Taxation in the Netherlands
Taxation in the Netherlands is defined by the income tax, the wage withholding tax, the value added tax and the corporate tax.
Income tax
In the Netherlands, residents pay income tax on their worldwide income. Non-residents are taxed on income sourced in the Netherlands only. Income tax is collected by Tax and Customs Administration. For purposes of determining income tax, income is divided into the following three categories, so called boxes:Box 1: income from work and home ownership
A progressive tax rate on income from work and housing with two tax brackets applies to income in Box 1. In the past, there were four brackets, the highest of which was 72%, but in 1990 it was changed to 60%, and in 2001 it became 52%. The four bracket system was changed to a two bracket system in 2020, with lower incomes taxed at 36.97% and higher incomes at 49.50%. Certain expenditures, referred to as personal allowances, can be deducted from income prior to tax calculation. Examples of personal allowances are donations to eligible charities, maintenance costs, medical or study expenses. Income-dependent credits reduce the tax owed. Taxpayers above the official retirement age are entitled to a reduced tax rate.Box 2: financial interest in a company
A two-bracket tax of 24.5% and 33% applies to income from substantial interest in a company. A substantial interest in a company is defined as owning at least 5% of its shares, options or profit-sharing certificates; either by the taxpayer themselves or together with their tax partner.Box 3: savings and investment
Box 3 concerns income from wealth. Wealth is calculated as value of assets minus any debts. Income from wealth is taxed at a 36% rate. For tax purposes, a fixed return on savings and investments is presumed, based on the actual distribution of Box 3 assets. Presumed gains are calculated each year based on market returns realized in the past. A tax allowance on capital yields is provided. Certain assets are so called tax-free capital and are exempt from income tax, such as green investments.For income taxes, the tax year is equivalent to calendar year. Tax returns are due by 1 May of the subsequent year. Married couples submit a joint assessment, except in the case when a divorce petition has been filed.
Value added tax
The value added tax system follows European Union regulation. For value added tax there are three categories: foods and essentials, non-foods and luxuries, and special goods. These three categories have rates of 9%, 21%, and 0%, respectively. The non-foods and luxuries percentage was increased from 19% to 21% on 1 October 2012, while the foods and essentials percentage was increased from 6% to 9% percent on 1 January 2019.The special goods cover:
- Goods that are exported
- Goods that haven't been introduced yet
- Catch of Fish
- Excised goods
- International transport of people
Import VAT
Unlike some states in member countries that make up the EU, the Dutch tax regime allows the deferral of import VAT payment. Instead of conducting payment at the time when goods are imported to the EU, the VAT payment may be deferred to periodic VAT returns. The import VAT needs to be reported; however, as the amount may be deducted from the corresponding period VAT return, the deferral can prevent cash flow disadvantage arising from paying import VAT immediately at the time of import to the EU.Corporate tax
Generally, private and public companies with Dutch residency are subject to corporate income tax on their worldwide income. Corporate tax rate is based upon taxable amount, which equals taxable profit in the corresponding year minus deductible losses. In 2024, for taxable amount below €200,000, a 19% tax rate was applicable. Taxable amount of €200,000 and above was taxed at a 25.8% tax rate. Corporate tax year is equivalent to calendar year unless stated otherwise in the company's articles of association. Tax year typically follows a 12-month period; deviations are possible in the first year of incorporation.Innovation box
To foster innovation research, an innovation box provides tax relief for innovative activities. Profits derived from self-developed intellectual property that qualify for the innovation box are subject to a reduced tax rate. Since January 1, 2018, the effective tax rate applicable to corporate income in the innovation box is 7%. This feature of the tax framework provides a notable tax incentive for research and development activities in the Netherlands.Substantial holding exemption
If qualified for a substantial holding exemption, a parent company is fully exempt from paying tax on the dividends and capital gains it receives from a subsidiary. Substantial holding is defined as holding at least 5% of shares in the subsidiary. The subsidiary concerned may have both Dutch or non-Dutch residency; the equal tax treatment allows non-Dutch subsidiaries to better compete with local ones. Substantial holding exemption prevents double corporate taxation of profits. This feature of the tax regime makes the Netherlands an attractive location for European headquarters. To qualify for substantial holding exemption, at least one of three conditions must be met:- Motive test: shareholding in the subsidiary does not serve as a mere portfolio investment.
- Effective tax rate test: according to Dutch tax standards, a reasonable effective tax rate is applicable to the subsidiary.
- Asset test: less than 50% of total assets of the subsidiary are low-taxed free portfolio investments.