Do you have to pay tax in the Netherlands? How does the tax system run? Find out in this article.
Income tax in the Netherlands, like in most European countries and worldwide, is an essential step toward maintaining a prosperous economy. Thus, all residents are required to pay income tax if they are working in the country.
In fact, they have to complete every year their tax return, which is known as the “Jaaropgave”. This form should be duly filled, signed and submitted to tax authorities on the 1st of April at the latest. Tax authorities will then calculate the tax amount you will have to pay and determine if you are eligible to exemptions.
There are three types of tax brackets in the Netherlands:
- those applying to work and housing (at a floating rate bases on your age and salary)
- those applying to participation in a capital (25%)
- those applying to investment income and savings (30% of the net fixed capital return).
Tax authorities will apply some deductions to be able to determine the amount of taxable income. Thus, some expenses such as charity donations, medical expenses and mortgage interest can be fully or partly deducted. Moreover, taxpayers are entitled to a general tax allowance amounting to 2,103 euros annually.
Resident companies in the Netherlands have to pay tax according to their global income. Non-resident companies, for their part, will have to pay tax according to their Dutch source income. Moreover, transfer tax is levied at a rate of 6% of the market value if purchased from a Dutch company. Insurance premium tax, for its part, is levied at a rate of 21%, except for life, medical, accident, disability, unemployment and transport insurance.
Finally, motor vehicles tax depends on the type of vehicle purchased or owned. The amount to be paid varies according to the vehicle's weight, type of fuel used, as well as the motives of its use, that is personal or professional.
Foreigners with rare skills who are working in the Netherlands are eligible for tax exemption at a rate of 30% of their salary. Hence, their employer has to apply for the tax exemption with tax authorities within four months following their hiring. The case will first be studied. If the exemption is authorized, it will apply for a maximum of 10 years.
As regards mortgage interest received for the purchase of a house, all taxpayers are eligible to an exemption, similarly to retirement incentives and income received for less than a year.
The tax declaration form should be filled online. Tax authorities recommend that taxpayers download the form as at the 1st of March as some fields will be pre filled. Note that the form is available in Dutch only.
Good to know:
As the online tax administration system is secure, you should apply for a DigiD, that is a sort of electronic signature, beforehand.
Foreigners who have not worked or lived in the Netherlands for a full year period cannot fulfill the Jaaropgave. Hence, they will have to complete the M tax form. This form is available at the nearest tax office to their place of residence.