A comprehensive guide to tax in the Netherlands

Each year, many international professionals come to the Netherlands to live and work, and rightly so. Our country is a fantastic place, with many business opportunities for those willing to seize them. But many visitors overlook a crucial detail: the fact that the Netherlands has one of the most complicated tax systems in the world.

In order to help you make sense of the famously convoluted Dutch fiscal landscape, we’ve put together a comprehensive guide on taxes in the Netherlands. If you plan on working for a Dutch company or starting a business venture here, this guide is for you.

1 – Income tax for new residents

Want to know exactly what your income tax situation will look like if you work and live in the Netherlands? We have you covered! This section will tell you how to handle your taxes, when to submit your tax returns and what happens when you don’t meet the deadlines.

1.1 – Setting up your tax situation correctly

Whether you come to the Netherlands to live and work for a short or extended period of time, you will always need to obtain a Social Security number. From the moment that you are registered in the GBA (municipal personal records database), you can request a Social Security number from the Tax Office. You must personally apply for the Social Security number.

You may work in the Netherlands from the moment you have received this Social Security number. Tax is of course liable on the income that you earn. If you are employed, the wage tax will be withheld by your employer. In addition to these wage taxes, you will have to file your income tax return with the Dutch tax authorities.

1.2 – Your first year in the Netherlands

The first year that you are in the Netherlands is the immigration year. This means you must hand in an immigration tax declaration, also known as the M-form. If you did not receive the tax declaration form from the tax authorities, you will have to request the M-form yourself.

1.3 – Invitation to file your tax return

If you do not receive an invitation to file your income tax return before July 1^st following the relevant tax year, you must request an invitation to file a return from the tax authorities within a fortnight. Naturally, you do not need to request this invitation if you believe that no taxes are due in your case.

1.4 Preliminary & final assessment

After you have filed your income tax return in the Netherlands, you will receive a preliminary tax assessment. This preliminary assessment is a letter stating the amount of taxes you must pay to, or will receive from, the Dutch tax authorities. If you do not agree with the preliminary assessment, you can file an objection. This must be done in a timely fashion.

The preliminary assessment always agrees with the return you have filed. The tax authorities will not have reviewed the return. As a result, the preliminary return does not confer any rights to you. As soon as the tax authorities have reviewed your return, they will issue a final income tax assessment. If an amount is to be refunded and a preliminary assessment was issued, no additional tax will be refunded as this will already have been handled by the preliminary assessment.

1.5 – Tax refunds in the Netherlands

The period during which you can request a tax refund spans 5 years, measured from the end of the tax year in question.

Once your tax return has been filed, the tax authorities must issue an assessment within three years of the end of the tax year in question. If an extension to file was granted, this three-year period will be extended accordingly to include the extension time. In practice, the tax authorities in the Netherlands generally issue their preliminary assessments within 6 weeks of filing your tax return.

1.6 – Deferring your tax return

In the Netherlands, your income tax return for any given year is due on April 1^st of the following year. If you know beforehand that you will not succeed in filing your tax return before April 1^st, your tax advisor can ask the Dutch tax authorities for a deferral for filing the Dutch tax return. If you receive this extension, you will also extend the deadline for requesting various allowances and subsidies, such as healthcare, rental or childcare allowances.

Koppel Services have a deferral scheme set up with the tax authorities. As tax consultants, we can request an income tax deferral for our clients for a period of up to one year.

1.7 – Consequences of late filing or failure to file income tax returns

If you submit your tax return too late (or not at all), you may receive a substantial fine, the default penalty.

Since January 1^st, 2009, the fining policy of the Dutch tax authorities has been severely tightened and the penalties have been increased. The frequency of breaches also affects the severity of the penalty.

• For the first (single) late submission of the income tax return, the default penalty amounts to € 369;
• For systematic late submission of income tax returns, the default penalty amounts to € 5.278.

If the deadline for filing the income tax return has lapsed and you have failed to comply, the Dutch tax authorities will send you a reminder. In this reminder, you receive a window of ten working days in which to submit the return.

If you again fail to comply within the timeframe, the fine will start to accumulate within seven days.

The Dutch tax authorities also impose default penalties for making false declarations and for not applying the necessary correction. These fines are calculated in percentages of the actual amount you owed in taxes, and can therefore be quite severe.

If you have completed the tax return on time but are late with payment you may be fined for payment default. Again, the frequency of failure and the amount in question determines the leniency – or lack thereof – from the tax authorities and the ultimate penalty amount:

• If it the first infringement, you will receive a default notice and no penalty.
• If you pay within the courtesy period and you had received a default notice in the previous tax period, you will receive a payment default penalty of at least 3% of the amount which was paid late. This has a minimum of € 50 and a maximum of € 5.278.
• If you make a partial or full payment outside the transitional periods, then a fine will be imposed regardless.

