Brexit news: fiscal consequences concerning Brexit withdrawal agreement published
Per February 1st 2020 the United Kingdom (‘UK’) has left the European Union (‘EU’). In order for the UK to withdraw from the EU, the UK and the EU have closed a withdrawal agreement. In short, the withdrawal agreement clarifies that for both direct and indirect taxes the UK will still be treated as an EU Member State until December 31th 2020. Therefore, the Dutch State Secretary of Finance has illustrated the effects of the withdrawal of the UK from the EU using examples.
Up until December 31th 2020:
- UK residents will still be treated as ‘qualifying non-residents’ for the entire tax year 2020, if they earn 90% of their income or more in the Netherlands. If a UK resident qualifies as a qualifying non-resident, the Netherlands will tax the UK resident as Dutch a resident tax payer;
- UK residents will still be entitled to the income tax part of the employment tax credit and the income dependable combination tax credit for the entire tax year 2020 (if they satisfy all requirements);
- Dutch resident employers will still be able to use the wage tax provisions on the high tax rate for non-identified employees. Also, the identification obligation regarding employees will be unchanged for Dutch resident employers for the entire tax year 2020;
- UK crew members remain entitled to the 40% wage tax payment reduction of the tax year 2020 if they are employed on ships sailing under the Dutch flag;
- The wage tax credit for R&D activities will also apply to activities carried out in the UK for the tax year 2020;
- The participation exemption will still be applied in an unchanged manner for taxpayers with a qualifying participation in a UK company for the entire tax year 2020;
- The fiscal unity regime will remain unchanged for fiscal unities with a top or intermediary holding in the UK for the tax year 2020;
- A Dutch resident employee who is employed by a UK resident employer in a third state for a continuous period of three months, is deemed to be subject to tax in that third state for the entire year of 2020. This rule applies if employment is exercised in a third state with which the Netherlands does not have a tax treaty;
- No guarantee has to be provided with respect to preserving assessments imposed if an individual emigrates to the UK for the entire year of 2020;
- Residents of the UK remain to have the possibility for a payment in instalments scheme regarding exit tax imposed when an individual or company emigrates the Netherlands.
The withdrawal agreement expires on December 31th 2020. Therefore, the UK will in principle be treated as a non-EU/third state per January 1st 2021. However, the withdrawal agreement has a possibility of extending the withdrawal agreement. Today, it is still unclear whether the EU and the UK will make use of this extension.