Expat Taxation in the Netherlands
The Dutch government aims to create an attractive environment and welcomes knowledge workers and talent from abroad. While internationally, the Netherlands is regarded as one of the most attractive countries to do business with and to work in as an employee, many people (even locals) are facing administrative hurdles and bureaucracy.
If you would like to know how taxes in the Netherlands work more specifically, particularly considering income from foreign sources, you should talk to a tax consultant. The overview below refers to taxes in the Netherlands usually paid by individuals.
Useful information is available on the website of the Ministry of Finance, where you can find a guide (in English) about the Dutch taxation system. The Dutch tax office is called Belastingdienst and their website also has some information in English.
Tax Residency Status
In order to know where you must pay taxes, it should be determined where your tax residency status is. To this end, it is important to know where you have demonstrable ties. In case this is the Netherlands because you live here, you work here, and your family is based here, you will be regarded as a “Dutch tax resident”. As a consequence, Dutch taxation will take place on a worldwide income, unless a tax treaty for the avoidance of double taxation leaves a taxation right (for certain items of income) to other countries. The Netherlands have concluded over more than 100 tax treaties with other countries.
You will be seen as a “Non-Dutch tax resident” in case you live abroad but receive income that is from employment physically exercised in the Netherlands. In order to gain access to the deductions and levy rebates available for resident taxpayers, you can apply to be treated as resident for tax purposes.
Wage Tax in the Netherlands
In the Netherlands, wage tax is the most important tax for employees. Those who are in paid employment are subject to wage tax. The employer that pays the wages withholds the tax and pays it to the Dutch tax authorities.
The wage tax is an advance tax payment for the income tax. In this way, it is prevented that taxpayers have to pay a single large payment for income tax and social security contributions once a year. The employer withholds the wage tax at the time the employee receives his/her salary
Income Tax in the Netherlands
Persons who are receiving income have to pay income tax. Individuals may receive income from different sources. Dutch income tax takes into account the origin of the income and distinguishes three categories. These categories are known as “boxes”. The income in each of the three boxes is taxed at a different rate (see below)
- Box 1, income from labor and owner-occupied dwelling (taxed at progressive rates up to 52%) includes income from the following sources:
- present and past employment
- business activities
- periodical payments and pensions from individuals (e.g. alimony) or insurance institutions
- owner-occupied dwelling
- Box 2, income from substantial shareholdings, includes dividends and capital gains derived from substantial shareholdings in resident and non-resident companies. Flat rate of 25%.
- Box 3, income from savings and investments, replaces ordinary taxation of all types of income from capital, other than deemed income from an owner-occupied dwelling (Box 1) and dividends and capital gains from substantial shareholdings (Box 2). Taxation of Box 3 is based on a 4% deemed yield on net assets; the deemed yield is taxed at a flat rate of 30%.
Filing Your Income Tax Return
In the Netherlands, income tax returns must be filed digital before April 1st of every year. People who have migrated to the Netherlands during the previous year will receive a so-called M-form and must file it before July 1st. To file a tax return, you will need a digital signature or DigiD, or the services of a tax consultant.
Particularly in the year of arrival and the year of departure, filing an income tax return may result in a substantial rebate. Tax returns can be completed retrospectively for a period of five years.
To attract employees from abroad with specific skills, the Netherlands introduced a special tax incentive called 30% ruling facility. The reason this facility was introduced is that if an employee comes to the Netherlands to work, they may face additional expenses (“extraterritorial expenses”). The 30% ruling allows employers to compensate their 'extraterritorial' employees for expenses they incur in connection with the fact that they are working outside their home country. This is done by means of a fixed cost allowance of 30% of the wage.
Social Security in the Netherlands
Social security in the Netherlands can be classified into two categories, namely National Insurance Acts and Employee Insurance Acts (excluding health insurance). The National Insurance Acts provide benefits to all residents in the Netherlands, irrespective of their nationality and whether they are working. There are some exceptions to this general rule, e.g., for assigned employees and employees who are (also) working abroad. Employee Insurance Acts provide additional benefits for wage earners. Employee Insurance contributions (excluding health insurance) are paid by the employer.
Every individual who is socially insured in the Netherlands must take out an individual health insurance policy. Every individual aged 18 and older pays a standard contribution averaging € 1,222 for health insurance. In addition to this standard contribution, an income-related contribution is payable at a rate of 7.75%. Employers are required to reimburse employees for this contribution and the reimbursement is seen as income.
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