The most commonly used Dutch tax definitions and phrases can be found here.
Assessment date for box 3 taxation
The assessment of your wealth is determined on a specific date; the assessment date. The assessment date for your box 3 wealth is the 1st January in the year you're supposed to file your taxes. E.g. the wealth assessment for the tax year 2018 is determined on 1 January 2019.
Box 3 assets components
Your worldwide assets are included in box 3 The following lists examples of possessions part of your box 3 wealth position:
- Valuable objects
- Properties (such as a second house)*
- Shares and other securities (except if these represents an ownership share of 5% and over)
- Annuity insurance (for which the premium cannot be deducted)
- Capital sum insurance (not linked to the owner-occupied property)
* Your (Dutch) residential home is excluded from box 3 taxation.
Tax-free threshold box 3
Living with a partner and box 3
In box 3 you can elect to combine your total wealth position with that of your partner. Combining the totals in assets and liabilities can lead to a combined tax advantage.
For example, you own € 40,060 in net assets and your partner owns € 20,000 in savings. If you choose to combine your box 3 possessions with your partner, your combined wealth would be € 60,060. Since this is below the threshold of € 60,720 (2019) for partners, both partners are not taxed in box 3.
Bracket for taxation
Brackets for taxation, tax brackets, are ranges of incomes to which a certain income tax rate is applied. Tax brackets allows for a progressive tax system, in which taxation progressively increases as an individual's income grows. The lower brackets carries lower tax rates. Higher incomes fall in higher brackets which carry a higher tax rate.
Deductible expenditure box 1
The following items apply for deductible expenditure Box 1:
- Employee's allowance
- Deduction of mortgage interest and other deductible expenditure
- Expenditure on income insurance: annuities and other premiums
- Offsettable losses from employment and home ownership
Double tax relief
To avoid a situation in which you have to pay tax in several countries, you are entitled to an income tax relief in the Netherlands, the so-called double tax relief. We calculate the double tax relief per box based on the tax that you have to pay for each box. The double tax relief cannot exceed the amount of tax you owe in the box concerned. This means that any taxable income in the other boxes is not taken into account when calculating the relief in 1 box. However, your income from abroad must have a positive balance.
The fact that you have to state your income from abroad does not always mean that you have to pay income tax on this in the Netherlands. If the right to levy taxes according under national and international regulations is assigned to another country than the Netherlands, you do not owe any income tax on that income in the Netherlands. In order to avoid your having to pay income tax in several countries, you are entitled to an income tax relief in the Netherlands. This is called double tax relief.
Foreign pre-incorporation profit scheme
The amount of the double tax relief cannot be more than the payable income tax in the relevant box. This could mean that certain deductible items, such as the mortgage interest connected with your owner-occupied home, will not result in a tax advantage. For these types of situations, there is the roll-over scheme. By means of a decision, we determine the amount of foreign income which is included in the calculation of the relief in a following year.
The roll-over scheme is applied to each box. Therefore, it is possible that you will receive a decision for income in box 1 and another decision for income in box 3.
Example of how the roll-over scheme works in box 1
Calculation of the double tax relief in box 1: Your income consists of €27,226 income from earnings in Germany €4,536 in negative income from being a homeowner. Your taxable income from work and home (box 1) then amounts to €27,226 - €4,536 = €22,690. You then have to pay €944 in income tax.
For your income from earnings in Germany you owe tax in Germany and in the Netherlands to avoid double taxation you are entitled to a rebate. In this case the rebate to avoid double taxation would amount to €27,226/€22,690 x €944 = €1,133. But since you only have to pay €944 on your taxable income, the amount of the rebate will only be €944, as this is the maximum amount of the rebate.
In this example, the negative income from your owner-occupied home does not lead to a tax advantage. That is why this amount (€4,536) is reserved. Should you have income in box 1 in the future on which you have to pay income tax in the Netherlands, a double tax relief will still be given on the reserved amount and you will receive a tax refund. This is called the roll-over scheme or foreign pre-incorporation profit scheme.
