Income tax in the Netherlands

Income tax in the Netherlands (personal, rather than corporate) is regulated by the Wet inkomstenbelasting 2001 (Income Tax Law, 2001).

The fiscal year is the same as the calendar year. Before May 1 citizens have to report their income from the previous year. The system integrates the income tax with fees paid for the general old age pension system (AOW), the pension system for partners of deceased people (ANW), and the national insurance system for special medical care (WLZ).

There are three categories of income, each with their own tax rates. They are referred to as "boxes".

Progressive tax on wages etc. (box 1)

There is a progressive tax on wages, social security benefits and pensions. Thus there are tax brackets, each with its own tax rate. Mathematically, apart from discretization (whole euros both for income and for tax), the tax is a continuous, convex, piecewise linear function of income.

For 2010, income tax for people under the age 65 is as follows:

For the part of income up to €18,218: 2.3%; tax on €18,218 is €419
For the part of income between €18,219 and €32,738: 10.8%; tax on €14,520 is €1,568
For the part of income between €32,739 and €54,367: 42%; tax on €21,629 is €9,084
On all income over €54,367: 52%

For 2010, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €18,218: 33.45%; tax on €18,218 is €6,094
For the part of income between €18,219 and €32,738: 41.95%; tax on €14,520 is €6,091
For the part of income between €32,739 and €54,367: 42%; tax on €21,629 is €9,084
On all income over €54,367: 52%

For 2011, income tax for people under the age 65 is as follows:

For the part of income up to €18,628: 1.85%; tax on €18,628 is €345
For the part of income between €18,629 and €33,436: 10.8%; tax on €14,808 is €1,599
For the part of income between €33,437 and €55,694: 42%; tax on €22,257 is €9,348
On all income over €55,694: 52%

For 2011, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €18,628: 33%; tax on €18,628 is €6,147
For the part of income between €18,629 and €33,436: 41.95%; tax on €14,808 is €6,212
For the part of income between €33,437 and €55,694: 42%; tax on €22,257 is €9,348
On all income over €55,694: 52%

For 2012, income tax for people under the age 65 is as follows:

For the part of income up to €18,945: 1.95%; tax on €18,945 is €369
For the part of income between €18,946 and €33,863: 10.8%; tax on €14,909 is €1610
For the part of income between €33,864 and €56,491: 42%; tax on €22,628 is €9,503
On all income over €56,491: 52%

For 2012, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €18,945: 33.1%; tax on €18,945 is €6,271
For the part of income between €18,946 and €33,863: 41.95%; tax on €14,909 is €6,258
For the part of income between €33,864 and €56,491: 42%; tax on €22,628 is €9,504
On all income over €56,491: 52%

For 2013, income tax for people under the age 65 is as follows:

For the part of income up to €19,645: 5.85% (plus mandatory Premium National Insurance 31.15%)
For the part of income between €19,646 and €33,363: 10.85% (plus mandatory Premium National Insurance 31.15%)
For the part of income between €33,364 and €55,991: 42%
On all income over €55,991: 52%

For 2013, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €19,645: 37%; tax on €19,645 is €7,268
For the part of income between €19,646 and €33,363: 42%; tax on €13,718 is €5,761
For the part of income between €33,364 and €55,991: 42%; tax on €22,628 is €9,504
On all income over €55,991: 52%

For 2014, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €19,645: 36.25%; tax on €19,645 is €7,121
For the part of income between €19,646 and €33,363: 42%; tax on €13,718 is €5,761
For the part of income between €33,364 and €56,531: 42%; tax on €23,168 is €9,731
On all income over €56,531: 52%

For 2015, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €19,822: 36.50%; tax on €19,822 is €7,235
For the part of income between €19,823 and €33,589: 42%; tax on €13,767 is €5,782
For the part of income between €33,590 and €57,585: 42%; tax on €23,996 is €10,078
On all income over €57,585: 52%

For 2016, the total tax on income (income tax plus mandatory pension, social security and state funded medical care payments, all of which are a percentage of income up to a maximum) for people under the age 65 is as follows:

