Taxes: No one likes them but we all love to hate them. Taxes are the bane of every working person’s existence. Doing taxes somewhere that isn’t your home country? Now that’s even worse! Seeing that as an international student or graduate in the Netherlands, you can’t really ask your parents for help filling out your tax returns, here at College Life we've decided to give you the information, explanations, and tips you need in order to breeze through filing your taxes.
Nota Bene: As Dutch tax law is extremely sensitive to age and nationality, for the sake of brevity, this guide is geared towards resident taxpayers younger than state pension age with their primary place of residence in the Netherlands. We are not a legal tax firm nor an accountancy firm, but do take our information from primary sources and are working closely with Taxperience to provide the most accurate information possible.
The Fundamentals of Taxes in the Netherlands
A tax year or fiscal year runs from January 1st to December 31st. When filing your taxes, you always file them based on your revenue and assets from the previous year. The deadline to file your taxes in the Netherlands is April 30th. You can request an extension but your extension needs to have been requested before May 1st. If you are employed and have never been taxed in the Netherlands before you should get a letter from the Belastingdienst (Tax Office) in February, inviting you to fill out your income tax return. If you’re self-employed, you won’t get a letter but are required to fill in your tax return.
Different types of taxes in the Netherlands
Now that you know when you should file your taxes, here are the different types of taxes you are likely to pay.
The most common tax is the income tax, which is calculated based on the revenue and assets which you declare on your tax return. Income tax is composed of wage tax and social security tax. Unfortunately, your tax returns need to be filed in Dutch. Together with Taxperience, College Life has a service tailored to internationals that helps you fill out your income tax returns.
If you’re not a freelancer, chances are you’ve noticed two different salaries on your payslip: bruto salaris and netto salaris. Your bruto salaris is your salary before payroll tax, holiday pay and pension contributions have been deducted. The netto salaris is what you receive in your bank account each month.
Payroll tax is in turn composed of wage tax and national and employee insurance contributions, which are different social security schemes insuring residents and employees in the Netherlands.
The only difference between wage tax and income tax is their scope. While wage tax is is determined solely based on your pay, income tax takes your whole financial situation into account from investments to savings, in order to have a bigger picture of taxable income.
Job-related Investment Discount (BIK)As of 1 January 2021, the government will be introducing a Job-related Investment Discount (BIK) as a temporary means of managing a potential crisis. With BIK, Entrepreneurs can deduct a percentage from their wage tax and social security contributions investments. Once the aim of the Job-related Investment Discount is achieved, it will shift to reducing employer costs.
Small Projects Investment Credit (KIA)As an entrepreneur, you are entitled to the Small Projects Investment Credit. It is always proportionate to and dependent on your total investments (partnerships included).
Sales tax (VAT)
If you’re a freelancer that provides either goods or services in the Netherlands, you have to pay the belasting over de toegevoegde waarde (BTW), otherwise known as VAT, for the goods or services you provide. There are three VAT tariffs in the Netherlands: the 0% tariff, applicable to entrepreneurs that conduct business outside of the Netherlands, the low tariff or 9% tariff, applicable to a handful of goods and services in the Netherlands including food, water, agricultural goods, medicines, art, collectibles and antiques, books and periodicals. The general tariff is 21% and applies to all goods and services that aren’t exempt from VAT or the reduced tariff.
VAT needs to be paid quarterly. You’ll be sent VAT return forms by the belastingdienst.
Property tax is a tax on property for which you are registered as owner. The property tax or Onroerendezaakbelastingen (OZB) is a fixed percentage of the estimated value, also called WOZ value of the property. Municipalities typically reestimate the value of properties yearly. You only pay property taxes on your main residence. Secondary residences are considered assets and belong to box 3 of your income tax return.
You don’t have to file for your property tax, instead, you pay it along with a host of other municipal taxes such as the water tax. As the property you are paying taxes for is your main place of residence, the interest payments for your mortgage are deductible from your property tax. Rates change every year in order to adjust to inflation.
Regardless of whether the tax office sends you an invitation to fill in your tax return, from the moment you start working in the Netherlands you are required to declare your sources of revenue.
When and what you need to file a tax return
If you receive income in the Netherlands, or you are a resident of the Netherlands, you need to fill in a tax return. Students count as tax residents in the Netherlands as your primary place of residence is here, as well as your source of income. Filing a tax return can actually be to your advantage as things such as textbooks and other study costs are deductible from your taxes. You can either file a tax return digitally or via a tax accountant. If you submit it digitally, you’ll need a DigiD. A DigiD is a digital means of identification linked to your BSN. You can apply for one using your BSN and use it to access many online government platforms.
Expected and announced legislative proposals
Bill for excessive borrowing from own companyIn June 2029, the Cabinet announced the bill to discourage director major shareholders (DMS) from borrowing excessively from their own company. If a DMS borrows more than €500,000, they will be taxed (home debt is not included). This is expected to take effect as of 1 January 2023.
