Taxation and death seem to be unavoidable aspects of life.
Generally speaking, taxes are a national issue; and, tax laws change when crossing country borders. For expats, tax consequences differ based on residency status and one’s personal situation. Therefore, some basic knowledge about the Dutch taxation system could save you both money and stress.
General Taxation for Expats
Expats residing in the Netherlands are taxed based on their worldwide income. Annually, they are required to report any/all income and assets to the Dutch tax authorities by filing a Dutch income tax return. Non-resident tax payers are only taxed on income incurred in the Netherlands, such as salary or Dutch property.
Sometimes, an expat living in the Netherlands, with income and assets abroad, is taxed twice on the same income or asset. In this case, double taxation occurs. Depending on the type of income, and tax treaty in place with the expat’s home country, the Netherlands may provide double taxation relief, exempting the income or providing a credit of foreign taxes. In some situations, a refund of foreign withholding taxes on interest and dividends may be requested depending on the percentage withheld and the applicable tax treaty.
The Dutch Tax Year
The tax year in the Netherlands is the same as the calendar year (i.e. January to December). Therefore, one’s annual tax return is due between February 1st and May 1st. Individuals are required to file their tax return either at the request of the Dutch tax authorities, via an invitation in the mail, or when a tax liability exists. The invitation includes by when the return must be submitted. A filling extension maybe requested by contacting Expat Taxes.
Separate Filing for Partners
Taxpayers whom are legally married, live in a registered domestic partnership, or live together with a notary contract, may qualify as fiscal partners. Additionally, taxpayers whom are not married but have a child, are registered as partners for pension purposes, or jointly own a house in which they live, also qualify as fiscal partners.
Fiscal partners may share certain deductions, are eligible for higher exemptions and receive tax credits, especially if one of the partners has little or no income. It is important to note that all taxpayers, regardless of a fiscal partnership, must separately file their own income tax return. Furthermore, a separate assessment will be issued for each taxpayer.
Dutch Income Tax Boxed In
When filing one’s taxes there are a number of boxes which one should be aware of (in the forms)
Residents whom are subject to income tax, are taxed on their worldwide income reported in box 1 (income from housing and employment), box 2 (income from substantial interest) and box 3 (income from savings and investments).
Box 1 income includes income from: salary, business from a sole proprietorship (eenmanszaken) and partnerships (maatschap and Vennootschap onder Firma); alimony; and any other income, such as pension, life insurance, annuities. Box 2 income relates to income from a substantial interest, defined as: owning 5% or more of the shares in a corporation (limited liability entity) such as a Dutch B.V. or any other foreign corporate entity. Taxation in box 2 occurs when dividends are paid out to shareholder(s) or when shares are sold (taxation on capital gains).
Calculation of taxable income in box 1 (income from housing and employment)
The 2018 tax rates in box 1 (income from employment and housing) are as follows:
Tax Bracket Tax Rate
€1 to €20.142 36.55% (includes social security contributions)
€20.142 to €33.994 40.85% (includes social security contributions)
€33.994 to €68 507 40.85%
Above €68.507 51.95%
Deductions and Preliminary Refunds
A taxpayer may be eligible for deductions and/or exemptions, as a means to reduce taxable income. The following costs may be deducted:
- Mortgage costs, including interest and other fees incurred in the process of obtaining the mortgage;
- Study costs (deductible in 2018 but no longer as of 2019);
- Health costs not refunded by one’s insurance company;
- Premiums for life insurance;
- Alimony payments to one’s ex-spouse;
- Cost of maintaining Dutch property, provided the property is classified as a Dutch national monument.
Deductions mentioned above and especially deductions related to mortgage (interest and costs of obtaining it) usually provide for a significant refund.
Rather than waiting to file a tax return in 2020 related to costs made in 2019, for example, a request can be made for a preliminary refund. This allows expats to receive their tax refund early. Expat Taxes can file a preliminary refund.
Calculation of deemed income from savings and investments (box 3)
Resident taxpayers of the Netherlands subject to income tax are taxed on their savings and investments using a deemed rate of return. The Dutch tax system does not tax actual income in box 3. The deemed rate of return is prorated in the year of immigration or emigration.
No taxation is levied on rental, interest or dividend income. Box 3 income is calculated by applying a deemed rate of return on the value of net assets (assets minus liabilities) on January 1st of each year. The deemed rate of return depends on the value of the assets owned. A threshold will apply of €30.000 (2018) for an individual or €60.000 (2018) for fiscal partners. Only the net asset value above the threshold is taxable.
The taxable deemed rate of return is progressive – at a rate of 2,02% on values up to €100.000, 4,33% between €100.800 and €1.008.000, and 5,38% on values exceeding €1.008.000. The total calculated income using the deemed rate of return is taxed at a rate of 30% .
Exemptions apply for certain investments such as what are deemed green investments.
Individuals recruited from abroad who possess specific expertise which are scarce on the Dutch labor market and earn at least €37.296 (which is a gross salary of €53. 280 without 30% ruling) are entitled to the 30% ruling. A lower salary of €28.350 (which is a gross salary of €40.500 without 30%-ruling) applies to individuals with a Masters degree and who are below 30 years of age.
The major benefit of the 30%-ruling is that one’s Dutch taxable salary is reduced to a 70% taxable salary. For instance someone who earns €100.000 EURO per year is taxed only on €70.000 EURO per year. An additional advantage of the 30% ruling is that the option to elect the deemed non-resident tax payer status. Individuals electing this status are not taxed on their worldwide savings and investments. Deemed non-resident tax payers are only taxed on the ownership of Dutch property which is not used as primary property such as a second home and on ownership of a substantial interest in The Netherlands. No taxation occurs on the value of worldwide bank accounts and investment accounts.
As of 2019, the 30%-ruling is valid for a maximum period of 5 years. The 30% ruling may only be applied in the salary administration and a formal application must therefore include the cooperation of the employer.
Like all major developed countries, the Netherlands has a social security system, which is divided into:
- A national social security (volksverzekeringen) for all residents of the Netherlands and
- An employee social insurance (werknemersverzekeringen) specifically for employees working in the Netherlands.
The national social security includes:
- General Old Age Act Pension (AOW)
- National fund for one’s next of kin (ANW)
- Long term care (WLZ)
- Child benefit( AKW)
The employee social insurance includes:
- Unemployment insurance (WW)
- Long term disability insurance (WAO)
- Work capacity act (WIA)
Individuals are entitled to the national social security either as a resident of the Netherlands or by working in the Netherlands as a non-resident but subject to Dutch wage tax. Individuals are entitled to the employee social insurance by working for an employer in the Netherlands.
Owners of sole proprietorships do not pay employee social insurance and are not entitled to unemployment insurance.
National Health Insurance
Residents of the Netherlands are entitled to, and required to have, national health insurance. Health insurance contributions are paid by the employer. In addition, all residents of The Netherlands pay a mandatory contribution to a health insurance company of choice.
European Union Law and/or the Social Security Treaty Law may allow an individual to remain insured, for social security purposes, in their home country while working in the Netherlands.
Should you have any questions relating to Dutch income tax, 30%-ruling issues, social security or Dutch national health insurance, please don’t hesitate to get in touch
Vincent van Wijgerden is a partner at Expattaxes (part of GVN International Tax Services). With over 20 years experience in the business GVN offers a professional wide range of tax services and general expatriate services for (self-employed) and individuals in The Netherlands and abroad. Our team of experienced international tax lawyers and consultants are guide you through the legislative wilderness of taxation and the practical issues of residing and investing in The Netherlands.