For the part of income up to €19,922: 36.55%; tax on €19,922 is €7,281
For the part of income between €19,923 and €33,715: 40.40%; tax on €13,793 is €5,572
For the part of income between €33,716 and €66,421: 40.40%; tax on €32,706 is €13,213
On all income over €66,421: 52% [1]

In 2018, the tax brackets for income in Box 1 for persons below the official retirement age were:[2][3][4]

Income in Box 1	Tax rate	Social security	Total tax
From €0 up to and including €20,142	8.9%	27.65%	36.55%
From €20,142 up to and including €33,994	13.15%	27.65%	40.85%
From €33,994 up to and including €68,507	40.85%		40.85%
All income over €68,507	51.95%		51.95%

In 2019, the tax brackets for income in Box 1 for persons below the official retirement age are:[3][5]

Income in Box 1	Tax rate	Social security	Total tax	Total tax in € (cumulative)
From €0 up to and including €20,384	9%	27.65%	36.65%	7,471
From €20,384 up to and including €34,300	10.45%	27.65%	38.10%	5,302 (12,773)
From €34,300 up to and including €68,507	38.10%		38.10%	13,033 (25,806)
All income over €68,507	51.75%		51.75%

In 2020, the tax rates were simplified to two rates:

Income in Box 1	Tax rate	Social security	Total tax	Total tax in € (cumulative)
From €0 up to and including €34,712	9.70%	27.65%	37.35%	12,965
From €34,712 up to and including €68,507	37.35%	0%	37.35%	12,622 (25,587)
All income over €68,507	49.50%	0%	49.50%

Besides the tax brackets there are income dependent deductions for incomes up to €90,710. Which decreases the effective tax rate.[6]

Under certain conditions a life annuity is treated as a pension: premiums are deducted from the income, the benefits are taxed, and the scheme is not counted as asset in box 3. The conditions concern the type of life annuity and the necessity, based on the principle that the higher the income is, the more pension plus life annuity one needs to build up for the future, up to a maximum.

For the value of an owner-occupied dwelling and for mortgage debt related to that, this box and not box 3 applies. Based on the value of the dwelling, a "fixed rentable value" is counted, while interest for the mortgage is deductible. This is an important factor, since interest on a mortgage can easily be over a thousands euros per month, which is subtracted from income before any income tax is applied. If the value of an owner-occupied dwelling would be positive (fixed rentable value is greater than interest) it is changed to zero.

For taxpayers above the official retirement age reduced rates apply for the first two brackets. In 2019, the corresponding tax rates are 18.75% and 20.20%.[7] The discount of 17.9% of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries. In 2018, the retirement age in the Netherlands was postponed from 65 years and 9 months to 66 years.[8]

For employed and self-employed people there is an employment rebate.

The wage withholding tax is a deduction of wages, social security benefits and pensions, as an advance payment for the income tax, paid through the employer, etc.

Health insurance premium

From 2006 there is a new national health insurance scheme (zorgverzekering(swet), Zvw). The premium is partly income-dependent and paid as a tax supplement. It applies for the "contribution income" (bijdrage-inkomen), which is part of box 1, including labor income, social security benefits, pensions, and life annuities (it does not include the "owner-occupied dwelling income"). It is withheld if the wage withholding tax applies. The rate is 7.1% for e.g. wages and 5% for e.g. life annuities, coming on top of the tax percentages mentioned above. The total income for which these rates apply is limited to ca. 50,000 euro.

Flat tax on income from a substantial business interest (box 2)

There is a flat tax of 25% on income from a substantial business interest, usually meaning a (direct or indirect) shareholding of at least 5% in a private limited company (BV).

If the fiscal partner of the taxpayer or a blood relative (first vertical kin) holds a substantial interest in a company, the shares of the taxpayer constitute a substantial interest, even if they do not amount to 5%.

Income from substantial interest includes:

dividends
capital gains (except in case of succession and divorce)

For 2007 only there was a reduced rate ranging from 22 to 25%.

Flat tax on savings and investments (box 3)

There is a flat tax on the total value of the savings and investments of 1.2% per year. It is nominally part of the income tax, as a 30% tax on a fixed assumed yield of 4% of the value of the assets (this is regardless of the actual income from the assets). EUR 21,139 (2012; higher for 65+ with a low income) of the value of the assets is exempted.

