- Income tax in the Netherlands
Netherlandsthere is an income tax, which since 2001 ("Wet inkomstenbelasting 2001") is roughly as follows. The fiscal year is the calendar year. No later than March citizens have to report their income of the previous year. The system integrates taxwith fees paid for the basic old-age pension system AOW, the pension system for partners of deceased people AnW, and the national insurancesystem for special medical care AWBZ. Below the term "tax" is used for the total. The figures are for fiscal year 2007.
Three categories of income, each with their own tax tariff, are distinguished. They are referred to as "boxes".
Progressive tax on wages, etc. (box 1)
There is a
progressive taxon wages, profits, social securitybenefits 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 functionof income.
*Above that: 52 %.
Under certain conditions a
life annuityis 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 more 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
mortgagedebt related to that, this box and not box 3 applies. Based on the value of the dwelling, a "fixed rentable value" is counted, while interestfor 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.
An employer may set up an employee savings scheme (spaarloon) allowing employees to save up to EUR 613 per year of their wages without paying income tax on that part of their wages, provided that they do not withdraw their savings within four years, or for designated purposes (including but not limited to buying a new house and starting a business). The employer pays the income tax, but only a reduced rate of 15 %. During this period the savings are also exempted from the tax of box 3.
A competing savings scheme (levensloopregeling (nl)) allows employees to save 11% of their pre-tax income, with taxes and premiums deferred until the money is taken out. Money saved in this manner may only be used to receive income during leave. In this way, an employee can save up money to take a
sabatical, extended holiday, or early pension. However, the employer must approve the leave. The two savings schemes are incompatible (an employee must choose either one or the other), the latter being impopular.
For taxpayers aged 65 or older (to be referred to as 65+) reduced rates apply for the first two brackets: 15.75 % and 23.5 %, respectively. The discount of 17.9 % of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries. There are plans to abolish this discount for people with an income which is more than EUR 15,000 per year above the AOW pension, if they have not worked until the age of 65. Details of the plan are yet unknown.
For employed and self-employed people there is an employment rebate of up to EUR 1,392 (more for people in the age range 57-64, up to EUR 2,138, less for 65+).
withholding taxis a deduction of wages, social security benefits and pensions, as an advance payment for the income tax, paid through the employer, etc.
See also nli|Box I (inkomstenbelasting).
Health insurance premium
From 2006 there is a new national
health insurancescheme ("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 6.5% for e.g. wages and 4.4% 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 30,015 euro.
Flat tax on income from a substantial business interest (box 2)
There is a
flat taxof 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:
* capital gains (except in case of succession and divorce)
For 2007 only there is a reduced rate ranging from 22 to 25%.
See also nli|Box II (inkomstenbelasting).
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. EUR 20,014 (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 53,421) is exempted. Moreover, a
tax creditper year of 1.3 % of the value is applied for these investments. The credit only counts towards box III.
See also nli|Box III (inkomstenbelasting).
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 deductable 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.
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. [ [http://zoekdienst.belastingdienst.nl/Zoekdienst/anbi-nl/ Find ANBIs] ]
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.
The total tax is the sum of the taxes in the three boxes, minus EUR 2,043 (less for 65+), a
tax creditnot to be confused with a tax deduction; see also nli|Heffingskorting. The resulting amount of tax may be less than zero, in which case the amount is paid out, provided that one has a spouse and the tax of both together is not less than zero.
The 30 Percent Ruling
The 30 Percent Ruling 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 purpose of the 30 Percent Ruling is to compensate employees for the extra costs of their temporary stay in the Netherlands, e.g. to make Holland competetive in the international marketplace for skilled labour, since normal Dutch income tax rates are so high that it is not financially rewarding to work in Holland.
The 30 Percent Ruling allows an employer to pay an employee a tax-free allowance of up to 30 percent of the employee's total remuneration (the "Basis") for the first 10 years of their stay in the Netherlands. In addition, the employer may provide a tax-free reimbursement of the fees paid for the employee's children to attend an international school.
A similar ruling also applies to compensate Dutch employees who are assigned to work in designated developing countries.
Note that it typically takes two to three months from the application for the ruling to be granted. The excess tax paid in the meantime is repaid to the applicant once the ruling is granted.
Taxation in the Netherlands
Notes and references
* [http://www.belastingdienst.nl/english/ Dutch Tax and Customs Administration]
* [http://www.taxpat.com/faq.php#30 Expatriate Tax Services and Information]
* [http://www.expatica.com/nl/survival/finance/The-30_-ruling_-Are-you-eligible_.html Expatica] - The 30% ruling: Are you eligible?
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