Income tax in the Netherlands
Income tax in the Netherlands is regulated by the Wet inkomstenbelasting 2001.
The fiscal year is the same as the calendar year. Before May 1 citizens have to report their income from the previous year. The system integrates the income tax with fees paid for the general old age pension system, the pension system for partners of deceased people, and the national insurance system for special medical care.
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, social security benefits and pensions. Thus there are tax brackets, each with its own tax rate. Mathematically, apart from discretization, the tax is a continuous, convex, piecewise linear function of income.For people above the pension age, the social security component is reduced. Additionally, there are income-dependent deductions and tax credits for incomes up to €90,710 which decrease the effective tax rate.
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 it is changed to zero.
For taxpayers above the official retirement age reduced rates apply for the first two brackets. In 2019, the corresponding tax rates are 18.75% and 20.20%. The discount of 17.9% of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries. In 2018, the retirement age in the Netherlands was postponed from 65 years and 9 months to 66 years.
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.
Health insurance premium
From 2006 there is a new national health insurance scheme. The premium is partly income-dependent and paid as a tax supplement. It applies for the "contribution income", which is part of box 1, including labor income, social security benefits, pensions, and life annuities. 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.Tax on income from a substantial business interest (box 2)
Prior to 2024, there was a flat tax of 26.9% on income from a substantial business interest, usually meaning a shareholding of at least 5% in a private limited company. As of 2024, this has become a two-bracketed tax consisting of a rate of 24.5% on the first €67,000 of income and 33% on the excess.If the fiscal partner of the taxpayer or a blood relative 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
See also box 2.
Tax on savings and investments (box 3)
As of 2024, there is a tax of 36% on the assumed return on bank savings and other assets if their total value exceeds €57,000. Each type of investment has a different assumed rate of return associated with it.There is an exemption for money invested in approved "green" investments up to a certain limit. Moreover, a tax credit per year of 0.7% of the value is applied for these investments. The credit only counts towards box 3.
See also box 3.
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.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". Often this is a foundation. It can also be a voluntary association, 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 in the three boxes, minus the general tax credit and labor tax credit. 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% ruling
The 30% 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 scarcity of work force with particular skills is reviewed annually.The 30 Percent Rule allows an employer to exempt from income tax up to 30% of the employee's annual remuneration and used to be applicable for the first 10 years of their stay in the Netherlands, but is currently for the first five years of employment in the Netherlands .
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 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, pension contributions, and other benefits.
The Dutch tax authority allows for two options:
- 30% tax-free is reimbursed based on registered receipts for extraterritorial costs
- the Dutch tax office can, upon an approved application of an employee, grant a 30% tax exemption on the employees remuneration.
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 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.
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.
Eligibility for the 30 percent rule is subject to a set of conditions, including:
- The foreign employee was recruited outside the Netherlands or transferred from another country by their employer.
- The foreign employee possesses expertise absent or scarce in the Dutch labour market. Fulfilment of this condition is based upon gross salary, which must exceed a given minimum amount after the exemption is applied. In 2023, the threshold gross salary was €41,954. A lower requirement applies for employees under the age of 30 who have obtained a master's degree or its equivalent at a Dutch or foreign university; in 2023, the respective minimum gross salary amounted to €31,891. No minimum salary threshold exists for researchers under EU directives.
- In the 24 months prior to first day of employment in the Netherlands, the foreign employee lived outside of the Netherlands for more than 16 months, more than 150 kilometres away from the Dutch border. An exception exists for all Ph.D. students who recently graduated, where the 150 km distance rule need only have been met for 16 out of the 24 months before the start of Ph.D. study.
In 2017 the new governmental coalition planned to reduce the tax break from 8 years to 5 years. However, in the 2018 budget speech, the finance minister retroactively reduced the 30% tax rule to end by Jan 2019 for all beneficiaries if over 5 years, irrespective of an earlier approval for a later end date.