General tax credit
All taxpayers are entitled to the general tax credit. The general tax credit is a refund on your income tax and premium social securities. The general tax credit is applied to your income. The amount depends on your age and how long you lived in the Netherlands for the applicable tax year. If you have a tax partner who did no work in a given tax year, you may apply his or her unused general tax credit to your own income. This could lead to a substantial tax refund.
Your employer or benefits agency should have taken your general tax credit into account when withholding wage tax and national insurance contributions. Partners are entitled to this tax credit individually. If one of the partners has little or no income, (lower than approximately € 6,150), and therefore does not (fully) utilize his or her own tax credit, this partner – subject to conditions – can receive a payout of (a part of) the amount from the Tax and Customs Administration, for instance in the form of a provisional refund.
Income from other activities
The income from other activities is taxed in Box 1 and consists of all the revenue from other activities minus the corresponding deductible expenditure. Revenue from other activities includes all types of revenue other than wages and profits from business activities. The following are some examples:
- revenue from freelance activities;
- fees for giving lectures;
- considerations paid to local council members;
Income from other activities also includes income from certain forms of asset capitalization, such as making an asset – e.g., a building or money – available to certain (legal) persons.
On the whole, the income from other activities is determined in accordance with the rules applicable to profits from business activities.
In the Netherlands, income is being taxed. Income comes in different forms and shapes. The most common is income from work, one's salary. Income can also be received from owning a company in the form of profits. Another income source taxed separately in the Netherlands is from yield made on assets (wealth). These income sources are taxed in three boxes, the cornerstone of the Dutch tax system. Find the answer to all your Dutch income tax and tax credits in this section.
Lijfrente or Retirement annuity
Lijfrente or retirement annuity is a recognized retirement savings product that may be applied as a personal insurance scheme. See also under Retirement Annuities for more information.
National insurance contribution
- Your income from activities performed in an employment in the Netherlands is subject to wage tax, and you do this work only in the Netherlands. In that case, you will remain insured also in the event that your work is temporarily interrupted on account of illness, maternity leave, an accident, unemployment, paid leave, strike or exclusion;
- You do not live in the Netherlands, but do your work as a self-employed person only in the Netherlands;
- You work on a means of transport (including inland shipping and Rhine navigation);
- You do not work in your country of residence alone;
- You do not work for a foreign branch or a foreign permanent representation of a Dutch business;
Only insured for AWBZ
- You are insured in the Netherlands under the Compulsory Health Insurance Act;
- Based on international regulations, you are entitled to medical care in your country of residence, the expenses of which are borne by the Dutch Health Insurance Fund (Ziekenfonds). For example, this may be the case if you moved abroad when you retired and continue to receive pension payments or benefits from the Netherlands;
Payroll taxes are a collective term for various employer's expenses. Payroll tax is comprised of the following:
- wage tax;
- national insurance contributions;
- employed person's insurance contributions;
- income-dependent contribution pursuant to the Health Care Insurance Act (Zvw).
Resident taxpayer status
If you live in the Netherlands, you must state your complete worldwide income in your tax return. Your income from abroad is also part of your worldwide income (for example income from employment or foreign property).
Opting for resident taxpayer status
Do you live abroad but do you have income in or from the Netherlands? Or did you not live in the Netherlands for the whole year? In that case, you can opt to be treated as if you have a resident taxpayer status for the whole year. If you use this right of option, you also state your worldwide income in the Netherlands.
The amount of the double tax relief cannot be more than the payable income tax in the relevant box. This could mean that certain deductible items, such as the mortgage interest connected with your owner-occupied home, will not result in a tax advantage. For these types of situations, there is the roll-over scheme. By means of a decision, we determine the amount of foreign income which is automatically included in the calculation of the relief in a following year. You may not include this transferred amount once again in your tax return in that year. What is the roll-over scheme?
Taxation of savings and investments
Income from savings and investments is taxed in the box 3 category (wealth tax). Your net wealth, that is your total possessions minus any debt obligations over it, is being taxed in box 3. Your wealth position is deemed to make a (hypothetical) fixed annual yield. This yield (income) is being taxed according to a three bracket system, see Wealth taxation in box 3.
