Here are key points about the Dutch personal income tax return, what different boxes mean, tax credits available, fiscal partners and residency classification for taxation purposes…
Personal income tax in the Netherlands is regulated by the ‘Wet Inkomstenbelasting’ (Income Tax Law). The Dutch tax authorities (Belastingdienst) requires income tax returns be filed by 1st April (unless an extension has been requested). The bureau has up to 3 years to process a tax return and issue a final assessment. In most cases, they respond within a short time.
TAX RETURN BOXES
There are three categories of income, each is taxed at a different rate.
BOX 1: INCOME FROM EMPLOYMENT AND PROPERTY
The following categories of income apply to Box 1:
– Profit from private business
– Income from employment
– Other income from employment
– Income from former employment
– Income from periodic payments like alimony or a private pension
– Other income from capital
– Correction deduction from previous tax schemes
– Refunded premiums of a pension scheme
– Premiums for annuity schemes and insurance premiums paid against loss of income due to disability or illness, can be deducted from the taxable income in Box 1.
– Income from employment and income (positive or negative) from the property that is used as the primary residence are taxed.
BOX 1 Tax Rate
The amount entered in Box 1 is subject to two taxes:
Income Tax – The rate of income tax varies based on which income tier it falls into. For 2018, the income tax rates were:
€0-€20,142 = 08.90%
€20,143-€33,994 = 13.20%
€33,995-€68,507 = 40.85%
€67,072+ = 51.95%
Social Security Tax – For 2018, the social insurance tax rate was 27.65% with a maximum contribution cap of €9,399 (i.e. Box 1 income = €33,994).
Total 2018 Tax Rate for Box 1
€0-€20,142 = 36.55%
€20,143-€33,994 = 40.85%
€33,995-€68,507 = 40.85%
€67,508+ = 51.95%
BOX 2: INCOME FROM SUBSTANTIAL SHARE HOLDING
This is income one receives in the capacity of substantial shareholder (ownership of more than 5% of the issued share capital of that company). Box 2 income includes dividend payments and profit from the sale of shares.
Box 2 Tax Rate
A fixed tax rate of 25% is applied to the amount in Box 2.
BOX 3: INCOME FROM SAVINGS AND INVESTMENTS
This is income earned from savings, investment property (not the primary residence), etc.
Box 3 Tax Rate
A fixed rate of 30% is applied to the amount in Box 3.
In general, tax liability is a result of a tax calculation including all applicable tax credits. Please note that a tax credit consists of an income tax part and a social security part. If you are not covered by the Dutch social security system, you are not entitled to the social security portion of the tax credit. The only exemption to this rule is the labor credit.
General Tax credit
Under conditions, every resident of the Netherlands and every employee working in the Netherlands is entitled to the general tax credit. The general tax credit for 2018 for a full-year resident was €2,265. In addition, the 2018 general tax credit for a non-working spouse was €755 (or €2,265 if the non-working spouse was born before 1963). The employer takes the general tax credit into account when calculating a worker’s monthly earnings.
You have a right to the Labor credit if you meet one of the following conditions:
– salary or wages from current employment
– income derived from trade or business
– income from other activity
If employed, the employer will take the labor credit into account during monthly payroll calculation. In the other two scenarios, the tax office will calculate the labor credit when determining tax liability.
The 2018 labor credit maximum for low incomes was €3,249. Employees born before 1954 could be entitled to a higher amount, depending on their income level.
In addition to the general tax credit and labor credit, it is possible to qualify for other credits. Which additional credits apply depends on your personal circumstances.
Examples of other tax credits:
– Combination tax credit
– Income depending combination tax credit
– Single-parent credit
– Supplementary single-parent credit
– Old-age tax credit
– Supplementary old-age tax credit
In 2011, the term ‘fiscal partners’ was introduced to the Dutch taxation system. The term applies to all Dutch tax legislations.
Fiscal partners can be:
– Living together with a notarial agreement
– Registered partners
– Unmarried partners and living together with a common child
– Unmarried partners and living together with a jointly owned house
– Unmarried partners and living together with a combined pension scheme
– Unmarried partners and living together with a child belonging to one partner
The partners must be living at the same address as per the municipal database (BRP).