Tax Reports in the Netherlands
A tax return is an overall assessment of your financial situation covering both your income and the assets you possess, as well as covering all the potential deductions you are eligible for. The Dutch income tax you pay is subdivided into three categories, called boxes, each with their own rate. Box 1 includes income from work and home ownership; box 2 includes financial interests in a company, and box 3 includes savings and investments. (Government of the Netherlands, 2020) While boxes 2 and 3 have a flat taxation rate that applies after a certain value threshold, box 1 has different tax rates that apply based on your income.
How do you fill in a tax return?
Box one concerns any income you receive from wages, owning a home, business profit, grants, tax refunds, and deductions and is taxed at a progressive rate with four tax brackets. What this means is that if your income falls into four different brackets, your Box 1 income tax will be a sum of three different tax rates (the math doesn’t seem to add up but it will).
For the first two tax brackets, tax is composed of wage tax added to national insurance contributions which are of 27.65%. Compulsory national insurance policies actually have a maximum qualifying income above which the contribution is no longer required.
Here’s a table with Box 1 tax rates:
As of 2018, Box 1 rates will be progressively declining. Tax bracket 3 wage tax will decrease to 37.05% by 2022. Meanwhile, tax bracket 4 wage tax will remain at 49.5% until 2022.
Maximum deductible rate
The tax rate is declining expeditiously every year. The maximum deduction rate for deductible costs of owner-occupied houses as well as for other, personal deductible items in 2020 is 46%, and it will decline to 43% in 2021.
This deduction began to take effect in 2019 under the Hillen Act over a period of thirty years.
Box 2 is tax applied to any substantial interests you have in a company. If you or your fiscal partner own more than 5% of the shares, options or profit-sharing certificates in a company, you will have to pay 26.9% tax on any income you make from those shares.
Box 3 concerns your capital, which means your assets minus your debts. Your assets are determined as of the 1st of January of that year and most often include savings, shares and real estate or rights to real estate. Though a flat tax rate of 31% applies to your net capital value, the tax applies to a taxable amount dependent on a predetermined annual return on investment. The Dutch government recently announced amendments to the tax code. Among the changes is an increase this flat tax rate by 3% to a total of 33%.
Sound complicated? Here’s what that looks like:
|TAXABLE CAPITAL||ASSUMED RETURN ON INVESTMENT|
|Up to €99,999||2.017%|
|€100,000 to €999,999||4.326%|
|€1,000,000 and more||5.38%|
For example, if you have a taxable capital worth €69,756, the 31% tax is applicable to 2.017% of your capital.
|TAXABLE INCOME||ASSUMED RETURN ON INVESTMENT||TAX DUE|
If your capital has a value of up to €50,000 or €61,692 with a fiscal partner, it is tax-free.
If your capital value ranges from €50,000 to approximately €220,000 (€440,000 for partners), you will pay less tax in Box 3. If your capital value exceeds €220,000 (€440,000 for partners), you will pay a higher tax.
Lower deemed income for solar-powered vehicles
For electric cars and other emission-free vehicles, the deemed income of 8% applies for the catalogue value up to €45,000. In 2021, the deemed income will be 12% for €40,000. For hydrogen powered vehicles, where there is no maximum catalogue value, the lower percentage of deemed income applies on the full value. This will also apply to private use of solar-powered vehicles from 2021.
Life-course Saving Schemes
If you do not have the life-course savings entitlement paid by 1 January 2022, its value will be taxed at the end of 2021 with the end of the transitional law. Your company or bank is obliged to withhold wage tax, but it can recover it along with social security contributions from you as an (ex)employee.
Note: As an (ex) employee, you can claim life-course leave tax credit and other tax credits in the income tax return.
To counterbalance the complex tax system, you’re also entitled to a series of deductibles and credits based on your personal situation.
General tax credit (algemene heffingskorting)
Every resident taxpayer is entitled to the general tax credit. The amount you receive is dependent on your income and should be visible on your payslip.
|TAXABLE INCOME||TAX CREDIT|
|€0-€20,384||€0 - €2,711|
|€20,384-€68,507||€2,711 - 5.147% * (taxable income - €20,384)|
The general tax credit will increase to up to €2,837 in 2021.
Labor tax credit
You are entitled to a labor tax credit if you are a working person with a salary. This tax credit is also calculated based on your income and should be visible on your payslip as well.
|HIGHER INCOME THAN||INCOME NO HIGHER THAN||LABOR TAX CREDIT|
|€0||€9,694||1.754% * income|
|€9,694||€20,940||€170 + 28.712 * (income - €9,694)|
|€34,060||€90,710||€3,819 - 6% * (income - €34,060)|
In 2021, the labor tax credit will be gradually increased to €4,205.
For self-employed individuals, there will be a yearly tax credit reduction of €360 until 2028. The tax credit in 2020 is currently €7,030. In 2021, the amount will decrease to €6,670. The final tax deduction amount for the self-employed will be €3,240 in 2036.
Taxes are not exactly the most fun, but with the right help, even the most difficult of tasks is easily done. Not sure where you should even start with filing your taxes in the Netherlands? Check out our Taxes page for more guides and tips on how to manage your finances in the Netherlands.