1.8 – Impact of the 30% ruling on your income tax return

If you plan to use the 30% ruling, you can opt for ‘partial non-residency status’. This means you will be considered as a non-resident taxpayer for box 2 and box 3 of your tax return (these ‘boxes’ are categories of income), even though you are living in the Netherlands. This means you will not be liable for income tax on assets in boxes 2 and 3 (except for real estate located in the Netherlands and substantial shareholding in a Dutch company). However, you will be considered a resident tax payer for box 1.

2 – Choosing self-employment

Moving from employment to self-employment is a step with serious consequences. The transition from financial security to self-sufficiency and a level of uncertainty is a risky undertaking, and the relative tradeoffs should be considered thoroughly before jumping in the deep end.

If you aspire to become the director of a multinational firm, then becoming an entrepreneur will not be the most obvious move unless you have the drive and ambition to build up the company personally.

Self-employment has several advantages and disadvantages. The main advantages are:

• You are your own boss;
• You can work wherever and whenever you want, and you make the decisions;
• You are working for your own profit doing something you like and which you are good at;
• You have a broad orientation. You must be a jack-of all-trades, which keeps the job interesting.

The disadvantages of self-employment:

• You have to do everything, or at least oversee everything. From purchases to invoicing, from administration to tax. If you are a specialist by nature this can be an annoying distraction for you;
• You’ll make long hours almost without exception;
• The longer you are self-employed, the harder it becomes to ever work for a boss again since you have tasted the freedom of working for yourself.

The transition from an employee to an entrepreneur is an exciting change. It can be stressful, but is a learning experience even if you decide to return to employment in the future. The cash flow situation is important to bridge the startup period, so account for this to take at least six months and make sure your financial situation is healthy at the outset. Consider working part-time while starting your business, or asking your current employer for an assignment.

2.1 – Maintaining your business accounts

Being self-employed involves a host of administrative responsibilities. Whether your business is your primary source of income (WUO) or a secondary source (ROW), you are required to keep regular accounts. However, categorizing your business as a secondary source of income does allow you to simply your bookkeeping practices. As a fully self-employed professional, your bookkeeping must be more extensive and you a required to have a profit and loss statement.

2.2 – Meeting your VAT obligations

As a self-employed person (either with business income or income from other activities) you may have an obligation to file a value-added tax return. This is entrepreneurship is defined differently for VAT than it is for income tax.

For VAT, you need to comply with the legal requirements for invoices. If you do not comply with these requirements a penalty of up to € 5.278 can be imposed.

• The invoice must have your VAT number in it;
• The invoice needs to be numbered uniquely;
• The correct amount of VAT needs to be indicated on the invoice.

2.3 – Paying income tax as a self-employed professional

As a self-employed person, you will have a different tax situation than an employed person. The difference is that employed persons pay their income tax though the payroll tax which is withheld by their employer. As a self-employed person, you will have to file a tax return and pay the income tax payable according to the assessment.

As a self-employed professional, you can aim for one of two fiscal scenarios:

• Focusing on your business as your primary source of income (WUO);
• Using self-employment as a secondary source of income (ROW);

The Dutch tax authorities will assess your situation and they will classify your activities as either business income or income from other activities.

Self-employed persons are entitled to certain tax deductions, such as the self-employed allowance and small business exemption. The filing date for self-employed persons is the same as for employees: April 1^st.

As an employee, you actually pay a part of your income tax each month via your employer’s payroll administration. Since self-employed persons do not have this payroll administration, their income tax will be settled via preliminary and/or final assessments. On order to prevent a high final assessment, you can request a preliminary assessment during the tax year. This has the advantage of allowing you to pay your taxes in monthly installments. During the tax year changes can be made.

You are only eligible for self-employment deductions if your business is your primary source of income. To make this case, you must be able to prove that you have spent at least 1.225 hours on your business activities in the past year. The primary self-employment deduction is capped at € 7.280 (2017). The additional small business deduction is 12% of the taxable profit after the self-employment deduction.

2.3.1 – Buying a house

The interest you pay on the mortgage for the house which is your main residence is partially deductible. This deduction lowers your taxable income. If some of your taxes are already withheld by your employer’s payroll administration, you will receive a tax refund in your income tax assessment.

Given that self-employed persons do not have payroll tax withheld during the year, the mortgage interest deduction will not result in a tax refund. It will only reduce the amount of tax to be paid.

2.3.2 – Purchase year

Some costs related to the purchase of a house are deductible, i.e. the cost of the notary for the mortgage. Because these costs are only deductible in the year of purchase, and the mortgage interest you pay in the year of purchase is usually only for a partial year, the preliminary tax refund must be amended the following year.

