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.
Tax rate on Box 1 is progressive to 52%.
The 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. Tax rates in Box 1 for 2010 are:
Taxable Income in Euros Under Age 65 Above Age 64
EUR 0 - 18,218 33.45% (1) 15.55% (3)
EUR 18,218 - 32,738 42.00% (2) 24.05% (4)
EUR 32,738 - 54,367 42.00% 42.00%
Over EUR 54,367 52.00% 52.00%
1 Comprises income tax of 2.30% and 31.15% social security contributions
2 Comprises income tax of 10.80% and 31.15% social security contributions
3 Comprises income tax of 2.30% and 13.25% social security contributions
4 Comprises income tax of 10.80% 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.
The tax rate on 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, blood relatives or relatives by marriage are taken into consideration as well. Not only is income on the shares but also profits from the sale of such shares taxed in Box 2.
Income 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.
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 30% RULING
In The Netherlands there are special conditions for certain foreign employees who work 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 rarely, available in The Netherlands.
Based on a resolution of 12 January 2022 of the Secretary of Finance for employees who work within a worldwide group and are sent to The Netherlands for fewer than 60 days over a 12 month period,, no Dutch taxes are levied under certain conditions.
As of 1 January 2022 a new inheritance and gift tax came into force. The main goals of the new tax are simplification and lower rates. 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 10% and a maximum rate of 40%.
Real property tax - Municipalities impose tax at varying rates on owners of real property in their municipality on an annual basis. Real property tax is not deductible for individual income tax purposes.
Social security - State social security contributions are payable by all individuals resident in the Netherlands. Additional social security contributions are payable by employees and the self-employed.
Net wealth/net worth tax - No
Netherlands Tax Year - Netherlands tax year is the calendar year.
Tax Filing and tax payment - The tax return must, in principle, be filed before 1 April of the next calendar year. Payment must be made upon assessment.
Penalties - Administrative penalties may be imposed for late filing or failure to file a Dutch return, or the late payment or non-payment of tax. Criminal penalties are imposed if the Dutch authorities can prove fraud or gross negligence.
Corporate income tax rates in the Netherlands are progressive to 25.5%.
Taxable profit up to EUR 200,000 20%
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 200,000 and 25.5% on EUR 50,000.
In 2011, the applicable corporate income tax rates and tax brackets will be:
Taxable profit up to EUR 40,000 20%
Taxable profit between EUR 40,000 - EUR200,000 23%
Taxable profit above EUR 200,000 25.5%
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 however, this fiction may be overruled by a tax treaty.
In 2007, a group interest income box was introduced in which interest income from group companies is taxed at 5%. Although the European Commission's approval was received in 2009, this box has not yet been introduced and it is not sure whether it will.
The royalty box was introduced in 2007 and modified in 2010 (now renamed the "innovation box"). The modifications effected as per 1 January 2022 are:
- Patent assets and assets derived from research and development are no longer capped
- The corporate income tax rate for innovative activities is reduced from 10% to 5%
- Losses on innovative activities can be settled against the normal tax rate of 25.5%.
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.
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.
There are several municipal taxes of which real estate tax is the most important. Companies and individuals are subject to a municipal tax on the ownership and the use of real estate in The Netherlands, based on the market value of the property. The amount of tax due varies widely among municipalities but is generally a comperatively small percentage of value or income of the property in question.
There are no local income taxes in The Netherlands.
The Netherlands does not levy capital tax on the issued share capital of a BV and NV.
A 6% transfer tax is levied on the acquisition of real estatesituated in The Netherlands and rights related to Dutch real estate. Transfer tax is also levied on the transfer of shares in a so-called qualifying real estate company (in which 70% or more of the assets of the company consist of real estate and the object of the company is portfolio investment in real estate). The purchaser is liable for this tax.
DETERMINATION OF TAXABLE INCOME
Corporation tax is levied on the taxable amount. This is taxable profit received in a year, less deductible losses. From 1 January 2022 onwards, the loss carry back period has been restricted to one year and the loss carry forward period to nine years. Under a transitional provision, losses sustained up to 2002 may be set off against future profits up to financial years starting in 2011. The taxable profit is also reduced by extra allowances such as investment allowances.
