Tax in the Netherlands

Residents are subject to income tax in the Netherlands on their worldwide income. Non-residents are subject to tax on specific Netherlands-source income only.

Residence is determined based on all facts and circumstances. For Dutch residency, it is essential to determine whether the individual has a lasting tie of a personal nature with the Netherlands. For this purpose, specific circumstances (social, economic or legal) are not decisive; all personal ties are relevant. Simply being formally registered in the Municipal Personal Records Database or a similar foreign database is not sufficient. Double tax residence is possible under certain conditions.

Subject to certain conditions, non-resident taxpayers living in the European Union (EU), Switzerland or one of the member states of the European Economic Area (EEA), which are Iceland, Liechtenstein and Norway, can be taxed as a resident taxpayer of the Netherlands. Furthermore, the 30% facility provides the option for residents of the Netherlands to be taxed as a “partial” non-resident taxpayer.

Netherlands income tax is levied on three categories (boxes) of income. Each box has its own rules to calculate taxable income, its own tax rates and exemptions. In general, negative income from one box may not be offset against positive income from another box.

Box 1 income includes employment income, business profits and income from a primary residence. Profits received from personal business operations, from independent personal services and from certain shares of partnership income are taxed as business profits. Tax on income in Box 1 is levied at progressive tax rates, with a maximum tax rate of 49.5% on income over €73,031. Wage tax is levied throughout the year (pay-as-you-earn) on employment income and directors’ fees if a Dutch wage tax withholding agent is available. The wage tax paid serves as an advance payment of the final income tax payable. Penalty taxes for employers can apply for excessive severance payments (rate of 75%) and certain early retirement payments (rate of 52%).

Employment income - Employment income includes salaries, wages, pensions, stock options, bonuses and allowances (for example, home leave and cost-of-living). Housing allowances may be taxable in certain situations. Some allowances for expenses may be paid as a tax-free allowance, subject to certain limitations and restrictions. The system of tax-free employment benefits and allowances is embodied in the work-related costs scheme. This scheme has a major impact on employment conditions policy as a whole. Expatriates may qualify for a special tax regime, the 30% facility. This facility exempts 30% of certain employment income from taxation.

A non-resident individual receiving income from employment actually carried on in the Netherlands is subject to Dutch income tax. In certain situations involving multinational companies, the so-called 60-days rule applies. Under this rule, the Netherlands gives up its right to levy tax on employment income if the employee works in the Netherlands less than 60 days in any 12-month period. A non-resident who is employed by a Dutch public entity is also subject to Dutch income tax, even if the employment is carried on outside the Netherlands. A non-resident who is employed by a Dutch employer and is working in the Netherlands for part of the time may be liable to tax in the Netherlands on the full remuneration received from the employer.

Self-employment income - Annual profit derived from a business must be calculated in a consistent manner and in accordance with sound business practices. Annual profit is reduced by related business expenses, and taxable income is then determined by subtracting the deductions and the personal allowances.

Directors’ fees - Directors’ fees are treated as ordinary employment income.

An employee who is a 5% or greater shareholder is deemed to earn a salary of at least €451,000 a year. A lower amount may be taken into account for a shareholder who can prove that their actual salary at arm’s length is less than €51,000. However, if the tax authorities can prove that a salary at arm’s length would be higher than €51,000, the director’s salary must equal the salary at arm’s length (with a minimum of €51,000) and at least as much as 100% of the highest salary of other non-shareholder employees. These rules do not apply if the salary at arm’s length of the employee/shareholder does not exceed the amount of €5,000 a year.

A non-resident receiving income as a director of a company resident in the Netherlands is subject to Dutch income tax. Tax treaties entered into by the Netherlands generally grant the right to tax this income in the resident country of the company that pays the directors’ fees. Exemptions are made, among others, in the tax treaties with Switzerland and the United Kingdom.

Income from a primary residence - The owner of a primary residence is taxed on the deemed rental value of the residence which is determined based on the so-called “real estate valuation act,” which aims to reflect fair market value. For dwellings with a value exceeding €75,000, in general, a rate of 0.35% applies to calculate the deemed rental value. For dwellings with a value exceeding EUR1,200,000, a rate of 2.35% applies on the excess. Besides this taxable income from the primary residency, tax deductions related to the primary residency are available. For a period of up to 30 years, mortgage interest paid for the acquisition, maintenance or improvement of a primary residence is deductible for tax purposes from Box 1 income. Restrictions are imposed on the deduction of mortgage interest. One of the restrictions is that the mortgage should include at least an annuity scheme for paying off the mortgage; that is, there is a prohibition on interest-only mortgages. Annual instalments must be made within a maximum of 30 years. Transitional rules apply to mortgages in existence before 2013. In general, the acquisition of a primary residence cannot be fully financed by a mortgage if a capital gain on the previous primary residence was realised within three years before the purchase of the new residence. In principle, income from a second residence is taxed as Box 3 income.

