The tax deduction of gifts in the income tax as well as the corporate income tax has caused a great deal of (fiscal) controversy following Budget Day. Recently on December 17, 2024, the Upper House voted on this issue and approved the regulations proposed on Budget Day that had been partially adjusted by the Lower House. In this article, we provide an overview of the new rules for 2025.
The following regulations regarding the tax gift deduction should be distinguished:
- Corporate tax gift deduction. Current status: abolition by 2025 as proposed in the 2025 Tax Plan has been canceled.
- Scheme giving out of the company. Current status: scheme to be abolished with effect from 2025.
- Income tax gift deduction for periodic gifts. Current status: scheme will be widened in one section effective 2025
- Income tax gift deduction for one-time gifts. Current status: scheme remains unchanged in 2025. The multiplier for gifts to cultural institutions also remains unchanged in 2025.
Tax Plan 2025 process
In the Tax Plan 2025, the Cabinet proposed to abolish both the corporate tax gift deduction and the "corporate giving" scheme as of Jan. 1, 2025.
However, the House of Representatives decided on Nov. 14 to maintain the gift deduction for companies in the corporate income tax and to increase the deduction for periodic gifts by individuals in the income tax from €250,000 to €1.5 million.
There will, however, be an end to the "corporate giving" regulation, which provides that gifts in excess of the maximum deductible amount will not be considered benefits taxable in Box 2 and will be subject to dividend withholding tax. Abolition of this regulation as of 2025, given the potentially higher levy, may hinder the transfer of assets to charities. By increasing the upper limit of the periodic gift deduction in the income tax, the House of Representatives wants to accommodate this somewhat.
Implications for corporations and the substantial interest shareholder
In corporate income tax, it will continue to be possible in 2025 to deduct donations to recognized charities, i.e., General Benefit Boosting Institutions (ANBIs) and Social Interest-Bearing Institutions (SBBIs). These so-called "non-business" donations will remain deductible up to 50% of the profit, with a maximum of €100,000 (per year).
Moreover, until December 31, 2024, these gifts to charities that exceed the maximum of €100,000 will not be reclassified as a taxable distribution to the substantial interest shareholder (in short, a shareholder/natural person with an equity interest of at least 5%).
New scheme (as of Jan. 1, 2025)
Non-business gifts to charities that exceed the maximum of €100,000 will be reclassified as a distribution to the substantial interest shareholder as of January 1, 2025. A dividend tax return will have to be filed by the company for the amount of the excess and dividend tax will have to be remitted. The substantial interest shareholder will owe income tax (in Box 2) on this distribution, net of the withheld dividend tax.
The gift in question can then be regarded as a donation by the substantial interest holder in private to the related ANBI or SBBI. This then means that the substantial interest holder in private may be able to use the gift deduction in income tax (provided that the threshold conditions are met).
Impact on individuals
The tax implications of the current legislative proposals are positive for individuals, as the upper limit for the deductibility of periodic gifts in income tax will be significantly increased from €250,000 to €1.5 million by January 1, 2025.
Deductibility of one-time gifts to charities
The rules for the deductibility of one-time gifts to charities will remain unchanged as of Jan. 1, 2025. They are still deductible in income tax, provided they meet the applicable conditions. Individuals can therefore still deduct their one-time donations to charities, taking into account the threshold and maximum amounts.
Gifts to Cultural ANBIs.
The scheme for donations to cultural institutions also remains intact. Individuals who make a gift to a cultural institution with Cultural ANBI status can continue to benefit from the so-called "multiplier," which increases the tax benefit of such gifts (the amount of the gift times 1.25 up to a maximum of €1,250). This means that the deductibility of donations to Cultural ANBIs is more fiscally attractive than for regular donations.
How does it continue?
The Senate vote on the 2025 Tax Plan took place on Dec. 17, 2024.
With this vote, it is now clear that the "corporate giving" rule will actually be abolished and the widening of the deduction for periodic gifts will go through.
The Senate vote did pass another motion requesting the government to consult with the philanthropic sector on the impact of abolishing the "corporate giving" rule and explore possible alternatives to it in consultation with the philanthropic sector.
Toconclude
Do you have questions about the changes, or are you curious about the possibilities in your specific situation? Feel free to contact us via the contact form below or with your own Govers contact person via 040 - 2504 504. Of course you can also contact us with all your other fiscal questions.
This article is written with informational purpose only and based on the current state of affairs at the time of writing. This article cannot be viewed as any form of advice.