2.3.3 – Preliminary assessments

If you receive a preliminary tax refund, because in the past you were employed and have a main residence with mortgage deduction, you need to amend the preliminary refund. This is because your tax situation changes when you become self-employed. The big difference is that no monthly payroll tax is deducted from your salary. If you do not amend your tax refund, the refund is calculated at a high amount and you will need to pay back the excess amount you receive. This is added to the tax payable on the self-employment income.

3 – Understanding and using the 30% tax ruling

Employees who come to the Netherlands may, under certain conditions, receive a tax-free allowance for extraterritorial expenses or receive 30% of their wages tax-free. This 30% tax ruling is for incoming employees with specific expertise that is scarce or absent in the Dutch labor market.

3.1 – Determining whether you are eligible

The 30% ruling is only open to those who meet specific requirements. These requirements were most recently amended on January 1^st, 2012. The requirements pertain mostly to the following points:

• Scarcity of specific expertise;
• The duration during which the 30% rule can be used;
• Whether you are a ‘registered employee’;
• Whether you hold a PhD or equivalent degree.

If you meet these requirements, you can use the 30% ruling to your advantage. However, Koppel Services advises you to consult with a tax specialist before invoking this tax ruling. The ruling is quite complex and mistakes can be very costly.

3.1.1 – Specificity of expertise

From January 1^st, 2017, the following employees are considered to meet the requirements for specific expertise:

• An employee who receives a taxable salary of more than € 37.000;
• An employee who has obtained a master’s degree at an institution of scientific research, is younger than 30 years old and receives a taxable salary of more than € 28.125;
• An employee who works in the Netherlands as a doctor in specialist training at an educational institution as designated by the Medical Specialists Registration Committee, the Social Medical Registration Committee or the General Practice and Nursing Home Registration Committee;
• An employee who is employed by a qualified research institution to carry out scientific research or scientific education in the Netherlands.

The salary criterion also applies to employees who are employed part-time. In this case, the minimum salary level is not time-proportionally adjusted. A time-proportionate adjustment only takes place in the case of maternity or parental leave.

3.1.2 – Scarcity of expertise

In addition to the specific expertise condition attention should also be paid to the scarcity criterion. In assessing eligibility this criterion looks at the education, experience and pay level of candidates.

3.1.3 – Duration of the 30% rule

On January 1^st, 2012, the maximum duration of the ruling was shortened to 8 years. This adjustment does not apply to employees who were already granted the 30% ruling before this date. The maximum duration of 8 years only applies to new cases.

The maximum duration of 8 years is shortened by any prior periods of residence or employment in the Netherlands within the last 25 years.

3.1.4 – Definition of ‘registered employee’

As of January 1^st, 2017, the 30% ruling for employees who come to the Netherlands applies only to employees who lived at least 150 kilometers from the Dutch border before they commenced work.

3.1.5 – PhD holders

Foreigners who have completed their doctorates at a Dutch university and commence employment within one year of completing their studies can be regarded as incoming employees. If the other conditions are met the 30% rule can be applied. It is important that the candidate lived beyond a radius of 150 kilometers from the Dutch border before the start of their training to obtain their title.

3.2 – When the 30% ruling expires or is no longer applicable

If the 30% rule expires or the employee no longer fulfills the conditions of the 30% scheme they cannot reapply for it. In that case, the employer can reimburse the actual extraterritorial costs to the employee.

In needs to be proven with receipts that these costs are actually made by the employee before the employer can reimburse them for tax free.

Extraterritorial costs can be defined as costs made with respect to temporary employment in the Netherlands. Examples of extraterritorial cost are:

• Cost of living allowances;
• Visa costs;
• Reconnaissance trips made to search for housing;
• Storage of furniture which remains in country of origin.

4 – Unique taxes in the Netherlands

As mentioned before, the Dutch tax system is a complicated beast. There are many uniquely specific taxes in the Netherlands, many of which will either be wholly unfamiliar to foreign professionals or differ substantially from the corresponding tax in their homeland.

As a rule, these taxes are only triggered under specific circumstances. They may not apply to your current situation, but it’s always best to be prepared. That’s why we’ve included the most common examples of these taxes in our guide.

4.1 – Receiving an inheritance

In the Netherlands, inheritors must pay taxes over any inheritance they receive (both material and financial). The tax authorities do not always automatically withhold these taxes, so you may need to pay inheritance tax (Dutch: erfbelasting) yourself.

Inheritance tax or estate tax is levied on the beneficiary’s share of the estate. The tax is generally paid by the beneficiary. In most cases, the inheritance will be taxed in the country of the deceased. For expats living in the Netherlands who receive an inheritance from abroad, this means they will usually pay the corresponding taxes outside the Netherlands. If the deceased was a Dutch citizen or registered resident at the time of their passing, however, beneficiaries will be liable for inheritance tax in the Netherlands regardless of their own country of origin.

