Tax definitions

These are the most commonly-used Dutch tax terms and phrases:

Belastingdienst

The Dutch Tax and Customs Authority is known in the Netherlands as the Belastingdienst (pronounced: ‘ber-lusting-deenst’). It typically sends postal mail in distinctive blue envelopes. 

Assessment date for box 3 taxation

Your wealth is always assessed on a specific date known as the ‘assessment date’. The assessment date for box 3 wealth is first day in January of the year for which you are filing your taxes. For example, wealth assessment for the tax year 2018 is done on the basis of your situation on 1 January 2018.  

Box 3 asset components

Your worldwide assets are included in box 3. These are some of box 3 wealth:

  • Savings
  • Investments
  • Valuable objects
  • Properties (such as a second house)*
  • Shares and other securities (except if these represents an ownership share of at least 5%)
  • Annuity-based insurance (for which the premium cannot be deducted)
  • Capital sum insurance (not linked to the owner-occupied property)

* Your (Dutch) home where you live is excluded from box 3 taxation.

Tax-free threshold for box 3

A tax-free threshold applies for box 3. Your total assets (wealth) of up to €30,846 (2020) are not taxed. If you are taxed together with a partner, your first €61,692 (2020) in wealth is free of tax.  

Living with a partner and box 3

In box 3 you can elect to combine your total wealth with your partner’s wealth. Combining your total assets and liabilities can be beneficial for you.  

For example, say you have €40,060 in net assets and your partner has €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 €61,692 (2020) for a pair of tax partners, neither partner would pay tax for box 3.  

Tax brackets

Tax brackets are income bands that are taxed at different rates. These tax brackets are part of a progressive tax system where the burden of taxation increases progressively as your income grows. The lower brackets have lower tax rates. Higher incomes fall into brackets with a higher tax rate.    

Deductible expenses for box 1

The following expenses are deductible in box 1:

  • Any employee's allowance
  • Mortgage interest and certain other expenditure on (purchasing) housing
  • Expenditure on income insurance: annuities and other premiums
  • Certain 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 income tax relief in the Netherlands (double tax relief). We calculate double tax relief for each box based on the tax that you owe for this box. Double tax relief cannot exceed the amount of tax you owe in any box. This means that any taxable income in other boxes is not taken into account when calculating the relief in any 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 under national and international regulations is assigned to another country, you do not owe any income tax on that income here.  

Foreign pre-incorporation profit scheme

Because the amount of double tax relief cannot be more than the payable income tax in any box, certain deductible items such as mortgage interest connected with your primary home may not give you a tax advantage. If so, you can employ a roll-over scheme which means foreign income can be included in the calculation of tax relief in a following year. 

The roll-over scheme can be applied independently to each box. This means we could make one decision for income in box 1 and another for income in box 3. 

Example of how the roll-over scheme works in box 1

A sample calculation of the double tax relief in box 1: Your income consists of €27,226 from earnings in Germany and €4,536 in costs from being a homeowner. Your taxable income from work and home (box 1) then amounts to €27,226 - €4,536 = €22,690. You would then have to pay €944 in income tax. 

For your income from earnings in Germany you owe tax in Germany and in the Netherlands, so 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 in the Netherlands, and the rebate cannot exceed this, the rebate would be €944.  

In this example, the costs (negative income) from your owner-occupied home do not lead to any tax advantage. So we would advise that this amount (€4,536) should be reserved. Should you have income in box 1 in the future on which you have to pay income tax in the Netherlands, double taxation 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 social security premiums and 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 might be able to 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) use his or her own tax credit, the partner – subject to conditions – can receive a payout of (part of) the amount from the Tax and Customs Administration (Belastingdienst), for instance in the form of a provisional refund. 

Income from other activities

Income from other activities is taxed in Box 1 and consists of all the revenue from your other activities minus any corresponding deductible expenditure. This 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;
  • fees received by local council members;

Income from other activities also includes income from certain forms of asset capitalization, such as making an asset like a building or money available to certain people. 

Generally, income from other activities is determined according to the rules that apply to profits from business activities. 

Income tax

In the Netherlands, all income is taxed. Income comes in different shapes and sizes. The most common is income from work, or your salary. Income can also be received in the form of profits from owning a company. Another income source taxed separately in the Netherlands is from yield made on assets (wealth). These income sources are taxed in three boxes, the building blocks of the Dutch tax system

Lijfrente or retirement annuities

Lijfrente or retirement annuities are recognized retirement savings products that you may choose as personal insurance schemes. See retirement annuities for more information. 

National insurance contribution

If you receive income from the Netherlands, you may be considered part of the Dutch national insurance scheme even if you do not live here. Depending on the type of income you receive from the Netherlands, a decision is made for you and this insurance may be compulsory. If you are considered to fall under the national insurance scheme, you will be covered by the Dutch social security system and will have to pay contributions on your income. 

