The Dutch government will cancel the reservation of funds for old age for entrepreneurs (fiscale oudedagsreserve - FOR). Previously, the scheme allowed tax-free funds to be saved for old age and an addition to the basic state pension provided to people who have reached retirement age (algemene ouderdomswet - AOW). FOR is being phased out from 2023, with an increase in the age required for AOWs expected from 2028. More about the components of a pension in the Netherlands - in our article.
This state of affairs worries entrepreneurs. In this article, we will answer 10 of the most popular questions that arise in connection with the upcoming changes.
1. What is FOR?
The tax-free old-age reserve scheme was designed to accumulate money that would supplement the state pension (AOW) and ensure a decent old age for entrepreneurs. The entrepreneur had to take care of saving these funds on his own. The FOR scheme was not the only way to save for old age, but it was very popular among entrepreneurs and the self-employed, with more than a third of self-employed people using this scheme in 2022.
The scheme was that part of the entrepreneurial profit could be set aside for old age without paying taxes on these funds. Funds could be put into an annuity account or invested in a business. In 2022, 9,44% of the profit could be reserved in this way, but no more than 9632 euros.
In fact, FOR did not fully exempt reserved funds from tax, but only provided a deferment from payment. Taxes were still paid later:
- after reaching retirement age;
- in the event of the death of the entrepreneur;
- upon termination of business;
- if the entrepreneur ceased to meet the criterion of time spent on work in his company (spent less than 1225 hours on this work within two years).
2. Did the FOR Savings Scheme provide tax benefits?
Some benefits could be obtained on the condition that the entrepreneur began to use the accumulated funds only upon retirement. In this case, he received a reduced tax rate, the total amount of payments to the budget was reduced. But there were times when you had to pay more. If an annuity account was not purchased and the company was not closed, the accumulated funds had to be added to income at once. In addition, the entrepreneur's income could exceed the level from which the tax rate increases.
3. What will change from 2023?
From January 1, 2023, it is no longer possible to deposit new funds into the old-age reserve. Previously accumulated funds can be used within the time limits set during the period of the FOR scheme.
4. How much will the repeal of FOR affect entrepreneurs?
Cancellation of old-age reservations has a limited impact on entrepreneurs. 28% of them did not use FOR at all, and 25% used the scheme partially. In addition, as mentioned above, FOR is not an exemption from taxes, but only a deferment in their payment. Sooner or later, the tax office will come for the money, and at this moment it may turn out that there are no free funds to pay the tax. If the money is working in the business, you may have to wind it up or sell it to pay taxes.
5. What is the annual margin?
The annual margin (jaarruimte) should not be confused with the old-age reserve. Jaarruimte applies to all working people, both entrepreneurs and employees. Some people have little retirement savings from the previous year because they were unemployed for a long time, worked part-time, were sick, or were self-employed. As a result, pension contributions were small or non-existent. Such people are allowed to make up for this deficit in the current year.
To use jaarruimte, you need to deposit funds into an annuity or investment account or pay for insurance. These funds are not taxable under either Box 1 or Box 3. More about taxation in the Netherlands - in our webinar series.
6. What is reserve margin?
Reserve margin (reserveringsruimte) is an additional way of tax-free retirement savings. If the annual margin has not been fully utilized for 7 years (for example, due to low income), funds not previously contributed can be exempted from taxes and added to pension savings.
7. What changes to the jaarruimte and reserveringsruimte accumulation rules will come into effect in 2023?
In 2022, the maximum jaarruimte savings limit is 13 euros, in 570 it will be increased to 2023 euros. This change will be retroactive, meaning that by using jaarruimte and reserveringsruimte you will be able to significantly increase your retirement savings.
In addition, the reserveringsruimte will be extended from 7 to 10 years.
8. How can an entrepreneur ensure a decent old age?
AOW and labor pension do not guarantee a comfortable old age. The most effective way to provide for yourself is by saving and investing. However, this method involves paying a wealth tax (Box 3). If you exceed the €57 threshold set for 000, you will have to pay wealth tax.
Current interest rates, combined with high inflation, make it unprofitable to keep funds in bank accounts, and investing brings more income. However, it should be borne in mind that until 2029, the accrual of fictitious "income to wealth" under Box 3 will continue. From 2023, tax rates on savings and investments are differentiated: for savings - 0,01%, for investments - 5,53%. Box 3 taxes are calculated on January 1st. Therefore, it makes sense before the end of the year to withdraw money from investments and put them into the account. After January 1, the money can be invested again. Learn more about tax savings in our article.
9. What do you prefer - an annuity or an investment?
To avoid paying wealth tax, you can put money saved for old age into a special annuity account. It should be noted that its owner is deprived of free access to an annuity account. On the one hand, this is unpleasant, on the other hand, the temptation to spend the money set aside for old age disappears.
From the point of view of profitability, investments are more profitable than an annuity, but they will have to pay tax on Box 3. In addition, any investment is a risk, and the payback period for investments is quite long. Each entrepreneur decides which option to save money on his own. The main thing is that your calculations are correct. If you need advice on tax optimization, contact Nalog.nl specialists.
10. What should I pay attention to?
From the point of view of guaranteed provision for old age, an annuity is more profitable than investment. If it is only about providing for yourself and your family in old age, it makes sense to withdraw money from the business and place it in an annuity account. If you still want to make money from savings, set aside at least a fixed amount for an annuity every month: this will help to ensure old age if your business starts to experience difficulties.
The exemption from taxes of funds set aside for old age is not complete, but rather it is a deferment of payments to the budget. Therefore, when accumulating funds on an annuity, you need to ensure that the amount of your pension after reaching the age established by the state does not turn out to be too large. If this happens and you move into the category of taxpayers with a higher tax rate, after you start receiving money from an annuity account, you will have to pay more significant amounts to the budget.
Publication Date: 12.12.2022