The Dutch law provides that investment in qualifying fixed assets generates a deduction from taxable profits. For the 2010 tax year, the deduction is only available in respect of qualifying investments between EUR 2,200 and 300,000. The deduction is calculated as set out in the following schedule:
Investment between Investment Allowance
- 2.200€ 0
2.200€ - 54.000€ 28% of the investment
54.000€ - 100.000€ 15.120€
100.000€ - 300.000€ 15.120€ decreased with 7.56% of the portion of the investment which exceeds 100.000€
300.000€ - 0
Higher investment allowances are permitted for energy investments (i.e. investments which are energy efficient).
The investment deduction does not reduce the costs of the assets for tax depreciation purposes. The investment deduction is subject to repayment if assets are disposed of within a certain period of time.
Depreciation of fixed assets for tax purposes is required by Dutch law. Tax depreciation on real estate is limited so that the tax written down value cannot be reduced below certain limits. In practice this will mean that depreciation of real estate used for investment purposes can not be depreciated below its value for real estate tax purposes. For real estate used in a business, the limit will be 50% of the value for real estate tax purposes.
Depreciation of purchased goodwill is extended from an average term of five years to a maximum charge of 10% per annum.
The general depreciation period of all other assets (such as cars, computers etc) is limited to a maximum charge of 20% per annum.
The following stock valuation methods are permitted: valuation based on cost, valuation based on cost or market value (whichever is lower), or the base stock method. The cost of the stock can be determined by either the FIFO or LIFO method.
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.
For Dutch residents, the withholding tax can be subtracted from the total personal income tax to be paid.
As of 1 January 2007, losses may be offset against the taxable profits of the preceding year and carried forward for a period of nine years. For the (tax) years 2009 and 2010 the carry back period will be three years. However the carry forward period for these years is reduced from nine years to six years.
The options for setting of losses for holding companies are limited.
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.
Tax incentives are offered towards the cost of education and training projects, improvements in working conditions and research projects. Tax incentives are also applicable to companies investing in specified locations or developing new ideas, processes or products.
Beneficial tax rules are applicable to investments by individuals in companies that invest in environmentally friendly projects.
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.
Under certain conditions, a parent company may form a 'fiscal unity" with one or more 'wholly owned' (95%) subsidiaries. For the purpose of corporation tax, this means that all the companies in the fiscal unity are taxed as one.
RELATED PARTY TRANSACTIONS
Transactions between related parties that are not concluded at arm's length basis may be disregarded or may be adjusted appropriately. Special conditions exist for tax-free mergers between Dutch companies and for tax-free incorporation of a sole proprietorship.
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. For non-resident shareholders, the withholding tax is a final tax.
Dividends paid by a Dutch company to a Dutch parent company that owns at least 5% of the paid up capital of that company are generally not subject to withholding tax. This equally applies to a dividend paid by a Dutch company to a European parent company that owns at least 5% of the nominal paid in capital or at least 5% of the voting rights if the tax treaty concluded between The Netherlands and the relevant EU state reduces tax on dividends on the basis of voting rights held.
The standard VAT rate in the Netherlands is 19% with a reduced rate of 6% applying for certain goods and services. There is also a zero-rate.
The reduced VAT rate of 6% mainly applies to food, books, newspapers and drugs. The zero VAT rate mainly applies to goods and services involved in international trade so that goods can be exported free of VAT.
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 non-alcoholic beverages. Like Value Added Tax, 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.
Due to EC legislation, some new VAT rules for cross-border services came into effect on 1 January 2010. Under the new system, the basic rule for the place of service has changed. Services to businesses (B2B services) will, in principle, be deemed to be supplied where the customer resides or is established. This represents a change to the place of supply for services to businesses outside the Netherlands from 2010 onwards.
For services to consumers, the basic rule will remain that VAT is levied in the country in which the supplier is established. At the same time, the reverse charge mechanism will become obligatory for VAT on cross-border services within the EC. EC listings for services provided intra-community must be completed.
The new rules provide a simplified procedure for reclaiming EU VAT for business established within the EU. In principle, these claims are no longer filed with the respective foreign EU countries but with the own national tax authorities.
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Last Update: Nov 2010
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