Dutch Income Tax System
The Dutch tax system is especially complicated for internationals. Your personal situation (type of work, partner’s work status, residency status, other assets and earnings – particularly from abroad) will affect your tax status. You may also be filing a tax return in your home country, so you will have to deal with double taxation agreements.
The Netherlands has progressive income tax system where the income taxes are divided in 3 different boxes. The Dutch tax service, the Belastingdienst, also has information in English on their website. The rates and percentages of each year can be found on the Tax Administration’s website. There are many expat financial specialists who can complete your tax forms or provide other consultant services.
How the tax system basically works
If you are a salaried employee, payroll tax is withheld from your salary. Below is an example to illustrate what your income tax may look like this:
- Salary: €100,000
- Income tax due on salary: €42,000
- Less payroll tax on salary: €42,000
- Balance: €0
That means that if you have been a salaried employee for a full fiscal year, you may not have to pay any additional income tax. In fact, you might not even be invited to file your return. If you do not receive one, you can request that the tax authorities issue a tax form. This would be the case if you know you have income that hasn’t yet been taxed, but you are still obliged to report it to the tax authorities, for instance. In that case, you must request a form to submit your tax return.
Calculate your Dutch income tax using the Blue Umbrella tax calculator here.
Even if you have nothing to declare other than your regular employment income, it may still be worthwhile to submit a tax return. If you have tax-deductible expenses, you may want to submit your return to reclaim taxes. If you and your partner both work and have a child under the age of 6, you may be entitled to the income-dependent combination tax credit. Tax credits may be higher for single parents.
It is a good idea to do research and seek advice on what deductibles or credits may be applicable in your situation.
When to File
The Dutch fiscal year runs from 1 January to 31 December. Beginning in February, the tax authorities might send you “the blue envelope” to submit your income tax return, which generally has to be submitted before May 1st. If you receive the tax form much later than February, a different submission date will be applicable. This date will be mentioned on the form. You can file your tax return online from the 1st of March.
If you have just discovered that you may have been entitled to a rebate for previous years, but you never filed a tax return, you can still file your tax returns retroactively for up to five years. In short, it may be worth your while to file an income tax return, even if you have not been asked to do so.
If you need an extension for filing, you can apply online. The tax authorities impose a penalty for late filing, so it is important to keep a close eye on the deadline.
What You Need
The tax authorities issue different types of tax forms:
- P form: This is the most common tax form, which is for those who are in a regular employment situation and have resided in the Netherlands the entire year.
- M form: Due to the way that Dutch wage and income tax are calculated, this form may be most beneficial for those who arrived in the Netherlands during the year and became a resident, or for those who were residents and left the Netherlands during the year.
- The tax for wage and income is calculated through four progressive tax brackets. The higher your income, the higher your tax bracket. There is a wage tax that is withheld from your salary. This is levied based on your estimated annual salary, which is then calculated back to a monthly amount. If you have only worked for half a year in the Netherlands, your gross annual salary will be lower than estimated, and the wage tax withheld will be too high. An income tax return will result in a rebate of this wage tax.
- National insurance contributions take up the biggest part of the first and second tax brackets. If you have only lived and worked in the Netherlands for part of the year, you may be exempt from national insurance contributions for the full year or part of the year.
- C form: For non-residents who have had Dutch-sourced income during the year.
- W form: For those who have had income from self-employment.
- F form: For relatives of a deceased person.
Tax returns are generally submitted digitally, except for the M form, which can also be filed on paper in the year of migration. The deadline for the tax return is generally 1 May, but for the M form, it is 1 July. If you are unable to file before 1 May, you can request an extension. Go to the website of the Belastingdienst to download the program for filing your digital return.
You need DigiD to file a return or you can make use of the services of a tax consultant to do everything for you. The DigiD is essentially a personal login that you use with all Dutch government agencies. A DigiD allows you to make a few transactions, such as paying parking fines or applying for permits, over the internet. Security authentications differ according to the sensitivity of the information.
Filing a tax return may result in a substantial rebate in the year of arrival and in the year of departure.
Residency Tax Status
If you live or work in the Netherlands, or if your family is based here, you are considered to be a resident taxpayer from the first day you are here. If you live abroad but receive income that is taxable in the Netherlands, you are generally a non-resident taxpayer. Non-residents can also apply to be treated as residents for tax purposes (in order to gain access to Dutch deductible items). A category of partial non-resident taxpayers covers those eligible for the so-called 30% ruling. As a resident taxpayer, you are taxed on your assets worldwide.
Different categories of income are treated differently for tax purposes on the tax return, and there are three types of taxable income:
Box 1: Income from profits, employment and home ownership.
Box 1 includes:
- social benefits
- company car
- WOZ (Waardering Onroerende Zaken; value of owner-occupied property)
- maximum 52 percent
Box 2: Income from substantial shareholding
- 5 percent minimum holding
- 25 percent rate
Box 3: Taxable income from savings and investments
- not the actual income, but a percentage of the value of the asset
Calculating tax: the amount of tax payable is calculated by applying the various tax rates to the various taxable incomes in the boxes. The amount calculated is then reduced by one or more tax credits.
Tax Credits and Allowances
Everyone is entitled to a general tax credit and may be entitled to additional credits, such as the employed person’s tax credit (age- and income-related) and the single parent’s tax credit. The general tax credit comprises an income and social security element (to which you are only entitled if you have compulsory Dutch social security coverage). Your employer will take these into account when deducting wage tax, but no other personal circumstances will be taken into account.
You claim other allowances and potential refunds when you file your tax return or request a provisional refund.
Where possible, partners are taxed individually, but if only one partner works, the other partner is generally entitled to a refund of general tax credit, and deductibles can be apportioned to take advantage of tax credits. Unmarried couples may qualify as tax partners under certain circumstances, such as if they have a child or own a home together. Details are listed on the website of the Belastingdienst.
Mortgages and Tax Implications
When arranging a mortgage, it is important to look at the whole picture: interest, cost of life insurance, savings plan and investment accounts. If you are intending to sublet your house, you may need to pay off a substantial part of the mortgage to get permission from the lender. When your interest rate comes up for renewal, it is important to check that it is still competitive.
Tax implications include:
- Interest payments are tax-deductible if the property is your primary residence and the loan is used for acquisition of the house.
- There is no capital gains tax in the Netherlands, but increases in the value may impact your mortgage relief if and when you use the profits to buy another house in the Netherlands.
- Tax is levied on the deemed rental value of the house (WOZ) determined by the local authority. Expenses in financing the purchase of a house are tax-deductible.
Once you have submitted your tax return, you will receive a preliminary assessment from the tax authorities. If you were invited by the tax authorities to submit your return and you submitted it before 1 April, you will receive notice from the tax authorities before 1 July. In any other case, it may take around 10 to 12 weeks.
If you submitted either a C or an M-form with your tax form, it may even take up to 6 months or longer. Initially, a preliminary assessment will be sent to you from the tax authorities. This assessment is based on the tax return, but the tax authorities have not yet checked your tax return. Once they have checked the return, they will send you a final assessment.
If you are living or working abroad or will be working temporarily in another country there might be different treaties and deductions to consider. Please check the information about the international tax regulations. Cross-border working and entrepreneurship also has an effect on your social security and pension.