Taxes are a standard part of business and are mandatory in every country. The Netherlands is no exception and has its own well-developed taxation system. Although many believe the EU has a standard taxation system, every country within it has the right to set taxes at its own convenience.
The maximum personal income tax rate for the Netherlands is 49.50%. On the other hand, the Netherlands’ corporate tax rates are 25%. Therefore, the Netherlands has slightly higher tax rates when compared to other EU countries.
However, those numbers are less important than the quality of the taxation system. There are five things that make a taxation system good:
- Simplicity
- Adequacy
- Fairness
- Transparency
- Administrative ease
OECD combined these factors and rated the world’s countries by their tax competitiveness index ratings. Based on their research, the Netherlands is 14th in the world regarding their tax competitiveness (10th in Europe).
What makes the Dutch taxation system so good is that there are multiple tax deductions. There are different types of taxes that residents have to pay depending on their salary, business model, residency, and similar. That’s why we’ll cover all those situations, so you know exactly which taxes you have to pay.
Why is the Netherlands called a tax haven?
A tax haven is a country that offers tax advantages for individuals and businesses where they are paying minimal amounts.
This system became popular because it attracts internationals to move and invest in a country while saving most of their profit. On the other hand, since they bring in a lot of money, the country profits from those investments and their spending.
When it comes to the Netherlands, it has been considered a tax haven for decades. The way it works is when a company makes a profit, it shifts that profit from a high-tax country to a low-tax country. The Netherlands supported that process by not taxing the transactions. Instead, those transactions would be classified as interest and royalty payments. By using that method, individuals could shift their profits from the Netherlands to a low-tax (or no-tax) country, avoiding paying taxes almost entirely.
When a country becomes a tax haven, they share very little tax information with foreign tax authorities. In addition, avoiding taxes and finding loopholes became much easier in tax havens. Because of that, the Dutch government decided to change the rules to regulate those transactions. To do so, in 2021, the government forbade shifting profits to countries with tax rates lower than 9%.
After passing that law, the Netherlands lost its status as a tax haven. However, that didn’t damage the system, as the country offers various other benefits for handling your taxes.
Types of taxes in the Netherlands
A few different tax types in the Netherlands apply to different individuals/companies. These are the taxes that you may be obligated to pay.
Corporate income tax
The corporate income tax applies to private or public limited company owners. You are obligated to pay this tax if you are either established in the Netherlands or outside of the country but still making a profit in the Netherlands.
Income/payroll tax
This tax applies to all workers in the Netherlands. It’s usually handled in one of two ways. If you work in a company, your employer will deduct the tax amount from your salary. However, if you are self-employed, you need to calculate it via the annual tax return.
VAT/BTW (Value Added Tax)
VAT (or BTW in Dutch) is a tax for entrepreneurs and freelancers. The rate is usually 21% unless you are a hairdresser, for example, or if you are in the food or medicine business. In that case, the VAT will be 9%.
Environmental tax
You must pay the environmental tax if your business extracts any natural goods (water, wood, or similar). The tax will be charged based on the nature of your business. This also applies to motor vehicles imported to the Netherlands. The tax for motor vehicles will depend on the type of vehicle, its weight, and the type of fuel.
Gift tax
This tax applies to receiving gifts from a Dutch resident. It will be taxed based on the value of the gift.
Import tax
The import tax is paid on items brought in or imported from another country. The worth of the items determines the sum and whether you are receiving them personally or on behalf of a business.
Inheritance tax
If a person’s assets and financial affairs were in the Netherlands, an inheritance tax is a tax on wealth received by inheritance after a person passes away.
Transfer tax
When purchasing a business or property, you must also pay the transfer tax of 2% of the property value. People aged 18-35 are exempted from paying the tax when buying their first property. But bear in mind that the value of the first property can’t be more than 440.000 euros.
Gambling tax
A gambling tax must be paid on all offline winnings larger than 449 euros. The tax on these winnings is 29.5%.
Income tax in the Netherlands
The Netherlands has a progressive tax on wages, meaning that not every income has the same amount of tax. These taxes are divided into box tax rates. Every resident is obligated to report their income for the previous year before May 1.
Tax-paying obligations
The following categories fall into your tax-paying obligations:
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Paying provisional tax
Once you complete the tax return, you will get an assessment based on your payment. If you do it properly, there’ll be no changes. If your assessment wasn’t correct, you’d have to pay the additional amount or get a refund. That depends on if you spent too much or too little.
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Self-employed income tax
Digital tax returns must be filed when beginning a business. In addition, entrepreneurs and citizens must both file income tax returns.
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Tax on property and wealth
The property tax is calculated based on the value of your property. Every municipality has its own tax rate, which is between 0.1% and 0.3% of the property value.
Tax deductions
In addition, there are a couple of tax deductions that you can enjoy if you fall into one of these categories:
Personal deductions
Personal tax deductions apply for a couple of things that can be partially and entirely deducted. These are:
- Charity contributions
- Studying costs
- Healthcare expenses (if not covered by insurance)
- Payment of alimony
- Paid-up life annuities
You can file your tax returns jointly if you’re married or have a registered partnership. You can then distribute deductions to the partner who earns the most money.
