Paying taxes in the Netherlands is a relatively straightforward affair. As the national Tax Office (Belastingdienst) says: ‘we can’t make it more fun, but we can make it easier’. And things have gotten a lot easier over the years. You can do your taxes yourself online, or through a Dutch tax advisor. But paying taxes never is fun. If you’re working or otherwise earning money in the Netherlands, there is a large number of taxes that you need to take into consideration.
The 30% rule
Before moving on to the general taxation system of the Netherlands, the first relevant question for all expatriates in the Netherlands is: are you eligible for the 30% rule? If you are, the first 30 percent of the income you make is free from payroll and income tax for five years. The remaining 70% will be taxed in the same way as for other working people in the Netherlands.
The 30% rule is intended as a reimbursement for relocating expenses when moving from your homeland to the Netherlands. Aside from the 30% tax-free income benefit, other advantages include the possibility to have a fiscal ‘non-resident status’. This means you won’t have to pay tax on assets in Boxes 2 and 3 (see below), with the exception of real estate investments. Furthermore, you can change your driving license to a Dutch license without having to take a driving test, and you can receive deductions on international school fees.
You are eligible for the 30% rule if, as a foreign worker, you are employed by a company in the Netherlands and you have specific professional expertise that is scarce or unavailable in the country (indicated by salary requirements). Furthermore, you can’t have lived less than 150 km from the Dutch border for more than 24 months prior to working in the Netherlands. If you meet these requirements, you and/or your employer should file an ‘Application Income tax and national insurance 30% facility’ with the Belastingdienst. You can also apply after you’ve started working and still receive all or part of the benefits, depending on when you started. When changing employers, you need to re-apply within three months after leaving your previous job.
What taxes do I need to pay?
Below are the main taxes that Dutch workers and expats pay, depending on your work situation.
- Inkomstenbelasting (income tax): this includes wages from your job or income from your own business or freelance income, and also applies to artists or professional athletes. Foreign income and gifts also fall into this category. Although your employer will automatically withhold this tax from your salary in the form of loonheffing (see below), you still need to declare your income via your annual tax return. If you have your own business, then you are obliged to list all your income in your annual tax return.
Some costs can be deducted from your income, such as mortgage rent, premiums for annuities, school tuition costs, special medical expenses, waived venture capital, alimony and many more.
- Loonheffing (payroll tax): this is another contribution that your employer withholds from your salary. This payroll levy consists of a wage tax and various insurance contributions, such as pensions, collective unemployment insurance and a whole range of benefits and allowances. At blueumbrella.nl/ you can calculate how much your net income will be after you’ve paid all your taxes.
- Omzetbelasting BTW (VAT sales tax): if you’re a freelancer or own a business, you will have to pay value added tax, which you must invoice to your clients. Depending on the services you offer, BTW will be 0%, 9% or 21%. BTW needs to be paid every quarter.
How to pay your taxes
At the start of each year, you will receive a letter from the Belastingdienst requesting you to complete your tax return for the previous year. When filling out your return, you have to declare, aside from your income: your tax partner’s income (see below), additional income and capital like investments or savings, your mortgage, and tax deductions you may be eligible for. If you have any doubts or questions about income or deductible items, you can call the Tax Office at 0800-0543 or visit a local branch office. The annual income tax return needs to be submitted before April 30, unless you apply for an extension before then. This can be done online or by phone. Fines will be levied if you do not submit your return or ask for an extension before the deadline, and of course if you fail to pay the taxes you owe.
In the Netherlands your income is taxed based on three ‘boxes’, with box 1 being income from salary, box 2 income from interest in a limited company and box 3 income from assets and savings. Each of these boxes has a different tax rate, based on your income sources:
Box 1: income from wages is taxed in two progressive categories, which are, for 2021:
- You pay 37,10% on income up until €68.507;
- You pay 49.50% on any income over €68.507.
For those receiving the national old-age pension (AOW), there are three categories, with varying percentages of tax based on your age.
Box 2: Income from a substantial interest or holding of at least 5% in a BV (limited company) is taxed at 26,90%. This kind of income includes dividends and capital gains. Any costs that were made with regard to those incomes can be deducted from taxation.
In Box 3 your (fictitious) income from savings and investments is taxed, called asset tax (vermogensbelasting). Examples include stocks and shares, bank and savings accounts, second homes and investment property. Some exceptions include the home you own and live in, moveable furniture, certain insurance schemes and investments in cultural, social, environmental or startup projects.
Your income from capital is calculated through a fixed percentage. For 2021, the first €50.000 in savings and investments is exempt from taxation for everybody. After that, the Belastingdienst assumes you save part of your assets in a saving account, while you invest the rest, in the stock market or otherwise.
- For the first €50.000 to €100.000 above the exempt €50,000, it is assumed that 67% is in a savings account, leading to a 0,03% capital gain. It is assumed that 33% is invested, making a capital gain of 5,69%.
- From €100.001 to €1.000.000, 21% is calculated as leading to 0,03% capital gain, the rest 5,69%;
- If you own more than € 1.000.000, all of it assumed to make a capital gain of 5,69%.
Whatever your total assets, you pay 31% tax on the fictitious capital gain. Thus, the actual return on investments or savings you achieve is irrelevant for the tax authorities.
Quick overview of other taxes, rules and exceptions
- If you have income from another country, it is usually not taxed by the Belastingdienst.
- The person you are married to or living with permanently, regardless of marital status, is usually considered your tax partner.
- Just like everyone else, you are entitled to a general tax credit (algemene heffingskorting) of no more than €2.477, or a deduction (zelfstandigenaftrek) of no more than € 7.280 for business owners. This is deducted automatically by your employer, or by the tax authorities if you own a business.
- If you’re on a low income, you can apply for three types of benefits (toeslagen) at the Belastingdienst: health care allowance (zorgtoeslag), rent allowance (huurtoeslag) and childcare allowance (kinderopvangtoeslag). For more details on childcare allowance, see page … There are also unemployment and disability benefits, which are handled by a different office, the UWV.
- More case-specific kinds of taxes in Holland include: import tax (on goods received or imported from abroad), motor vehicle tax, inheritance tax, gift tax, corporate tax, transfer tax and gambling tax. Failure to pay any of the above, or voluntarily hiding your income, the value of your possessions or an inheritance, can lead to a fine of 300% of the undeclared amount.