Attention, international entrepreneurs! Welcome to your guide on understanding income tax in the Netherlands, a vital aspect for your business success. In this article, we will take you through the essentials of Dutch income tax, making it easier for you to navigate the system. Let’s delve into the tax rates, deductions, and compliance requirements while simplifying the complexities of the box system.
The box system
In the Netherlands, income tax encompasses more than just earnings from labor. Your prosperity and assets are also subject to taxation. The Dutch tax system classifies taxable income into three boxes, each with its own rates and categories:
Box 1: This box covers income from profits, employment, and homeownership, including salaries, pensions, social benefits, and the value of owner-occupied property based on the WOZ value, determined by municipalities.
Box 2: Here, you’ll find income from significant interest.
Box 3: This box consists to earnings from savings and investments.
Non-resident taxpayers may benefit from a fundamental allowance in tax Box 3, resulting in a reduced tax rate for investments and savings linked to the Netherlands.
Box 1
Now, let’s focus on Box 1, specifically income from employment. Here are three key aspects to know:
Income Tax: If you earn or work in the Netherlands, you must pay income tax. This is done through your annual tax return, which can be completed online or with the help of a Dutch tax advisor.
Payroll Tax: When employed by a company, your employer deducts income tax from your salary through payroll tax. This includes wage tax (loonbelasting) and national insurance contributions for pensions, unemployment benefits, and other Dutch allowances.
Deductions: Payroll tax is deducted monthly, affecting your gross salary (bruto salaris) and resulting in your net salary (netto salaris) after tax deductions. Understanding these differences is crucial when negotiating salary and employment terms.
The Belastingdienst, or Dutch Tax and Customs Administration, automatically deducts a portion of your monthly salary. However, at the end of each year, you are required to submit a tax return (belastingaangifte) to report your gains and assets accurately. This tax return is a vital tool that balances your “prepaid” tax with other financial factors, such as your partner’s income, mortgage considerations, additional income or investments, and tax deductions for education or healthcare expenses.
Rates
The tax rate for box 1 follows a progressive system with 2 brackets. An adjusted rate applies once you reach the state pension age (AOW-leeftijd). As of January 1, 2023, the combined rate in the first bracket is 36.93% (down from 37.07% in 2022). The rate in the second bracket for income and wage tax remains unchanged at 49.50% compared to 2022.
| Tax Brackets | Income | Tax rate |
|---|---|---|
| First bracket | up to € 73.031 | 36,93 procent |
| Second Bracket | above € 73.031 | 49,5 procent |
AXP Advisors
When it comes to income tax, enlisting the expertise of an advisor of AXP Advisors is a smart move. A qualified advisor possesses in-depth knowledge of tax laws, regulations, and deductions, ensuring accurate and optimized tax filings. AXP Advisors can help you navigate the complexities of the tax system, identify potential savings, and minimize the risk of errors or audits. By entrusting your income tax to us, you gain peace of mind, save time, and maximize your financial benefits.
This article is part of a serie about the tax system in the Netherlands, read here about the the basics of VAT. In our next article we will dive deper into the other taxt boxes.
