Income Tax in the Netherlands

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%.

Date: 2015-12-11; view: 929