Fiscal partners can mutually divide some of the common income parts and deductions like the income from the primary residence and the personal deductions. Consequently the partner with the higher income can claim a larger deduction and tax advantage. A general tax credit can be claimed for a fiscal partner with no or little income.
A person’s living situation plays a significant part in determining their fiscal residency, as does the individual’s municipal registration data. Other factors that help define tax residency in the Netherlands include:
– The permanent home location
– The place where financial and social bonds are strongest
– The future intentions of the taxpayer?
There are three possible tax residency statuses :
– Partial non-resident
When an expat registers with a local gemeente in the Netherlands, they are automatically treated as a resident for tax purposes. A resident taxpayer is taxed in the Netherlands on his/her worldwide income.
The following personal tax deductions can be claimed by resident taxpayers.
– Alimony payment to former spouse
– Payments for supporting children under 30 years old
– Expenses for illness (incl. cost for diet by medical orders), decease or disability
– Expenses for weekend visits to/by a seriously disabled child
– Expenses for studies for you and/or your spouse
– Expenses for maintenance of houses under protection of monuments
– Donations to charitable institutions
Resident taxpayers can also request certain allowances if they apply.
– Health Care
– Child (not from the SVB)
– Day care
If you live and work in the Netherlands and have a child, you can claim Dutch child benefit. To qualify, the following must apply:
– You have a valid residence permit, and
– You either have a work permit or you are from an EU country or Switzerland, and
– You do not have a secondment certificate from another country
The qualification as partial non-resident is only applicable if the 30% ruling is granted. This status means that you will be taxed as a resident taxpayer in box 1 (income from work and principal residence) and as a non- resident taxpayer with respect to the other two tax boxes.
A non-resident taxpayer is an individual who is not treated as a resident taxpayer in the Netherlands. Therefore, he will be taxed over his worldwide income elsewhere. A non-resident taxpayer will pay tax only on income that can be allocated to the Netherlands.
183 Day ruling
In order to use the 183-day ruling within the Dutch payroll system it is first important to understand the following:
If a resident of one state works in another state, there is a possibility of double taxation. The work state will tax the individual on the income received in that state, whereas the state in which the individual is resident will tax the resident on his worldwide income, which includes the income from the work state.
Therefore, most countries have tax treaties to avoid double taxation. But the main rule is that the country in which the employment income is earned can levy tax on this income. However, the work state (in this case the Netherlands) may not levy taxes on the income if the requirements of the 183 days ruling are met.
The requirements for the 183 days ruling are:
– You do not work more than 183 days in the Netherlands during the whole year.
– The salary is paid by an employer that is not considered a resident in the Netherlands (it can not be a Dutch company).
– The salary can also not be paid by a department of an employer situated in the Netherlands.
The 30% ruling allows an employer to grant an employee a tax-free allowance of 30% of his taxable income. Salary is defined as the taxable income from employment. The purpose of the 30% ruling is to compensate expatriates for all costs related to working abroad, such as double housing, house hunting costs, storage costs of furniture and a Dutch language course. The ruling can only be granted to employees who are hired from outside the Netherlands and who have special skills that are not available or very rare in the Netherlands. Please note that either the actual extraterritorial expenses can be reimbursed tax-free or the 30% ruling can be applied.
Inheritance and Gift tax
Gifts tax and inheritance tax in the Netherlands are similar and they are regulated in the same tax law. There are three different tax rates, depending on the relationship between the beneficiary and the testator. There are three categories.
– Spouse or partner (living together for at least five years) and children
– Siblings, parents
– Other recipients
Donations to your children can be done tax-free up to an amount of €5,030 per child per year. For children of 18 up to and including 34 years old, there also an one time raised exemption of €24,144 for which, however, a declaration duty applies.
In addition there is a possibility to apply for another one time raised exemption of maximum €50,300 for the same age group. However this amount must be used for the purchase of property or for the payment of costs relating to education or training for professional purposes and which the annual cost, excluding maintenance, are at least €20,000.
To other recipients donations can be done tax-free up to an amount of €2,012 per year.
The Dutch tax bureau (Belastingdienst) provides additional information regarding income taxes in the Netherlands.