(Dec. 22, 2009) On December 15, 2009, the Upper House (Eerste Kamer) of the Parliament of the Netherlands passed a bill that will dramatically lower inheritance and gift taxes, by granting higher exemptions and lower rates. The amendments, most of which will be to the Law on Succession (Successiewet), will become effective on January 1, 2010. Some of the highlights are as follows.
The inheritance tax and the gift tax are levied, respectively, on the value of all property inherited and of all gifts received from an individual who at the time of death was a resident of the Netherlands. Heirs or donees include partners (married individuals or unmarried partners who fulfill the criteria of both partners being of a majority age and pursuing a “common household,” which is further defined in the amending bill), children, grandchildren, and others. (René Offermanns,Bill on Inheritance and Gift Tax Reform Published, TNS ONLINE, Apr. 22, 2009, available at http://online2.ibfd.org/data/tns/docs/html/tns_2009-04-22_nl_1.html#tns_
The inheritance exemption will be €600,000 (about US$872,766), reduced by pension and annuity amounts received (but with a minimum exemption to be €155,000 (about US$225,465)) for partners; €19,000 (about US$27,638) for children and grandchildren; and €45,000 (about US$65,458) for parents who inherit from their children. The tax-exempt amount of gifts to children will be €5,000 (€57,000 for sick and disabled children) (about US$7,273 and $82,913, respectively). There is also a one-time only exemption of €24,000 (about US$34,911), for children between the ages of 18 and 35, unless the gift is used for the purchase of a home or to pursue an education, in which case it is €50,000 (about US$72,731). (Id.; René Offermanns, Lower House Adopts Bill on Inheritance and Gift Tax, TNS ONLINE, Nov. 4, 2009, available at http://online2.ibfd.org/data/tns/docs/html/tns_2009-11-04_nl_1.html#tns_
2009-11-04_nl_1; Press Release, Ministry of Finance of the Kingdom of the Netherlands, Erfbelasting per 1 januari fors omlaag [in Dutch] (Dec. 12, 2009), available at http://www.minfin.nl/Actueel/Nieuwsberichten/2009/12/Erfbelasting_per_1_
The inheritance and gift tax rate on amounts up to the first €118,000 (about US$171,644) will be reduced to 10% for partners and children, with the remainder subject to a 20% rate; for others the rates are 30% and 40%, respectively. (Id.)
The amendments simplify the business succession exemption and the succession of a participation in a business or of a substantial shareholding. Inheritance of a company valued at €1 million (about US$1,454,610) is 100% tax-exempt. For companies worth more than that amount, an exemption rate of 83% applies to the excess amount. (Press Release, supra.) If a business is continued for at least five years, there is a waiver of tax on the non-exempt portion for a certain period. The testator or donor must meet certain criteria as well. As for gift tax in connection with succession to a business, the requirement that the donor be incapacitated or be at least 55 years of age has been removed. (Offermanns, Apr. 22, 2009, supra.)
Reportedly, the lower rates will be financed chiefly by means of taxation of “separated private equities” (e.g., trusts, foundations), which previously did not report their assets to tax authorities. (Press Release, supra [click on link at bottom of page to access more detailed overview].) The amendments provide for a new provision in the Income Tax Law stipulating that equity and debts, as well as income and expenses, for a separated private equity are attributable to the individual who did the separation, and, after his death, to his heirs. However, “separated equity is not included in taxable income if the profits resulting from the equity in a foreign country are taxed at a rate of at least 10% on a taxable profit calculated according to Dutch standards.” (Offermanns, Apr. 22, 2009, supra.)