Who pays taxes in The Netherlands?
All residents in the Netherlands are subjected to income tax on their worldwide income. The non-residents are only subject to tax on specific income tax for just the Netherlands-source income. The tax system in the Netherlands Is complex. We are going to give you a bit more insight in this complex system. Starting with how the income is taxed. That’s not the only taxes that should be paid. We will go into this later. At the end we explain how the annual tax return works.
How the income is taxed
The taxes on your income in the Netherlands are based on the type and amount of income. income taxes are divided into 3 groups (boxes), each with its own taxrate:
- Box 1: taxable income from work and home
- Box 2: taxable income from significant interest
- Box 3: taxable income from savings and investments
You can have 3 different taxable incomes. These are divided in three boxes, that allows you to calculate how much income tax and national insurance contributions you owe. The way this works is by applying the rates to the taxable incomes. The income is treated per box and taxed as much as possible per box. This means the following:
- Each type of income falls into one box. Your income is therefore not subject to double taxation.
- For each box there is a different taxrate
- You can’t set off a negative income (loss) in one box against a positive income in another box.
In Box 1 the taxable income from work and home is calculated. This calculation consists of the revenues of work and home. But also, the deductions that come out of your work and home income.
Revenues that fall into Box 1 include, but are not limited to:
- Profit from enterprise;
- Wages, benefits or pensions;
- Tips and other revenue;
- Foreign income;
- Income as a freelancer, host parent, artist or professional athlete;
- Periodic payments (such as annuity payments or alimony payments);
- Negative personal allowance;
- Premiums received in respect of annuities and similar annuities;
- Housing default;
- Home equity insurance.
In box 1 you can have the following deductions:
- Travel allowance for public transport;
- Deductible expenses for owner-occupied housing;
- Expenditure on income provisions, such as annuity premiums;
- Personal allowance, such as:
- Maintenance and other maintenance obligations;
- Expenditure on specific health care costs;
- Temporary stay at home severely disabled;
- Study costs and other training expenses
- Remaining personal allowance.
To calculate the taxes to be paid in box 1 one has to sum up the total income as described abouve:
|1||Till € 20.384||36,65%|
|2||From € 20.385 till € 34.300||38,10%|
|3||From € 34.301 till € 68.507||38,10%|
|4||From € 68.508||51,75%|
In Box 2 the taxable income from significant interest is calculated. In the Netherlands significant interest is taxed higher than income from work or home. That is why it’s calculated in a different box than income and home.
Significant interest can be attained by having, for example, a substantial interest in a company or cooperative. This can mean that you will have to pay tax on the benefit you are getting from this interest you are receiving. The two types of advantages can be:
- Regular benefits, such as dividends;
- Disposal benefits, such as gains on the sale of shares.
The tax percentage in Box 2 is 25%. This percentage is the same for the taxes calculated over 2017, 2018 and 2019.
Definition substantial interest
Substantial interest is a subjective description of the extent of the interest. In the Netherlands a substantial interest is considered substantial when you, possibly together with your tax partner hold at least 5% of the shares:
- The shares (also per type) in a domestic or foreign company;
- The profit-sharing certificates of a domestic or foreign company;
- The rights of usufruct (also by type) of the profit-sharing certificates or shares in a domestic or foreign company;
- The right to vote in a cooperative or association on a cooperative basis.
You also have a substantial interest if you, and your possible tax partner, have options to acquire at least 5% of the shares (also per type) in a domestic or foreign company. A certificate of a shareholding in an open fund on joint account also counts as a ‘share in a company’.
What’s considered a substantial interest
You have a substantial interest if you, and your possible tax partner, directly or indirectly hold at least 5% of the shares:
- The shares (also per type) in a domestic or foreign company
- The profit-sharing certificates of a domestic or foreign company
- The rights of usufruct (also by type) of the profit-sharing certificates or shares in a domestic or foreign company
- The right to vote in a cooperative or association on a cooperative basis
You also have a substantial interest if you, and your possible partner, have options to acquire at least 5% of the shares (also per type) in a domestic or foreign company. A certificate of a shareholding in an open fund on joint account also counts as a ‘share in a company’.
In Box 3 the taxes over savings and investments is calculated. Savings, shares or a second home can be seen as assets that will be taxed. That is when you don’t have to indicate the actual income, for example the interest on your savings, the dividend on your shares or the rental income. You can’t deduct your costs, such as interest paid.
A fixed percentage of your basic savings and investings are charged as your benefit in box 3. Your basis for saving and investing is the value of your assets (assets less debts) on 1 January, after deduction of the tax-free assets. Your debts are reduced by a threshold.
