Low Dutch corporate tax rate should be scrapped, fails to help small businesses

The low corporate income tax (vpb) rate is not suitable to support small and medium-sized enterprises (SMEs) and it would be better if it is abolished, said the Netherlands Bureau for Economic Policy Analysis (CPB) after conducting research. The corporate income tax is the tax that private limited companies, public limited companies, and similar companies pay on their profits.

According to the CPB, the scheme does not suit the problems that SMEs have, and the benefits will mainly go to companies that this is not intended for. "Of the 3 billion euros in tax benefits that the low corporate income tax rate yields this year, more than half will end up with other types of companies, such as investment firms and self-employed people without employees. The scheme is therefore not very targeted and an inefficient way to stimulate SMEs,” the researchers concluded.

A lower corporate income tax rate of 19 percent applies for profits up to 200,000 euros. In the period 2007 to 2021, the number of companies using the low rate doubled from 200,000 to 400,000. "However, around 25 to 45 percent of SMEs do not benefit from the low corporate income tax rate each year," the CPB explained.

According to the bureau, abolishing the scheme does not necessarily mean an increase in costs for companies. “The current budget can also be used for business in other ways, such as a lower general rate. When the aim is to promote specific economic activities such as investment and innovation, targeted incentives are a better alternative."

The study was commissioned by the Ministry of Finance. In principle, the ministry must abolish or adjust a scheme if an evaluation is unfavorable, or at least explain why it wants to continue with it. The Cabinet will respond to the CPB's assessment before the summer.