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 April 1 citizens have to report their income from the previous year. The system integrates the income tax with fees paid for the basic old-age pension system (AOW), the pension system for partners of deceased people (ANW), and the national insurance system for special medical care (AWBZ).
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, profits, 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 EUR 18,218: 2.3%; tax on EUR18,218 is EUR419
- For the part of income between EUR18,219 and EUR32,738: 10.8%; tax on EUR14,520 is EUR1,568
- For the part of income between EUR32,739 and EUR54,367: 42%; tax on EUR21,629 is EUR9,084
- On all income over EUR54,367: 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 EUR 18,218: 33,45%; tax on EUR18,218 is EUR6,094
- For the part of income between EUR18,219 and EUR32,738: 41.95%; tax on EUR14,520 is EUR 6,091
- For the part of income between EUR32,739 and EUR54,367: 42%; tax on EUR21,629 is EUR9,084
- On all income over EUR54,367: 52%
For 2011, income tax for people under the age 65 is as follows:
- For the part of income up to EUR 18,628: 1.85%; tax on EUR18,628 is EUR345
- For the part of income between EUR18,629 and EUR33,436: 10.8%; tax on EUR14,808 is EUR1,599
- For the part of income between EUR33,437 and EUR55,694: 42%; tax on EUR22,257 is EUR9,348
- On all income over EUR55,694: 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 EUR 18,628: 33%; tax on EUR18,628 is EUR6,147
- For the part of income between EUR18,629 and EUR33,436: 41.95%; tax on EUR14,808 is EUR 6,212
- For the part of income between EUR33,437 and EUR55,694: 42%; tax on EUR22,257 is EUR9,348
- On all income over EUR55,694: 52%
For 2012, income tax for people under the age 65 is as follows:
- For the part of income up to EUR18,945: 1.95%; tax on EUR18,945 is EUR369
- For the part of income between EUR18,945 and EUR33,863: 10.8%; tax on EUR14,909 is EUR1610
- For the part of income between EUR33,863 and EUR56,491 : 42%; tax on EUR22,628 is EUR9,503
- On all income over EUR56,491 : 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 EUR 18,945: 33.1%; tax on EUR18,945 is EUR6,271
- For the part of income between EUR18,945 and EUR33,863: 41.95%; tax on EUR14,909 is EUR 6,258
- For the part of income between EUR33,863 and EUR55,491: 42%; tax on EUR22,628 is EUR9,504
- On all income over EUR55,694: 52%
For 2013, income tax for people under the age 65 is as follows:
- For the part of income up to EUR19,645: 5,85% (plus mandatory Premium National Insurance 31.15%)
- For the part of income between EUR19,645 and EUR33,363: 10.85% (plus mandatory Premium National Insurance 31.15%)
- For the part of income between EUR33,363 and EUR55,991 : 42%
- On all income over EUR55,991 : 52%
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 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.
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.
See also box 1 (Dutch).
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.
Boxes 2 Business Video
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%.
See also box 2 (Dutch).
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 III.
See also box 3 (Dutch).
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.
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 of the taxes 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 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.
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