Double taxation deduction
If you live in the Netherlands, you must disclose your foreign assets and bank accounts in your Dutch tax return. The double taxation deduction often allows you to avoid paying taxes on any property you own abroad.
Non-working spouse deduction
You can be eligible for additional tax relief if your partner is unemployed. For example, if the working partner earned at least €20,000 and you have been in the Netherlands for at least six months, you are eligible for a tax credit of about €1,000.
Mortgage interest tax relief
If you purchase a home in the Netherlands and use it as your primary residence, your mortgage interest is tax deductible. You have the option to sell the home, keep it for your own use, or rent it out if you decide to return to the Netherlands.
Sole trader deductions
There are tax benefits available to self-employed individuals and freelancers. Two of them only apply if you engage in business-related activities for more than 1,225 hours annually:
- A €7,280 self-employment tax break per year
- A 2,123 euro deduction for new business. This may be used three times in the first five years of the business..
- In addition to these tax benefits, a small business exemption exempts 14% of profits from taxes.
If you use your house as an office, you could write off a portion of your rent if you live in a rental and work from there.
Income tax in the Netherlands for foreigners
There are differences regarding foreigner taxes in the Netherlands, such as the inheritance tax.
Foreigners have the option to use their native country’s inheritance laws in this situation. Any of the possessions and liabilities that a decedent leaves behind, such as a sum of money or an expensive item, are considered an inheritance.
Depending on your relationship with the deceased, you may be able to inherit a certain amount of money before paying taxes.
- Spouse/partner: There is a €723,526 tax-free allowance available. After that, inheritances up to €138,641 are subject to a 20% tax rate, and inheritances below that amount to a 10% tax rate.
- Children, foster children, and stepchildren are all eligible for a tax-free payment of €22,918. After that, inheritances up to €138,641 are taxed at 20% and those below it at 10%.
- Grandchildren: A €22,918 tax-free allowance is offered. Tax is then charged at a rate of 18% below €138,642 or 36% beyond.
- Other: A tax-free allowance of €2,418 is available in the majority of other circumstances. Tax is levied at a rate of 40% over €138,642 or 30% below.
Box system
The box tax system represents different tax rates that apply to different incomes. There are three different box types:
Box 1 tax rates
Box 2 tax rates
Box 3 tax rates
The box 1 tax rates are variable, while the box 2 and box 3 rates are fixed.
Box 1 tax rates
Box 1 tax rates will vary depending on how much you earn. The following incomes are included in Box 1:
- Earnings from your employment or job
- Earnings as a professional athlete, artist, nanny, or freelancer
- Pension and benefits income
- The profit of your enterprise
- Foreign earnings
- Gratuities
There are some deductions in the Box 1 tax rate, such as:
- Deductible homeownership expenses
- Tuition and other study-related fees
- A brief stay in a facility for people with severe disabilities
- Spending on income, such as annuity premiums
- Venture capital exemption
- Particular medical costs
- Maintenance obligations, such as alimony
- Upkeep of a structure with a heritage designation
When it comes to the amount of tax income, it’s 36,93% for a gross annual income of up to 73,031 euros. If you earn more than that, the tax will be 49.50%.
Box 2: Revenue from a limited company interest
Income from sizable ownership (at least 5%) in a limited company is included in Box 2. Box 2 revenue is subject to a 26.90% tax. Included in box 2 income are recurring advantages like dividends, as well as gains on securities, such as capital gains.
Box 3: Savings and assets
Income from investments and savings is covered in Box 3. Your net capital value is calculated once a year on January 1 by subtracting the value of your debts from the value of your assets. Everyone has a certain amount of capital that is exempt from taxes. You are not required to pay taxes on assets worth up to 57.000 euros for an individual and 114.000 euros for a couple.
30% percent tax ruling
The 30% tax ruling is a special form of tax deduction for highly-skilled migrants. This allows foreigners to save up on taxes, as 30% of their salary is not taxed. You can use this perk for five years. However, to enjoy this benefit, you must fulfill certain requirements:
- at 70%, the minimum taxable wage is 41.954 euros;
- for employees that have a master’s degree and are under 30, at 70%, the minimum taxable wage is 31.891 euros;
- you work at an organization in the Netherlands;
- you possess a certain type of professional experience that is either uncommon or unavailable in the Netherlands. When their income satisfies the stated pay conditions, highly skilled migrants are considered to have such expertise;
- you and your employer have a written agreement that your circumstance falls under the 30% ruling;
- you were hired or transferred from another country (and you have lived more than 150 km from the Dutch border for more than 24 months prior to working in the Netherlands).
You don’t need to do it alone
The Dutch taxation system made significant changes over the last couple of years. Although the Netherlands isn’t considered a tax haven anymore, it made substantial steps toward lowering taxes for its citizens. Unfortunately, those changes and categories made it difficult to determine which taxes to pay and which rules apply to each citizen.
If you’re uncertain which rules apply to you and how to do your taxes properly, you can always resort to a service like Dutch Haven. With their help, you’ll easily be able to handle all of your tax obligations and avoid paying any fees because of breaking deadlines or forgetting about certain taxes that you must pay. Regardless if you’re moving to the Netherlands to work, start a business, or move in with a partner, they’ll have you covered.
Moving to a different country may seem frightening with all the new rules to follow, but with the proper guidance, your start in the Netherlands will be hassle-free.