Tax consequences of Brexit up to 31 December 2020

On 29 January 2020 the Ministry of Finance issued a decree providing explanatory notes to the tax consequences of Brexit on 1 February 2020. The decree applies during the transitional period from 1 February up to and including 31 December 2020. Up to 31 December 2020, for the application of tax rules, it is assumed that the United Kingdom (UK) is still part of the EU. In 2020 residents of the UK are, consequently, still qualified as residents of the EU.

Transitional period: application of EU law

During the transitional period (1 February up to and including 31 December 2020) European Community law remains applicable to the UK. This implies that in 2020 EU treaties, regulations, directives and case law of the European Court of Justice remain applicable in respect of the UK.

This means, inter alia, the following:

  • In 2020 residents of the UK can remain qualifying foreign taxpayers and continue claiming the same tax deductions as residents of the Netherlands, if they meet the other conditions;
  • In 2020 residents of the UK remain entitled to the tax component of the employed person’s tax credit and the income-dependent combination credit, if they meet the other conditions;
  • In 2020 the Dutch Research and Development Work (Promotion) Act remains applicable to activities performed in the UK;
  • In 2020 the application of the participation exemption remains unchanged for taxpayers with a qualifying interest in an UK company;
  • In 2020 the application of the fiscal unity remains unchanged for Dutch entities with a top or intermediate holding company in the UK;
  • In 2020 an employee residing in the Netherlands, who is employed by an employer established in the UK, is still by fiction considered to be subject to taxation in the context of the prevention of double taxation;
  • Up to and including 31 December 2020 guarantee does not need to be provided when a preservative income tax assessment is imposed in case of emigration to the UK;
  • Up to and including 31 December 2020 it remains possible for residents of the UK to agree on a payment scheme for exit taxations relating to income and corporate income tax.

An identical transitional period applies to the indirect taxes, e.g. the VAT and customs levies. For more information about this we refer you to this news item.

Finally

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