In the following situations, you will be obliged to take part in all national insurance schemes:
  • You are employed in the Netherlands, your income from activities is subject to wage tax, and you do this work only in the Netherlands. In this case, you will remain insured also in the event that your work is temporarily interrupted on account of circumstances including illness, maternity leave, an accident, unemployment, paid leave or, strike;
  • 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);
If you work on a means of transport, a number of additional conditions apply. You may also fall into this category if you are a crew member on an ocean-going vessel. Your employer can tell you whether this is the case. This concerns the following two conditions:
  • You do not work in your country of residence alone;
  • You do not work for a foreign branch or a permanent foreign part of a Dutch business;
Note:
In a number of special situations, you will remain insured in the Netherlands even if you are abroad, for instance if you have been posted abroad in a military capacity, or if you have been seconded and possess a statement of secondment based on an international social security regulation.

Only insured under the AWBZ

Even if the situations above do not apply to you, it may still be possible that you are insured under the AWBZ scheme (and not under other insurance schemes). You may be insured under the AWBZ if you meet either of the following conditions:

  • 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 tax

Payroll taxes are a collective term for various expenses for employers. Payroll tax is comprised of the following:

  • wage tax;
  • national insurance contributions;
  • employed person's insurance contributions;
  • income-dependent contributions under the Health Care Insurance Act (Zvw).

Resident taxpayer status

If you live in the Netherlands, you must declare 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

If you live abroad but have income from the Netherlands, or lived in the Netherlands for only part of the year, you can still opt for resident taxpayer status for the whole year. If you choose this option, you must also declare your worldwide income in the Netherlands. If you live abroad but have income from the Netherlands, or lived in the Netherlands for only part of the year, you can still opt for resident taxpayer status for the whole year. If you choose this option, you must also declare your worldwide income in the Netherlands. 

Roll-over scheme

Double tax relief cannot exceed the income tax payable in any 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 a roll-over scheme that can set forward relief to a following year (see ‘foreign pre-incorporation profit scheme’ above).  Double tax relief cannot exceed the income tax payable in any 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 a roll-over scheme that can set forward relief to a following year (see ‘foreign pre-incorporation profit scheme’ above).  

Taxation of savings and investments

Income from savings and investments is taxed in the box 3 category (wealth tax). Your net wealth (your total possessions minus any debt obligations) is deemed to make a (hypothetical) fixed annual yield. This yield (income) is taxed according to a three bracket system. For more detail, 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 own a rental apartment, you are not taxed on the actual rental income but on a notional yield on the value of the home, minus any loan.  

Tax treaties

Most countries have set up a tax treaty agreement with the Netherlands, mainly to avoid double taxation of individuals or businesses. The treaty describes the situation and conditions under which a country may levy tax on active or passive income. For example, a potential double taxation issue arises when an individual or business invests in another country. Both the home country and the country where the investment takes place may levy income tax. A tax treaty is designed to avoid this. 

Several global bodies such as the Organization for Economic Co-operation and Development (OECD) and the United Nations have created models to deal with double taxation issues. The Netherlands has tax treaties with over 100 countries.  

Note that the regulations for the avoidance of double taxation may differ from country to country. The applicable tax treaty for a specific country always applies.  

If no tax treaty exists between the Netherlands and another country, then the Dutch resolution for avoiding double taxation 2001 (Besluit voorkoming dubbele belasting 2001) applies.  


The 183 day rule

The country that is entitled to levy tax on your income is determined by bilateral tax treaties. If no bilateral tax treaty exists, the Dutch Tax and Customs Administration (Belastingdienst) will decide if it should tax your income. 

Most tax treaties determine that the country in which you work can levy tax on your income. If you work in the Netherlands, you are liable for Dutch income taxation unless: 

  • You reside for fewer 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 have a defined desk space on behalf of your employer in the Netherlands).
Note: in the case of an employee secondment, the 183 day rule does not normally apply.

Secondment 

Under an employee secondment arrangement, you usually do not meet the second condition of the 183 day rule. The Dutch Tax and Customs Administration usually treats a (temporary) transfer to a company in the Netherlands in the same way as the secondment of a Dutch employee and taxes the income. 

The following three conditions form the basis for this consideration: 

  • The employee working (temporarily) for the Netherlands-based company adheres to this company's instructions;
  • The Netherlands-based company benefits from (and is liable for) the results generated by the secondment;
  • The original (non-Dutch) employer is fully compensated for employment costs by the Netherlands-based company.

Most tax conventions say that the state or country in which the employee works is entitled to levy tax on wages earned there. However, there is one exception: the state in which the employee lives is entitled to levy tax when the following three conditions are met: 

  1. The employee does not stay in the country of work for more than 183 days during a certain period. Such as 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, including weekends and holidays. Part of a day is treated as a full day.
  2. The employee is paid by or on behalf of an employer that is not established in the Netherlands.
  3. In the country where the employee is working, the employee does not work in the employer's permanent establishment.

Supply situations

Many international supply situations do not meet the second condition of the 183 day rule and so Dutch tax obligations apply to wages earned.  

The Dutch recipient of supply labour is deemed to be an employer when the following three conditions are met: 

  1. There is a relationship of authority between the employee and the recipient.
  2. The work is carried out at the recipient's expense and risk.
  3. The wage costs are charged to the recipient. 

Wage tax

Wage tax is an advance levy of income tax and is withheld from wages by employers. Since the employer pays this tax to the Dutch tax office, you as an employee will not be behind on paying income tax. You may indeed overpay due to the specific workings of the Dutch payroll system. The excess tax amount paid can be reclaimed by filing an income tax return after the tax year is completed.  


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