax return Reporting obligation for EU service providers to take effect in 2019 On June 18, 2016, the Posted Workers in the European Union (Working Conditions) Act (Wet arbeidsvoorwaarden gedetacheerde werknemers in de Europese Unie; WagwEU) entered into force in the Netherlands. Obligations apply to employers established abroad and Dutch employers to whom such employees are seconded. If the obligations are not met, high penalties may be imposed. Presumably with effect from April 1, 2019, the previously announced reporting obligation will be introduced for service providers from other EU Member States whose employees work in the Netherlands. The introduction of this obligation means that the Inspectorate SZW (Ministry of Social Affairs and Employment) can monitor whether EU employees receive the minimum employment conditions to which they are entitled and thus whether the foreign businesses comply with the European Posting Directive. The reporting obligation also has consequences for the service recipient who is required to check, no later than at the commencement of the activities, whether this has been reported and, if so, to verify whether the individuals who are going to perform the work are the same individuals who were reported. Replacement of the DBA Act further elaborated in 2019 The measures to replace the Assessment of Employment Relationships Deregulation Act (Wet deregulering beoordeling arbeidsrelaties; DBA Act) will be further elaborated in The aim is to combat pseudo self-employment and competition on labor conditions, especially at the bottom of the employment market. In addition, the measures are intended to offer certainty to self-employed persons and their contracting

6 Page 6 parties that there is no employment relationship. The DBA Act is still in force, but its enforcement has been postponed, subject to conditions, until January 1, Changes to sectoral contributions 2020 On Friday, June 29, 2018, the Cabinet approved the Labor Market Improved Equilibrium Act (Wet arbeidsmarkt in balans; WAB). Under this Act, sector-specific unemployment contributions will be replaced as of 2020 by contributions differentiated according to the type of employment contract and sectoral contributions will be abolished. Subsidy measure Wage cost benefit (SZW Budget 2019) For two specific target groups (banenafspraak: people in government assistance programs or who cannot get a job without government help; and scholingsbelemmerden: people whose education has been hindered due to an illness or disability), the wage cost benefit (LKV) will now apply for a maximum of three years. The three-year limit will cease to apply with effect from Meijburg & Co September 2018 The information contained in this memorandum is of a general nature and does not address the specific circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.