Adjustments gift deduction from 1 Januari 2025

23/09/24

This article was last updated on 18 December 2024

In the Tax Plan 2025, the government initially proposed to abolish the deduction for gifts from companies and substantial interest holders from 1 January 2025. In a prior stage, the government also intended to cut the gifts deduction for individuals in the income tax. But contrary to what was indicated in the Outline Agreement, based on the Tax Plan 2025, the arrangements for deducting one-time and periodic gifts to charities already remain unchanged. On 14 November 2024, the House of Representatives subsequently retained the gift deduction for from companies by amendment and widened the periodic gift deduction by increasing the upper limit from 250,000 euros to 1.5 million euros per year.

This is the result of a successful lobby, particularly by the charity sector. As PwC Chief Economist Officer Barbara Baarsma previously noted in an opinion piece in Dutch newspaper Trouw, the arts and culture sector is hit hard by a combination of VAT increases, higher gambling tax, less gifts deduction, and less subsidies. For the gifts deduction, the government has somewhat mitigated this. The VAT increase for the cultural sector also appears to be off the table, although alternative cover for this plan has yet to be found in 2025.

The ‘arrangement for giving by companies’ does come to an end. This creates a bottleneck for the transfer of assets and enterprises to qualifying charities (ANBIs), for example in the context of steward-ownership. With an increase in the cap on the periodic gift deduction, the Lower House wants to accommodate this to some extent. The Senate has requested the government through an adopted motion to explore alternatives to this scheme in collaboration with the (philanthropic) sector.

What does this mean for your company?

Companies can continue to make deductible gifts to charities (ANBIs or support foundations for social institutions, ‘SBBIs’). This so-called non-business gift is deductible for corporate income tax up to 50 percent of the profit with a maximum of 100,000 euros. Above these limits, the gift is not deductible.

Until 1 January 2025, the gift above this limit is disregarded, which means that it is not deductible but also not 'requalified' as a taxable distribution to the shareholder in private and a gift from the shareholder in private. The ‘arrangement for giving by companies’ that currently prevents this requalification, is abolished by the end of this year. From then on, a non-business gift to charities – insofar it exceeds the deductible amount of 100.000 euros – is considered a non-business expense that is requalified as a distribution to the shareholder, which is taxed with income and dividend tax. The expense can then again be considered a gift by the shareholder in private to the relevant ANBI or support foundation SBBI. This means the shareholder can use the (regular) gift deduction for personal income tax.

Besides that, business expenses such as sponsorship, advertising, expenses in the context of corporate social responsibility or to strengthen corporate image (such as business gifts to charities) can qualify as business costs for a company. If a contribution can be qualified as such, they are fully deductible for corporate income tax.

What does this mean for you as an individual?

The deduction for gifts from individuals remains unchanged. Your one-time gifts to ANBIs and support foundations SBBI are deductible within certain limits. Until 31 December 2024, your periodic gifts to ANBIs and certain associations are fully deductible up to a maximum of 250,000 euros per year. After that date, a cap of 1.5 million euro applies. Further, the multiplier for gifts to cultural institutions remains intact.

For the deduction of one-time gifts, both a threshold and a ceiling apply. One-time gifts are deductible to the extent that they exceed 1 percent of your (joint) aggregate income before applying the personal deduction, with a minimum of 60 euros, and up to a maximum of 10 percent of your (joint) aggregate income before applying the personal deduction. The aggregate income is the total income from box 1, box 2, and box 3.

The maximum deductibility of periodic gifts of 250,000 euros per year and per household was introduced on 1 January 2023, and has transitional law until 2026. The explanation of this measure states that this adjustment will be a point of attention in the next evaluation of the gifts deduction, which will take place in five to seven years. Based on this, our expectation is that the gifts deduction for individuals - with the current increase to 1.5 million euro - will remain unchanged in the coming years, at least until the evaluation that will take place in 2028, 2029, or 2030.

Giving to ANBIs and steward-ownership

A point of attention is that the government, by abolishing the arrangement of giving from the company, ends the possibility for substantial interest holders to transfer assets or a business to an ANBI without fiscal barriers. This arrangement is a nice boost for steward-ownership. In this business model, shareholding is filled by a designated group of stewards who fulfill it in service to the company. Profits mostly remain in the company or are given a social destination. Steward ownership can be a good alternative to traditional business succession, for example, if there is no successor within the family.

Now that the measure has been adopted, business succession to ANBIs will become more difficult taxwise, while we believe this is a positive development that deserves stimulation. As of 1 January 2025, the non-business gift from a company, insofar as it exceeds 100,000 euro, will be regarded as a distribution to the shareholder, who must pay income tax and dividend tax on it. The Lower House wanted to accommodate this somewhat by increasing the ceiling of the periodic gift deduction from 250,000 euro to 1.5 million euro per year. However, this means that the transfer of shares must take place over at least five years. Thus, for very valuable shares, this does not offer a complete solution. We therefore advocate for an alternative, such as a scheme comparable to the existing rollover scheme in income tax.

In a somewhat similar direction, the Senate has passed a motion requesting the government to consult with the (philanthropic) sector about the impact of abolishing this donation scheme and to explore possible alternatives in consultation with the sector. However, a motion to investigate whether an alternative scheme specifically for steward-ownership is feasible did not pass.

Backgrounds from the Outline Agreement

Based on the Outline Agreement, the goal was still to standardize the gifts deduction in income tax by 2028 at the latest and to treat different types of gifts equally for tax purposes. However, the government has now decided to maintain the gifts deduction in income tax and believes it simplifies the tax system by only abolishing the gifts deduction in corporate income tax and the arrangement of giving from the company. The consideration not to standardize the gifts deduction in income tax is partly based on the limited room for policy measures that require major adjustments in automation.