Note that you are not taxed on the actual yield (income) derived from your assets. For instance, if you a rental apartment, you are not taxed over the actual rental income. Taxation is applied over the total of your assets.
Most countries have set-up a tax treaty, an agreement, mainly to avoid double taxation of individuals or businesses. The treaty describes the situation and conditions under which a country may levy tax on an active or passive income. For example, a potential double taxation issue arises when an individual of business invests in another country. Both the home country and the country in which is invested may levy income tax on the investment. A tax treaty is designed to avoid just that.
Several world bodies, such as the Organization for Economic Co-operation and Development (OECD) and the U.N. Tax Treaty Model have created models to deal with the double taxation issues. The Netherlands has tax treaties with over 100 countries in the world.
Note that the regulations for the avoidance of double taxation may differ from country to country. The applicable tax treaty for a specific country that entered into an agreement with the Netherlands applies.
If no tax treaty exists between the Netherlands and another country, than the resolution avoiding double taxation 2001 (Besluit voorkoming dubbele belasting 2001) applies.
The 183-days rule
Which country can levy tax on your income? 183-days arrangement
Which country can levy tax on your income is determined by bilateral tax treaties. This to avoid double taxation. If no bilateral tax treaty is on please, the Dutch Tax Office decides if it levies tax on your income.
Most tax treaties determines that the country in which you work (work country) can levy tax on your income. If you work in the Netherlands, you are liable for Dutch income taxation, unless:
- You reside less than 183 days in a calendar year in the Netherlands, - and- ;
- Your employer is not based in the Netherlands, - and- ;
- You are not keeping a representative office (i.e. you do not a defined desk space on behalf of your employer in the Netherlands).
Secondment of an Employee
Under a Secondment of an Employee arrangement, you do usually not meet the 2nd condition of the 183-days arrangement. The Dutch Tax Office usually considers a (temporary) transfer to a company in the Netherlands under a secondment arrangement as a Dutch employee. The Dutch Tax Office than levies tax the income.
The following three conditions form the basis for this consideration by the Dutch Tax Office:
- The employee working (temporarily) for the Netherlands-based company adheres to it’s instructions;
- The Netherlands-based company benefits from (and is liable for) the results generated by the secondment arrangement;
- The original (non-Dutch) employer fully compensated for employment costs by the Netherlands-based company.
Most tax conventions prescribe that the state in which the employee works is entitled to levy tax on the wage the employee earns in that state. However, there is 1 exception: the state in which the employee lives is entitled to levy tax when the following 3 conditions are met:
- The employee does not stay in the country of work for more than 183 days during a certain period. Depending on the applicable tax convention, this period may be a calendar year, a consecutive period of 12 months or a tax year. For the calculation of the 183 days, you include all days on which the employee was in the country of work, so also weekends and holidays. Part of a day is regarded as a full day.
- The employee is paid by or on behalf of an employer that is not established in the Netherlands.
- The employee does not work in a permanent establishment of the employee in the state where the employee works.
These 3 conditions are jointly referred to as the '183 day rule'. If not all conditions are met, then the state where the employee works is entitled to levy tax.
Many international supply situations do not meet the 2nd condition of the 183 day rule. This is the case when the Dutch recipient is deemed to be the employer: the Netherlands may then, as the state in which the employee works, levy tax. You, as the formal employer, will then need to pay wage tax from the employee's 1st day of work in the Netherlands. However, the Dutch recipient will remain liable if you fail to do so.
The Dutch recipient is deemed to be the employer (what is referred to as the 'material employer') when the following 3 conditions are met:
- There is a relationship of authority between the employee and the recipient.
- The work is carried out at the recipient's expense and risk.
- The wage costs are charged to the recipient. The invoice must also show how many employees you have supplied.
The amount of tax withheld on your wages. Wage tax is an advance levy of income tax. As your employer withhold wage tax and pays this tax to the Dutch tax office, you as an employee will not be behind on paying income tax. You may overpay in tax due to the specific workings of the Dutch payroll system. The excess tax amount paid can be retrieved from the Dutch tax office through an income tax return filing after the tax year is completed.
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