Different tax rates apply for estate tax in the Netherlands. In the Dutch tax system, these rates are calculated according to the relationship between the heir and the deceased. There are three main categories. The tax rates for 2017 are listed in the overview below:

• Spouses, registered partners and children;
  • 10% (for amounts up to € 122.268)
  • 20% (for amounts over € 122.269)
• Grandchildren and other descendants;
  • 18% (for amounts up to € 122.268)
  • 36% (for amounts over € 122.269)
• Siblings and parents, other blood relatives, unrelated heirs.
  • 30% (for amounts up to € 122.268)
  • 40% (for amounts over € 122.269)

There are also specific exemptions, which allow heirs to receive a portion of their inheritance tax-free:

• Spouses and registered partners
  • No inheritance tax up to € 638.089
• Children and grandchildren
  • No inheritance tax up to € 20.209
• Parents
  • No inheritance tax up to € 47.859
• Handicapped children
  • No inheritance tax up to € 60.621
• Other heirs (including siblings)
  • No inheritance tax up to € 2.129

4.1.1 – Filing the inheritance tax return

When you receive an inheritance, you are required to file an inheritance tax return. Any one heir can only declare their own inheritance tax return, but the heir(s) can also appoint someone to file the inheritance tax return for all heirs included in the inheritance. Koppel Services can help guide you through this difficult and painful process. Feel free to contact us if you have questions about your inheritance.

4.1.2 – Issues with cross-border inheritance tax

If you receive an inheritance in the EU, there are several issues you must be aware of. For starters, certain member states of the European Union tax foreign inheritances more heavily than local inheritances. Additionally, different member states may claim taxation rights on the same inheritance in certain cases.

While the European Commission has proposed measure to tackle these cross-border inheritance tax problems, there are no measures currently in place to protect against double taxation. This is why you should always contact a tax expert in cases like these – there may be international tax treaties which apply to your particular situation.

4.1.3 – Material goods inherited from abroad

Did you inherit material goods from somebody living in a non-EU country and do you wish to import these goods tax-free into the Netherlands? To do so, you will need an exemption permit for inherited goods. You can apply for the permit at the regional customs office where you live or where you received the inherited goods. Generally speaking, if you are moving to the Netherlands from another EU country, you will not have to make a customs declaration for moved goods or personal goods.

4.2 – Receiving or giving a gift

In the Netherlands, gifts are taxed much in the same way as inheritances. A gift tax (Dutch: Schenkingsrecht) is levied on all gifts given by Dutch residents. As with inheritance tax, different rates apply based on the relationship between the gift-giver and the recipient. The tax rates for gifts are the same as those for inheritances.

• Spouses, registered partners and children;
  • 10% (for amounts up to € 122.268)
  • 20% (for amounts over € 122.269)
• Grandchildren and other descendants;
  • 18% (for amounts up to € 122.268)
  • 36% (for amounts over € 122.269)
• Siblings and parents, other blood relatives, unrelated recipients.
  • 30% (for amounts up to € 122.268)
  • 40% (for amounts over € 122.269)

Specific exemptions apply as well. These are likewise dependent on the relationship with the gift-giver, as well as on the purposes for which the gift has been earmarked.

• Children of all ages
  • May receive € 5.320 tax-free for any purpose
• Children between 18 and 40 years of age
  • May receive € 25.526 tax-free for any purpose
  • May receive € 53.176 tax-free for an expensive education
  • May receive € 100.000 tax-free to purchase a house
• Recipients who receive a gift from somebody other than their parents (e.g. aunts, uncles, grandparents)
  • May receive € 2.129 tax-free for any purpose
  • May receive € 100.000 tax-free to purchase a house

In Dutch tax law, there is an important distinction between small gifts and large gifts. Small gifts may be received tax-free every year (e.g. children may receive € 5.320 from their parents every year without having to pay taxes). Larger gifts, however, may only be received once during your lifetime. This is a comprehensively exclusive rule: during your lifetime, you may either receive € 25.526 for general purposes, € 53.176 for an expensive education or € 100.000 for a house.

Also, it should be noted that gifts from individual parents must always be added to each other to determine the total tax liability. This holds true even if the parents are divorced.

Conclusion

We understand that this may be a lot of information to process. Like we said, taxes in the Netherlands are a complex affair. However, this guide should be more than enough to get you started down the road to participating in the Dutch economy. At the very least, it should keep you from getting overwhelmed.

If you do feel like you need a hand, though, our tax advisors are happy to help. Just get in touch with our team and share your questions with them. They will make sure you get the expert advice you need and help you achieve your goals.