| Netherlands Income Tax Rates Individuals resident in The Netherlands are subject to personal income tax on their worldwide income. Foreign taxes on foreign-sourced income are normally relieved either under double tax treaties or under Dutch unilateral rules. Non-residents are liable for personal income tax only on income derived from a limited number of Dutch domestic sources such as income received for duties performed within The Netherlands and income from Dutch real estate.
The residence of an individual is determined by actual circumstances. One of the most relevant considerations is whether the individual has
permanent personal or economic ties with The Netherlands.
Income tax is a tax on the annual income of individuals which is levied at a progressive rate. Personal circumstances are, however, taken into account and certain expenses are deductible. There is a personal allowance (by tax credits) dependent on individual circumstances.
The Netherlands has a system of personal income tax known as the 'box system'. This box system works as follows. There are three boxes
of income each with their own tax rate, one of which is progressive (Box 1) and two of which are fixed (Boxes 2 and 3). If the income in a box is negative it cannot be offset against positive income in another box. (There is only one exemption to this rule. In very special circumstances, losses of Box 2 income can be offset against positive income of Box 1.)
The boxes are:
- Box 1: Taxable income from work and home (only the main residence)
- Box 2: Taxable income from substantial interests in companies with
limited liability (usually BV or NV)
- Box 3: Income from savings and investment.
Box 1The taxable income which will be taxed in Box 1 includes business income, income from employment or former employment (pension), income derived from certain periodic payments and income from a person's main home. This income is reduced by a number of deductible items which, broadly speaking, are associated with this income. An important one is the interest paid on a mortgage for a main home.
The tax rates in Box 1 for 2009 are:
Taxable Income in Euros / Under Age 65 / Above Age 64
EUR 0 - 17,878: 33.50% (1) 15.6% (3)
EUR 17,878 - 32,127: 42.00% (2) 24.1% (4)
EUR 32,127 - 54,776: 42.00% 42.00%
Over EUR 54,776: 52.00% 52.00%
1 Comprises income tax of 2.35% and 31.15% social security contributions
2 Comprises income tax of 10.85% and 31.15% social security contributions
3 Comprises income tax of 2.35% and 13.25% social security contributions
4 Comprises income tax of 10.85% and 13.25% social security contributions
If an individual leases a property to a BV (or NV) in which he or she has a substantial interest (of 5% or more), the resulting income and capital gains on that property are also taxed in Box 1.
One of the specific rules of the Dutch tax system is that interest paid on a mortgage to finance the main residence (only one per tax resident) is tax deductible. There are some specific rules which, in some cases, prevent full tax deductibility of the interest paid on mortgage. Other personal allowances include pension premiums and premiums for sickness allowances. Box 2The tax rate for Box 2 is 25%.
The income from substantial interests is classified in this box. An individual who holds 5% or more of the shares (or profit-sharing certificates) of a private company with limited liability (BV) or a company limited by shares (NV) is considered to have a substantial interest. To determine whether an individual has a substantial interest, the shares of his partner or his blood relatives or relatives by marriage are taken into consideration as well. Not only income on the shares but also profits from the sale of such shares are taxed in Box 2. Box 3Income from savings and investments is taxed in this box and applies to both residents and non-residents. This box includes assets like investment portfolios, saving accounts and real estate (except the main residence which is classified in box 1). Income from assets in this box is fixed at 4% of the total net value (assets minus liabilities). This fixed income is taxed at a fixed rate of 30%, so the effective rate in Box 3 is 1.2% of the net equity (assets minus liabilities). Actual dividends, interests and rental income are not taxed separately. Withholding taxes on dividends on shares taken into account in box 3 are credited against the total income tax due. There are no local income taxes. A withholding tax (called 'wage tax') is levied on employment income. The rate of the wage tax equals the Box 1 personal income tax.
In The Netherlands there are special conditions for certain foreign employees working for a Dutch employer for a maximum of 120 months. They can obtain a 30% tax free allowance for extra territorial costs provided they perform activities in The Netherlands and have a special knowledge or capability which is not, or is scarcely, available in The Netherlands.
Inheritance tax: The Inheritance Tax Act provides for two forms of taxes, gift tax and inheritance tax. In general, these taxes are payable by the person receiving a donation or an inheritance. There are several exemptions for both gift tax and inheritance tax depending on the circumstances. The rates are the same for both taxes and depend on the value of what is received and the degree of the relationship. There is a minimum rate of 5% and a maximum rate of 68%. The Government has announced that it will introduce a tax bill to amend inheritance tax. One of the goals is to simplify the tax and to reduce tax rates. Details are as follows:
Tax Rates: The current 28 rates would be replaced by the following four rates:
- 10% for partners and children on the first EUR 125,000 and 20% on the excess
- 30% for other heirs on the first EUR 125,000 and 40% on the excess.
Exemptions: The following exemptions would be introduced:
- EUR 600,000 for partners
- EUR 19,000 for children
- EUR 2,000 for other heirs.
The proposal is expected to enter into force on 1 January 2010.
