In advance of the talks taking place today on the Dutch major tax reform plan the special envoy for Dutch startups Neelie Kroes calls the country’s parliament to seize this ‘unique opportunity’ to transform the Dutch tax system to a more startup friendly one.
In a letter (in Dutch) sent yesterday to the leaders of all political parties Kroes laments the absence of a special attention to the needs and demands of Dutch startups.
Kroes adds that this is specially striking giving the fact that the Netherlands already lags behind many countries that have reformed their tax system to better serve startups. Kroes: “Belgium has recently made four specific adjustments for startups in their tax system and France, the United Kingdom and USA have also made several adjustment to make the tax system more startup friendly.”
The Dutch cabinet led by Kroes’ party member prime minster Mark Rutte announced a major overhaul of the country’s tax system last year. The goal of the reform is to simplify the tax system. Making it more easier for citizens and companies to understand its workings and the Dutch service, the Belastingdienst, to enforce. The more macro economic goal of the reform is to reduce taxes on employment and foster economic growth.
Kroes argues that startups are key to innovation and job creation. She states that the goal for simplicity is perfectly in line with the needs of the Dutch startup ecosystem. In the letter to parliament leaders Kroes specifies the following five measures to improve the Dutch tax system for startups.
1. Minimum salaries for company directors
If you set up a private limited liability company or BV, comparable to the English Ltd or LLC in the USA, company directors are obliged to pay themselves a minimum salary of €44.000 per year – even if the startup is not making any revenue. Right now company directors can negotiate another deal with the Belastingdienst, the Dutch tax service. To free startups all together from the hassle of meeting this rule Kroes pleads for a complete exemption for startups for the first two years of their existence.
2. Employee share options
To attract top talent startups often offer employees shares besides a basic salary, because they cannot offer competitive wages. But in the Netherlands as soon as employees exercize their options after a few years there is this perverse incentive that they have to pay highest rate of income tax, 52 % if the startup turns out to be successful. Kroes argues to levy the shares as the much more favourable tax classes ‘acquired assets’ or ‘substantial business interest.’
3. Tax relief for investors
The proposed measures to change the tax on savings and investments can be very harmful for startups the letter notes. If the taxes for investments increase the Netherlands might have one of the most unfavourable tax rulings in the world for venture capital, Kroes warns. Adding that Dutch startups are already relocating to London, because they can find investors much more easily there. She calls for a favourable tax system for venture capital and angel investment. Noting that it’s astonishing to see that the Netherlands is swimming in the opposite direction towards the UK, Belgium and France – countries that are making investing in startups interesting again.
4. WBSO subsidy
One of the most famous and most used innovation subsidies in the Netherlands is the so-called WBSO subsidy. Though this employee tax subsidy is interesting the transaction costs off applying, project management and meeting all the requirements is so cumbersome that many startups don’t even try applying. Kroes calls for measures to ease the use of the WBSO for startups.
The final advice Kroes gives the Dutch parliament is to further examine the possibilities of creating the Startup-BV, a private limited company form intended specifically for startups. The idea of the Startup-BV was initially proposed by the social-liberal polital party D66. It entails the exemption of startups in the first years of their existence from a number of rulings. The idea is to empower startups to dedicate almost all their resources to first build their products and grow.