The tax year in the Netherlands spans from January 1 to December 31, and taxpayers are required to submit their tax returns. Residents of the Netherlands are taxed on their income from all sources worldwide, while non-residents are only taxed on income originating from specific sources within the Netherlands. Such sources mainly comprise income from employment, director’s fees, business income, and income from Dutch immovable property. Tax returns must be submitted annually, typically before May 1.
If a married couple are both resident taxpayers, they are taxed separately on their business income, employment income, pension income, and other periodic payments, after subtracting premiums for life annuities and certain other periodic payments. Spouses and individuals who reside together as a joint household may qualify as fiscal partners under specific conditions. As fiscal partners, they can opt to divide the following types of income/deductions between themselves in any proportion:
- Taxable income from the primary residence;
- Taxable income from significant interests;
- Taxable income from savings and investments; and
- Non-business deductions related to their individual circumstances.
The taxation of worldwide income in the Netherlands is categorized into three distinct types of taxable income, each of which is subject to its own tax rate(s) and is classified as a “box” (https://taxsummaries.pwc.com/). An individual’s total taxable income is derived from the aggregate sum of these three boxes.
Box 1 pertains to taxable income earned from employment and home ownership, and encompasses the following sources:
- Employment income
- Deemed income from ownership of a primary residence
- Regular payments and receipts; and
- Benefits related to income provisions
Box 2 pertains to taxable income derived from a significant interest and Box 3 relates to taxable income obtained from savings and investments.
The first bracket of Box 1 in the Netherlands is taxed at a rate of 27.65% for national insurance tax. Box 2 income is currently taxed at a flat rate of 26.9%. However, starting in 2024, two new tax brackets will be introduced for Box 2: a basic rate of 24.5% for the first 67,000 euros of income per person, and a rate of 31% for the remainder. Box 3 income, which consists of deemed returns on savings and investments, is taxed at a flat rate of 32%.
As a sole proprietorship or general partnership owner in the Netherlands, it’s necessary to submit your business earnings through an income tax return (aangifte inkomstenbelasting) annually. You need to take into account which tax brackets and deductibles are applicable, amortization
Income tax, or inkomstenbelasting, is paid in the Netherlands on taxable earnings, which are calculated by subtracting deductibles and fiscal schemes such as company expenses and amortizations from your earnings. Filing an income tax return with the Dutch Tax and Customs Administration is required before May 1st each year. Based on the return, the Tax Administration will assess your tax liability, which may result in you either paying tax or receiving a tax refund.
The Dutch Tax and Customs Administration requires anyone who receives a declaration letter to file an income tax return. However, if you have earned income in the Netherlands and have not received a letter, you must still file a return. If you did not receive a letter, you can verify your obligation to file a return, and you may be eligible for a tax refund if you have deductible items that the tax authorities are unaware of, such as medical expenses. On the other hand, you may have to pay taxes in certain circumstances, such as when your savings exceed the tax-free allowance. You can determine your tax liability by completing a test declaration on the website of Mijn Belastingdienst, and if the result shows a refund of €16 or more, you must file a declaration. If the amount you owe is less than €48, you are not required to file a return.
You can only deduct expenses related to your business activities and not personal expenses. For instance, you cannot deduct the cost of a personal phone subscription, but you can deduct the cost of business calls made through that subscription. On the other hand, a business phone subscription is deductible, but you cannot deduct the costs of private calls made with that phone.
The deductibility of costs depends on whether the purchase cost is below or above €450 and the duration of the use. For costs incurred in a year or for inexpensive purchases such as office supplies and maintenance costs of your car, you can subtract the full amount in one go. For purchases exceeding €450 and with a useful life of more than one year, such as machines, cars, and equipment, you deduct the costs over several years through writing off, taking into account the residual value of the asset. For instance, if you purchase a camera for €6,000 with a useful life of 5 years and a residual value of €1,500, you can deduct €900 per year.
You can deduct costs that you incurred for your business before starting it, such as expenses for exploring the market or seeking advice. If you can deduct VAT in your VAT return, deduct the costs without VAT. However, if you cannot file a VAT return or cannot deduct VAT in it, include the costs including VAT in your income tax return. It is important to keep receipts and invoices to prove that you incurred the costs and made them for your business.
Legal entities in the Netherlands must file a corporate income tax return, while sole proprietors and general partnerships file an income tax return. Non-residents who receive income from the Netherlands are usually liable to pay income tax, but some exceptions apply. If you are a non-resident taxpayer, you must file a tax return if you received an invitation to file, or if you earned income in or from the Netherlands over €48, or are entitled to €16 or more back from the Tax Administration.
Determining the amount of income tax you have to pay is not straightforward, as it is influenced by various factors, including your income, assets, deductible expenses, and outstanding debts.
Your income tax is calculated based on your taxable earnings, which is your income minus deductible expenses and fiscal allowances, such as office refurbishment costs and asset depreciation. The Dutch Tax and Customs Administration divides these earnings into different brackets or boxes, and you can learn about the percentage of tax levied on each on their website. By making use of deductibles and fiscal arrangements when filing your return, you can lower your profit and reduce the amount of income tax you need to pay. For instance, the entrepreneur allowance includes a number of such deductibles.
In 2022, the income tax rate was lowered by 0.03%, and the general tax credit (arbeidskorting) is increasing gradually from 2020 to 2022. This increase means that employees and employers who are liable for income tax and earn between €10,000 and €98,000 will pay less income tax. Those who earn between €20,000 and €35,000 will benefit even more if they decide to work longer hours.
The Dutch Tax and Customs Administration (Belastingdienst) imposes two types of interest in tax assessments: interest on tax (belastingrente) and interest on late payment (invorderingsrente). These interests are intended to compensate for lost interest.
When it comes to paying or receiving interest on tax, the Tax and Customs Administration may charge interest on tax if they are unable to conduct a tax assessment on time, such as in cases where a tax declaration is submitted late. On the other hand, the Administration may also reimburse interest on tax if they are late in conducting an assessment without just cause. If you disagree with the Administration’s decision, you have the option to file an objection to the interest on tax.
If you fail to pay a tax assessment on time, you will be required to pay interest on late payment (invorderingsrente) to the Dutch Tax and Customs Administration. This interest accrues from the day after the payment deadline until the day the payment is credited to the Administration’s account, including in cases where an extension has been granted. In some instances, if you have overpaid, the Administration may also pay you interest on late payment. Note that interest on late payment is not a penalty.
If the Tax and Customs Administration takes more than 6 weeks to pay any tax refunds that you are owed, you will receive interest on late payment. If you disagree with the amount of interest charged, you have the option to object to it. You can submit your objections in writing, along with a copy of the decision, to the address specified on the assessment. For objections against interest on late payment, be sure to include a copy of the decision with your letter.
In summary, During audits on wage taxes, the Dutch tax authorities typically focus on the taxation and handling of compensation for employees coming into and leaving the country (if applicable). Specific attention is given to the following areas:
- Reimbursement of expenses, whether incurred domestically or abroad;
- Processing of social security contributions and pension premiums (including those paid abroad);
- Proper inclusion and handling of the 30% ruling in the Dutch payroll administration, including payments and reimbursements;
- Instances of salary splits and the allocation of income, benefits, and taxation responsibilities in payroll administration;
- Treatment and handling of remuneration for company directors; and
- The company/employer’s approach to the economic employer concept and any resulting tax implications for employees who are seconded to the Netherlands.
Photo by Tara Winstead: https://www.pexels.com/photo/multi-color-plastic-numbers-on-folder-7111513/