After persistent criticism from the start-up world, the government is introducing a tax benefit for start-up companies. To this end, it adapts the definition of start-ups and scale-ups (companies that have just emerged from the start-up phase). The tax authorities will soon rely on the innovativeness of such a company and its scalability. A solution has also been found for investors and for employees of start-ups who are rewarded with shares.
This was said by Minister Heleen Herbert (Economic Affairs and Climate, CDA) on Wednesday morning at Vliegwiel, a networking meeting for start-ups in Pakhuis de Zwijger in Amsterdam. She thus anticipates the official publication of the bill. To determine whether a company is a start-up or scale-up, we look at its turnover and the number of years of existence. Those requirements expire.
After years of debate, the House of Representatives recently adopted the Actual Return Box 3 Act, which will regulate wealth tax from 2028. This ends the current box 3 legislation, which is based on fictitious returns. The new law taxes actual returns, including unrealized – ‘paper’ – profits. Although there is an exception for taxing investments in start-ups, the start-up sector considers this insufficient.
The sector has therefore strongly opposed the new capital law. Even American tech entrepreneur Elon Musk got involved in that debate via social media. The government had announced in the coalition agreement that “pioneering companies will be big again [moeten] can be achieved in the Netherlands.” The coalition wants to “unleash investments” and “strengthen the business climate”.
Eating elephant
Herbert, Wednesday: “From the community is really said: dude, but this just doesn’t work that way.” She specifically mentioned the problems in box 3, which she said was the “elephant in the room, and we need to eat it.” According to the sector, the new tax rules hinder both the attraction of investors for new tech companies and the remuneration of their employees, and would therefore harm innovation in the Dutch economy.
Under current law, investors and employees in these companies must pay wealth tax on the shares in a start-up or scale-up that they received in exchange for their contribution. If a start-up has increased significantly in value on paper, which happens regularly, a lot of tax must also be paid on those shares. But that asset is not always easy to monetize, entrepreneurs say. For example, owners of those shares could have to borrow money to pay the tax. “It’s like charging someone who has yet to enter the casino to win the jackpot,” said someone at the event.
More than a month ago, Minister Eelco Heinen (Finance, VVD) announced that the new capital law, which had already been adopted by the House of Representatives, must be amended. He stated that his ministry would go “back to the drawing board” for this. Responsible State Secretary Eelco Eerenberg (Tax, D66) was surprised by Heinen’s comments.
Testing for innovation
According to a source from The Hague, the Netherlands Enterprise Agency (RVO, a department of Economic Affairs) will test to what extent companies meet the new definition of innovation and scalability. When asked, Herbert could not explain exactly what the new definition of innovation would look like. “Now I have actually been asked too much,” the minister said NRC. The government wants to hold discussions with the sector in the coming month to arrive at the precise criteria for the new definition.
In addition to adjusting the definition of innovative companies, the government is also partly adjusting their tax treatment. Start-ups often pay their employees not only with wages, but also with shares. To accommodate them, the government is lowering the tax on this specific form of wealth. Instead of the high rate (49.5 percent) in income tax, they will effectively pay a maximum of 32.17 percent tax. They will also only pay taxes when they sell their shares. The current law stipulates that this already happens as soon as the shares become tradable.