The mortgage interest is deductible against the basic tax rate of 36.93% in 2023.

Box 2 income includes profits from a substantial shareholding, which is a shareholding of at least 5% of a certain class of shares of a company resident in or outside the Netherlands. Both capital gains and regular income (dividends) are taxed. Tax is levied at a fixed rate of 26.9% (2023). A two-bracket system with a base rate of 24.5 for the first €67,000 and a top rate of 33% on the excess has been announced for 2024.

Non-residents are taxable on capital gains and regular income from a substantial interest in a company resident in the Netherlands.

Box 3 income relates to savings and investments, including shares and bank accounts (excluding the value of loans with respect to a primary residence) and includes savings accounts maintained outside the Netherlands. Non-resident taxpayers are only taxable on the net value of real estate located in the Netherlands or on profit rights in an enterprise resident in the Netherlands.

The value at 1 January of the calendar year of a taxpayer’s savings and investments is considered for Box 3 taxation purposes. A general exemption of EUR57,000 per taxpayer (doubled for fiscal partners) applies. If the total value of the savings and investments exceed the exemption, the notional income should be determined. To make this determination, Box 3 income is split into three categories, each with specific rates to determine the deemed income. The following rates conditionally apply for the 2023 tax year:

• Savings: deemed income percentage of 0.01%
• Debts: deemed income percentage of 2.46%
• Other investments: deemed income percentage of 6.17%

The deemed income is taxed at a flat rate of 32% in 2023.

Under certain circumstances, taxpayers may claim deductions and tax-free allowances, for example certain life insurance premiums, alimony payments and other qualifying expenses. Professional guidance should be sought.

A dividend withholding tax is imposed on dividends paid by resident companies to resident or non-resident recipients. The withholding tax rate is 15%, unless reduced or eliminated by an applicable tax treaty. Resident individuals may credit domestic withholding tax against their total income tax due. A credit may be granted against Dutch income tax for foreign taxes paid on dividends and interest.

A 15% withholding tax is levied on dividends derived by non-residents, unless the rate is reduced by an applicable double tax treaty. Non-resident taxpayers cannot credit the Dutch dividend withholding tax against the final income tax payable. No further tax is imposed unless the shares constitute a substantial interest, in which case, income tax may be levied, and dividend withholding tax may be credited. Interest and royalties derived by a non-resident natural person are not subject to withholding tax. However, interest is included in taxable income if the recipient holds a substantial interest in the payer.

Taxation of employer-provided stock options - As of 2023, the taxable moment is the moment the shares received by exercising the stock options become tradable. Shares should be considered tradeable when the employee is able to sell the shares to any other person, even if only to a limited group of potential buyers. It is irrelevant whether the shares are actually sold. However, the employee can choose taxation at the moment of exercise, by submitting a written request with the employer by the moment of exercise. The taxable benefit is the fair market value of the underlying shares at the taxable moment less exercise price. Benefits received in the period between exercise and the taxable event (for example, dividend payments) are considered taxable wages.

Capital gains generally are exempt from tax. However, exceptions apply at the various applicable 2022 tax rates.

Non-residents are subject to income tax at normal rates on capital gains derived from the disposal of business assets and on capital gains derived from transfers of shares in a domestic corporation if the shares constitute a substantial interest.

Inheritance tax and gift tax are levied on all property inherited from or donated by an individual who was a resident or deemed to be a resident of the Netherlands at the time of death or donation. Dutch individuals who emigrate from the Netherlands are deemed to be resident in the Netherlands for 10 years after emigration. A gift made by a former Dutch resident, regardless of nationality, who left the Netherlands less than one year before making the gift is subject to Dutch gift tax. Tax is levied on an heir or a gift recipient, regardless of their place of residence.

Inheritance and gift tax rates range from 10%, 20% and 30% to a maximum of 40% of the value of a taxable estate or donation after deductions, depending on the applicable exemptions and the relationship of the recipient to the deceased or donor.