The amount of money invested in approved "green" investments (up to EUR 56,420) is exempted. Moreover, a tax credit per year of 0.7% of the value is applied for these investments. The credit only counts towards box 3.

Threshold income

The sum of the incomes in the three boxes is the "threshold income". It determines thresholds for tax deductions, e.g. for gifts (see below).

The deductible amount is subtracted from the income in box 1; if this is not enough, the remainder is subtracted from the income in box 3, and finally from box 2.

Gifts

The Dutch Tax Service can declare an institution to be an "institution for general benefit" (algemeen nut beogende instelling, ANBI). Often this is a foundation (stichting). It can also be a voluntary association (vereniging), but not e.g. a sport club, or association of personnel. Also it cannot be a commercial institution.[9]

If the sum of someone's gifts to ANBIs exceeds 1% of the threshold income, the excess, with a maximum of 10% of that income, is deductible income.

Total tax

The total tax is the sum in the three boxes, minus EUR 2,001 (2013; less for 65+), a tax credit not to be confused with a tax deduction. The resulting amount of tax may be less than zero, in which case the amount is partially paid out, provided that one has a spouse and the tax of both together is not less than zero.

The 30 Percent Rule

The 30 Percent Rule is a personal income tax reduction for select employees in the Netherlands. It applies to specialized foreign employees who are brought to the Netherlands because their skills are scarce in the Dutch marketplace. The scarcity of work force with particular skills is reviewed annually "The 30% rule".

The purpose of the 30 Percent Rule to compensate employees for the extra costs of their temporary stay in the Netherlands. The effect is to make the Netherlands competitive in the international marketplace for skilled labour, since normal Dutch income tax rates are high (in comparison with other countries) and may discourage some employees from accepting assignments in the Netherlands.

However, there are consequences for possible future unemployment aid, tax deduction for a mortgage, pension contributions, and other benefits.

The 30 Percent Rule allows an employer to exempt from income tax up to 30% of the employee's annual remuneration (the "Basis") and used to be applicable for the first 10 years of their stay in the Netherlands Inkomstenbelasting Wet 2001.

New legislation is in force as per 1 January 2012, limiting the applicable period of the rule from 10 to 8 years, with a 5-year transition period. Also, foreign students acquiring a PhD in the Netherlands are eligible for the 30% ruling, even though they were not hired from abroad "Changes in 30% rule".

The Dutch tax authority allows for two options:

30% tax-free is reimbursed based on registered receipts for extraterritorial costs (e.g. maintenance of an own house in the country of origin, travel expenses, relocation costs, language courses, long-distance telephone calls)
the Dutch tax office can, upon an approved application of an employee, grant a 30% tax exemption on the employees remuneration.

In addition, the employer may provide a tax-free reimbursement for tuition fees when the employee's children attend an international school.

The Dutch income tax law does not, however, specify how the benefit of the 30% rule should be divided between the employee and the employer. Some employers (e.g. Shell) have stipulated in their general working conditions that the 30% rule income tax benefit is solely for the benefit of the company, arguing that salaries of their local workers would not be on par with their foreign work force. The 30% rule income tax benefit is then divided between an employee and the employer up to the level as if the foreigner employer fictively paid the income tax on the entire salary and the surplus left to the company.

A similar rule also applies to compensate Dutch employees who are assigned to work in designated developing countries or to the Dutch nationals returning to the Netherlands after a substantial period of living abroad (10 years or longer).

Note that the formal application typically takes two to three months. The excess tax paid in the meantime will be repaid to the applicant once the 30% tax exemption is granted.

