The Netherlands have different types of taxes. No matter, whether you are Dutch citizen or Expat – all who work in the Netherlands are obligated to pay Dutch taxes. In this part of relocation guide to the Netherlands, we will overview the Dutch taxing system. You should know, the Dutch tax year runs from January 1 through December 31. If you came in the middle of a year, you still pay a full year taxes. But, we will tell you what you need to do to return those losses.
Taxable Income
As a resident of the Netherlands, you are subject to Dutch tax on your worldwide income. This worldwide income is divided into three different types of taxable income, so-called boxes.
Box 1:
Taxable income from work at homeownership. It includes the following:
- Employment income
- Homeownership of the primary residence (deemed income)
- Gains from self-employment and other professional activities
- Periodic receipts and payments
- Benefits relating to income provisions (e.g., refund of annuity premiums)
Here is tax rate on Box 1 for 2012:
– up to €18.945 = 33,1%
– from €18.946 to €33.863 = 41,95%
– from €33.864 to €56.491 = 42%
– from €56.492 and higher = 52%
Box 2:
Taxable income from a participating interest. You earn income from a participating interest. If you own at least 5% of the shares in a private limited company (BV) or a public limited company (NV). The Box 2 tax rate is 25%.
Box 3:
Taxable income from savings and investments (Investment-Yield Tax). The tax rate for box 3 is 30% of the imputed income in 4% from the sum of capital or property valuation, that is 1.2% of the total sum. The sum of €21.139 (doubled in the case of a fiscal partnership) is exempt from taxes in box 3.
Homeownership
If you own a home in the Netherlands, you will be taxed on it. This is because the property is deemed source of income in the Netherlands. A distinction should be made, however, between a home that is owned for other purposes. Income from the primary residence and a home that is owned for other purposes. Income from the primary residence is taxed in Box 1 according to the home’s fixed rental value. The rental value is based on the property’s fair market value, as determined by the local authorities. Interest paid on mortgages is deductible in Box 1 for a maximum of 30 years. For homes that do not quality (or no longer quality) as the principal residence, the interest is reported in Box 3 rather than in Box 1, and it is no longer deductible. However, certain exceptions apply when the home is to be sold or is under construction.
Deductions
Extraordinary expenditures, personal pledges, and donations are tax deductible within limits. A distinction is made between deductions relating solely to Box 1 income and those relating mainly to the taxpayer’s personal circumstances.
Insofar as these personal deductions exceed the income in Box 1, they will be deducted from Box 3 income, and subsequently from Box 2 income. The possible deductions will be automatically taken into account in the time of a tax return filling.
Filing a tax return
You are required to file a tax return before April 1 next year. If you do not have time to do this, you need to request an extension of the deadline. If you do not do either, then you will first receive a reminder, and then – a fine.
Post the tax return is easier just by downloading the program from the site (aangifteprogramma) for your operating system. By the way, it’s a massive cause to study Dutch.
M-form
This special form for those who came to the Netherlands in the middle of the year. If you arrived in July – you will actually earn only half of your annual salary, but the employer will pay taxes for you as if you were working full-year. So, the M-form will return several thousand euros of tax. M-form should be filled in a paper format. Please, contact the Internal Revenue Service or your tax advisor in order to correctly apply the M-shape.
Next time we will tell you about 30% tax benefit!
Keep an eye on our news and good luck with your relocation to the Netherlands!