The Social Security Acts can be classified into three categories, which are the following:

• National Insurance Acts
• Employee Insurance Acts
• Health Insurance Act

National Insurance Acts provide benefits to all Dutch residents and to persons who work in the Netherlands and are subject to the levy of wage tax. National Insurance contributions are payable on taxable income of up to €37,149and are not deductible for tax purposes. The maximum annual National Insurance contribution payable by an employee is €10,727(before taking into account the social security credit). Employee Insurance Acts provide additional benefits for wage earners. Employee Insurance contributions are €0 for the employee and fully paid by the employer.. In addition, the employer must pay an income-related contribution for the health insurance of the employee with a maximum of €4,473 per employee.

There are various contribution rates for each National Insurance Act.

An employer must pay 70% of an employee’s salary for a two-year period if the employee cannot perform his or her duties because of illness. For this purpose, the maximum salary considered is €66,956(2023). To cover its obligations under the act, an employer may obtain private insurance or establish a reserve.

Every individual who is socially insured in the Netherlands must take out an individual Health Insurance policy. Every individual aged 18 and older pays a standard contribution averaging €1,657per year for Health Insurance. Insurance claims up to €385 per year are for the individual’s own risk. Any insurance claims in excess of €385 are paid by the health insurer, unless the individual has chosen a higher personal risk (in return for lower contributions). In addition to the standard contribution, an income-related contribution is payable at a rate of 6.68% (for self-employed persons, a 5.43% rate applies), capped at an income of€66.956. The 6.68% income-related contribution for employees is fully paid by their employers. This employers’ contribution is not considered taxable income to the employee.

Employers withhold tax and National Insurance premiums (combined) on wages from employees under the Pay-As-You-Earn (PAYE) system. For many people, the wage tax is not only an advance payment of income tax and National Insurance premiums, but it is also the final payment. Any additional income tax and National Insurance premiums due must normally be paid within two months after receipt of an assessment rather than when filing the tax return.

Married persons are taxed separately on employment and business income. Two “partners” (see definition of “partner” below) may elect for the following categories of income and deductions to be attributed to a particular partner:

• Income from home ownership. If this income is negative because of the deduction of mortgage interest, it is advisable to attribute this income to the partner with the highest income
• Profits from a substantial shareholding
• Personal deductions

Non-residents may not make this election unless they are taxed as Dutch tax residents. Foreign taxpayers who are resident in Bonaire, St. Eustatius and Saba (BES-Islands), the EU, the EEA or Switzerland are taxed as Dutch tax residents, provided that 90% or more of their income is subject to payroll or income tax in the Netherlands. For this purpose, an income declaration from the resident state needs to be obtained to measure the 90% criterion. If this income criterion is not met, treatment as a resident taxpayer is only possible for this group if the Netherlands is required to do so under European law or a relevant tax treaty. If the 90% income criterion is not met, non-resident taxpayers may claim under certain conditions a pro rata deduction of tax-deductible expenses.

The Income Tax Law includes the term “partner.” A “partner” is understood to mean the spouse or registered partner of a taxpayer, provided they are not permanently separated. Unmarried adults who live together and are registered at the same address with the municipal authorities are treated as partners for tax purposes if one of the following circumstances exists:

• A child was born from their relationship
• A child of one of the individuals was officially acknowledged by the other individual
• The individuals are stated as partners in a pension plan.
• The individuals own a primary residence together
• The individuals have reached the age of majority and an underage child of one of them is registered at the same address
• The individuals were considered to be partners in the previous calendar year

Partner status for tax purposes provides the following advantages:

• Eligibility for several business-related facilities (working partners’ deduction and transfer of a business or a part thereof without tax consequences)
• The option of allocating to both partners at their discretion the yield assessment base for capital yield tax (Box 3), except for the year of immigration or emigration, and the joint elements of income. Joint elements of income include taxable income from home ownership, taxable income from a substantial business interest, exceptional expenses, and deductible gifts and donations
• An increase in the personal tax credit for a partner without income or with low income to the aggregate of the general credit, employment credit, and (supplementary) combination credit applying to this partner. As an exception to the general rule, in this case, the tax credit is refundable in part or in full. However, the payment may not exceed tax and National Insurance contributions payable by the other partner

A non-resident taxpayer may not be a partner, unless they elect elects to be taxed as a resident of the Netherlands.

The Netherlands has entered into double tax treaties with 99 jurisdictions, with a further three signed but not yet in force. The existence of the treaties may affect an application of the national tax law. To determine Dutch individual income tax, residents of the treaty jurisdictions need to refer to the related tax treaty in addition to the general tax provisions.