Eligibility for the 30 percent rule is subject to a set of conditions, including:

The foreign employee was recruited outside the Netherlands or transferred from another country by their employer.
The foreign employee possesses expertise absent or scarce in the Dutch labour market. Fulfilment of this condition is based upon gross salary, which shall exceed a given minimum amount. In 2019, the threshold gross salary was €37,743 (€53,919 including the tax-free 30% allowance). A lower requirement applies for employees under the age of 30 who have obtained a master's degree or its equivalent at a Dutch or foreign university; in 2019, the respective minimum gross salary amounted to €28,690 (€40,986 including the tax-free 30% allowance). No minimum salary threshold exists for researchers under EU directives.
In the 24 months prior to first day of employment in the Netherlands, the foreign employee lived outside of the Netherlands for more than 16 months, more than 150 kilometres away from the Dutch border.[10][5] An exception exists for all Ph.D. students who recently graduated (within the previous 12 months), where the 150 km distance rule need only have been met for 16 out of the 24 months before the start of Ph.D. study.

In 2017 the new governmental coalition plans to reduce the tax break from 8 years to 5 years.

However, in the 2018 budget speech, the finance minister retroactively reduced the 30% tax rule to end by Jan 2019 for all beneficiaries if over 5 years, irrespective of an earlier approval for a later end date (many cases up to 2022). This caused severe unrest and protest among the expat community as they do not benefit from the significant high taxes in any way (children education or pension, etc.).

Tax treaties

The Netherlands has established nearly 100 bilateral tax treaties with other countries to prevent the issue of double taxation. Their overview is available at Belastingdienst website (Dutch Tax and Customs Administration).

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Notes and references

http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/werk_en_inkomen/bijzondere_situaties/middeling_sterk_wisselende_inkomens/belastingteruggaaf_berekenen/u_bent_het_hele_middelingstijdvak_jonger_dan_de_aow_leeftijd/tarieven_voor_personen_die_de_aow_leeftijd_nog_niet_hebben_bereikt
"Table 1: Graded tax system payroll taxes 2018". Belastingdienst. Retrieved 10 April 2019.
"Tarieven voor personen die de AOW-leeftijd nog niet hebben bereikt". Belastingdienst. Retrieved 10 April 2019.
"Doing Business in the Netherlands 2018" (PDF). PwC Netherlands. Retrieved 10 April 2019.
"Doing Business in the Netherlands 2019" (PDF). PwC Netherlands. Retrieved 10 April 2019.
https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/inkomstenbelasting/heffingskortingen_boxen_tarieven/heffingskortingen/totaaloverzicht/overzicht-heffingskortingen-2019 |website=Belastingdienst |accessdate=4 May 2019
"Tarieven voor personen die de AOW-leeftijd hebben bereikt". Belastingdienst. Retrieved 10 April 2019.
"Pension schemes". Belastingdienst. Retrieved 10 April 2019.
"Find ANBIs". Archived from the original on 2008-05-09. Retrieved 2008-08-06.
"Conditions 30% facility". Belastingdienst. Retrieved 10 April 2019.

External links

This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.

[1] ttp://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/werk_en_inkomen/bijzondere_situaties/middeling_sterk_wisselende_inkomens/belastingteruggaaf_berekenen/u_bent_het_hele_middelingstijdvak_jonger_dan_de_aow_leeftijd/tarieven_voor_personen_die_de_aow_leeftijd_nog_niet_hebben_bereikt

[2] "Table 1: Graded tax system payroll taxes 2018". Belastingdienst. Retrieved 10 April 2019.

[box1_tariffs-3] "Tarieven voor personen die de AOW-leeftijd nog niet hebben bereikt". Belastingdienst. Retrieved 10 April 2019.

[4] "Doing Business in the Netherlands 2018" (PDF). PwC Netherlands. Retrieved 10 April 2019.

[pwc_2019-5] "Doing Business in the Netherlands 2019" (PDF). PwC Netherlands. Retrieved 10 April 2019.

[6] ttps://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/prive/inkomstenbelasting/heffingskortingen_boxen_tarieven/heffingskortingen/totaaloverzicht/overzicht-heffingskortingen-2019 |website=Belastingdienst |accessdate=4 May 2019

[7] "Tarieven voor personen die de AOW-leeftijd hebben bereikt". Belastingdienst. Retrieved 10 April 2019.

[8] "Pension schemes". Belastingdienst. Retrieved 10 April 2019.

[9] "Find ANBIs". Archived from the original on 2008-05-09. Retrieved 2008-08-06.

[10] "Conditions 30% facility". Belastingdienst. Retrieved 10 April 2019.