Netherlands Corporate Tax RatesThe corporate income tax rates for 2009 are:
Taxable profit up to EUR 40,000: 20%
Taxable profit between EUR 40,000-200,000: 23.5%
Taxable profit above EUR 200,000: 25.5%
Note that the different rates apply to bands of income rather than to the profit of the company as a whole. So a company with a taxable profit of EUR 250,000 would be taxed at 20% on the first EUR 40,000, 23.5% on the next EUR 160,000 and 25.5% on EUR 50,000.
Corporate tax is payable by corporations in The Netherlands (resident taxpayers) and by certain corporations not established in The Netherlands which receive income from sources in The Netherlands (non-resident taxpayers). The term corporation includes companies whose capital consists of shares, co-operatives and other legal entities which conduct business. The main types of corporations, as referred to in the Corporation Tax Act, are the joint stock company with limited liability (NV) and the closed company with limited liability (BV).
Whether a corporation is resident in The Netherlands depends on the facts and circumstances. Relevant factors include the location of the effective management, the location of the head office, and the place where the general meeting of shareholders is held. Under the Corporation Tax Act, all corporations incorporated under Dutch law are resident in The Netherlands but this principle may be overruled by a tax treaty.
The 2009 tax plans entail the proposal to skip the second bracket for the year 2008 (thus with retrospective effect from 1 January 2008), thus leading for 2008 to a tax rate of 20% over the first EUR 200,000 and 25.5% on the excess.
In 2007 a group interest income box was introduced in which interest income from group companies is taxed at 5%. However, this box is still awaiting approval of the European Commission.
In addition, a royalty income box has been introduced in which royalties received are taxed at 10%. This royalty income box has been approved by the European Commission.
Taxpayers are obliged to file a tax return every year, within five months following the end of the year concerned. An extension of this time limit may be permitted. Tax is payable within two months upon receipt of an assessment. A provisional assessment for the current year may be raised.
Capital gains tax: There is no special tax rate for capital gains but gains and losses are included in the company's general taxable income.
Branch profits tax: Dutch sourced income of non-resident companies is taxed at the same rates as applicable to resident companies. There is no additional branch profit tax.
Capital gains and losses: Capital gains or losses are assessed as normal corporate income and taxed accordingly. There is no special tax rate for capital gains.
Dividends: The company paying the dividend withholds dividend tax at a rate of 15% . For Dutch residents, the withholding tax can be subtracted from the total personal income tax to be paid. The existence of an extensive tax treaty network enables The Netherlands to reduce the withholding tax rate on dividends in many cases. For non-residents, the withholding tax is a final tax.
Foreign source income: Foreign source income is included in the worldwide income of Dutch residents. However, in most cases, foreign source income is exempt from Dutch taxation, unilaterally or under double tax treaties.
Foreign tax relief: A resident company is taxed on its worldwide income. Certain types of foreign-sourced income (for instance, income derived through a permanent establishment abroad and income from foreign real estate) are exempt from tax, either unilaterally or pursuant to treaty provisions. The exemption is calculated as a pro rata reduction of the amounts of tax computed on worldwide income. Foreign losses can reduce current taxation on domestic income under certain circumstances.
Other types of foreign income are normally fully taxable in The Netherlands but a credit for foreign tax may be granted under various tax treaties or, unilaterally, with respect to dividends, royalties and interest derived from certain developing countries.
Withholding tax: Dividends, whether paid to resident or non-resident recipients, are subject to withholding tax at 15%. A reduced percentage may be provided by a double tax treaty. Resident shareholders can offset this withholding tax against their corporate or personal tax liabilities. The withholding tax is a final tax for non-resident shareholders.
Dividends paid by a Dutch company to a Dutch parent company that owns more than 5% of the paid up capital of that company are not subject to withholding tax. A dividend paid by a Dutch company to a European parent company that owns more than 25% (under some circumstances 10%) of the paid up capital or voting rights of that company is not subject to withholding tax.
Netherlands Sales tax / Value added tax (VAT)There are three rates of VAT in the Netherlands:
- the standard rate of 19%
- a reduced rate of 6% which mainly applies to food, books, newspapers and drugs
- the zero rate which is mainly applied to goods and services involved in international trade so that goods can be exported free of VAT.
Value added tax (VAT) is a general consumer tax included in the price paid by consumers for goods and services. Consumers pay this tax indirectly and VAT entrepreneurs remit it to the tax department. Based on EU Directives, the general types of taxable activities are:
- the supply of goods
- the rendering of services
- the acquisition of goods by entrepreneurs
- the importation of goods.
The period to which VAT tax returns relate may be a month, a calendar quarter or a year, depending on the amount of turnover tax (VAT) to be paid. The tax return must be submitted within a month of the end of the period to which it relates. The tax owed must also be paid within this period.
Excise Duty is levied on certain consumer goods including petrol and other mineral oils, tobacco products, alcohol, alcoholic beverages and nonalcoholic beverages. Like VAT, excise duty is included in the price paid by consumers for these goods. The tax is remitted by the manufacturers and importers of the goods concerned.
Fringe benefits tax (FBT): Bonuses to employees are taxed at the normal income tax rates. Another method of rewarding employees is to give them options over shares in the company. Options are taxed on the difference between the market value and the option purchase price against normal tax rates.
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