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The box system
In the Netherlands we use a box system to calculate how much tax you have to pay. There are three boxes.
Box 1
Box 1 is about all your income generated by work, so for example income from employment, pension or former work. In box 1 you can declare deductions as well. So, deductions such as study costs, alimony and mortgage deductions have to be declared in box 1.
Box 2
Box 2 is applicable when you have more than 5% of the shares of a company. If you receive dividend or a payment from this company, you have to pay 26.9% Dutch income tax in Box 2 over the whole amount. If you have the 30% ruling, box 2 does not apply for you.
Box 3
In box 3 you pay tax on income from savings and investments. However, everyone is allowed to have a tax-free amount of capital. In 2021, this tax-free amount is €50.000 for an individual and €100.000 for a couple.
The Dutch fiscal year
The Dutch fiscal year is the same as a calendar year, so it runs from 1 January to 31 December. The tax season is from 1 March until 30 April, during this time you should file the annual income tax return to the Dutch tax office. You are required to file an income tax return when you are requested by the Dutch tax office or when a tax event occurred in the relevant year.
Changes 2021
In 2021 the taxrules in The Netherlands changed again. The TaxSavers clarifies the most important changes for 2021.
Different kind of taxes for individuals
In the Netherlands we have different kind of taxes for individuals. Below, we discuss two of them.
Income tax
When you earn money while living in the Netherlands, you are required to pay tax on your world income. This can lead to double taxation when you have assets or income abroad, however tax treaties often provide taxation relief. When you live outside the Netherlands but you earn Dutch income, you are required to pay tax on your Dutch income.
When you are self-employed, you should withheld the income tax yourself. You can calculate and pay the income tax amount via the annual tax return. When you’re employed by a company, the income tax is already withheld from your salary.
The income tax has to be declared via the annual tax return. This can be done online or together with a tax advisor. The annual tax return should be filed before May 1
Payroll tax
Payroll taxes are withheld from your salary. It contains the tax mentioned above, as well as national contributions for example for your pension or for unemployment allowances. This means that there is a big difference between the gross and net salary (after payroll tax deduction), it’s important to keep that in mind when you start a new job in the Netherlands.
Annual income tax return
As said earlier, if you’re are employed by a company, the income tax is deducted from your salary. However, you should yearly file your annual income tax return. You should do so, to balance the pre-paid tax with other financial facets.
The other financial facets can be: a (expat) mortgage, your partner’s income, additional savings or investments and tax deductions (e.g. healthcare or study costs). Besides that, we have a general and labour tax credit. When you’re entitled to one of those credits, your taxable income is reduced.
It’s important to know that all taxpayers should separately file their own income tax return, even if you have a fiscal partner. Fiscal partners are allowed to share certain deductions, receive tax credits and qualify for higher exemptions. Do you have a fiscal partner? See what the conditions are.
30% ruling
The 30% ruling is an interesting feature for expat employees in the Netherlands. This ruling is especially for highly skilled people with a specific expertise that is scarce in the Netherlands. However, there are strict requirements you should meet. Here you can see what the conditions are. The most important element of this ruling is a reduction of your taxable income. When this ruling applies in your situation, only 70% of your income is used when determining the amount of income tax you are required to pay. This means that 30% of your income is tax free.
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