You reduce your taxbenefit with your personal deduction if you do not have enough income for this in box 1. What remains is your taxable income in box 3.
The percentage taxes to be paid in box 3 is 30%. This is a set percentage.
Other taxes in the Netherlands
Depending on your activities the following taxes that are retained in the Netherlands could be:
- Turnover tax;
- Excise and consumption taxes;
- Gambling tax;
- Inheritance tax, gift and transfer;
- Tax on passenger cars and motorcycles (bpm);
- Motor vehicle tax and heavy vehicle tax;
- Taxes on legal transactions: transfer tax; insurance tax and capital tax;
- Environmental taxes (groundwater tax, tap water tax, waste levy, fuel tax and energy tax);
- Import taxes (customs duties).
Annual tax return
Each resident of the Netherlands is responsible to file their taxes annually. This can result in a tax return. The government levies the taxes on your salary. After each year you file your complete income on al 3 boxes. You do this to calculate your final taxes. According to this calculation you will either receive a compensation or you will need to pay more taxes.
Taxes can be filed online. The Dutch government keeps updating and developing this option. This to make it easier and faster to do your taxes. It will automatically fill in the numbers and personal details based on the information they received from your work or data.
When doing taxes is not your strong suit, you can also get a tax accountant to do it for you.
30% tax ruling for expats
When you come to work in the Netherlands, you may incur extra costs, the so-called extraterritorial costs. This is setup to make it more accessible for you to work in the Netherlands. The 30% tax ruling for expats works only through your employer.
Your employer is allowed to give you a tax-free reimbursement for the extraterritorial costs you incur. This instead of reimbursing the actual extraterritorial costs, your employer may also reimburse the extraterritorial costs by providing 30% of your wages, including reimbursement, tax-free. This rule is known as the 30% rule.
One of the benefits from this arrangement is that you don’t have to prove any expenses. To take advantage of this ruling you must keep in mind that YOU have to arrange this yourself. Your employer will not automatically do this for the expats they hire.
The 30% rule is meant to cover the extraterritorial cost. Examples of these costs can be:
- Extra costs for living because the price in the Netherlands is higher than in the country where you come from;
- You can think of extra expenses for meals, gas, water and electricity;
- Costs for an introductory trip to the Netherlands, possibly with your family, for example to look for a home or a school;
- Costs of applying for or converting official personal papers, such as residence permits, visas and driving licences;
- Costs of medical examinations and vaccinations for the stay in the Netherlands;
- Double housing costs if you continue to live in your country of origin, these are, for example, hotel costs;
- The (first) accommodation costs If you receive housing, only the (first) housing costs that exceed 18% of the wage from current employment are extraterritorial costs. The rest of the costs are wages. If you rent yourself, your employer may also use the 18% calculation method to provide the excess tax-free. In general, the accommodation costs for furniture cannot be reimbursed or provided tax-free by your employer;
- Storage costs for the part of the estate that you do not move to the Netherlands;
- Travel expenses to your country of origin, for example for family visits or family reunification;
- Extra costs for having the income tax return filled in if this is more expensive than having the tax return filled in by a comparable tax advisor in the country where you come from. A maximum of € 1,000 applies;
- Course costs to learn the Dutch language for you and for the family members who are staying with you;
- Additional (non-business) call charges for making a call to your country of origin;
- The costs of an application for exemption from social security, such as an A1 or E101 certificate
30% ruling conditions
To be able to take advantage of this 30% ruling, you should comply with a set of conditions. To start the 30% rule only applies to you if you have been recruited outside the Netherlands or have been sent from a country other than the Netherlands to work in the Netherlands. That’s not the only condition you have to comply with, in order to be able to make use of the 30%-ruling.
The following conditions, among others, apply for this ruling:
- You are in employment in the Netherlands;
- You have been recruited by your employer from a different country or you have been sent to your employer from a different country;
- You have lived outside the Netherlands prior to your first working day in the Netherlands, for more than 16 months, of the 2 years prior:
- And all this at a distance of more than 150 km from the Dutch border. You can read more about this in the following section: You live more than 150 kilometres from the Dutch border;
- You have specific expertise that is hard or impossible to find on the Dutch labour market;
- You have a valid permit:
- The date of issue of your permit determines the term of validity:
- Permits given before 2012 have a validity of maximum 10 years;
- Permits given between the beginning of 2012 until 2019 have a validity of maximum 8 years;
- When you received your permit in 2019 or later the maximum duration is 5 years.
- The date of issue of your permit determines the term of validity:
Now you know how to get the 30% Tax advantage as an expat, how taxes work and you can file the taxes with the dutch government. It’s a lot to take in. Be sure to understand everything. You don’t want to come across nasty surprises.