In the Netherlands, residents pay income tax on their worldwide income. Non-residents are taxed on income sourced in the Netherlands only. Income tax is collected by Tax and Customs Administration. For purposes of determining income tax, income is divided into the following three categories, so called boxes:
Box 1: income from work and home ownership
A progressive tax rate with two tax brackets applies to income in Box 1. In the past, there were four brackets, the highest of which was 72%, but in 1990 it was changed to 60%, and in 2001 it became 52%. The four bracket-system was changed to a two bracked-system in 2020, with the lower incomes taxed for 37.35% and the higher incomes for 49.50%. Certain expenditures, referred to as personal allowances, can be deducted from income prior to tax calculation. Examples of personal allowances are donations to eligible charities, maintenance costs, medical or study expenses. Taxpayers above the official retirement age are entitled to a reduced tax rate.
Box 2: financial interest in a company
A flat tax rate of 25% applies to income from substantial interest in a company. A substantial interest in a company is defined as owning at least 5% of its shares, options or profit-sharing certificates; either by the taxpayer themselves or together with their tax partner.
Box 3: savings and investment
Box 3 concerns income from wealth. Wealth is calculated as value of assets minus any debts. Income from wealth is taxed at a 30% rate. For tax purposes, a fixed return on savings and investments is presumed, based on the average distribution of Box 3 assets. Presumed gains are calculated each year based on market returns realized in the past. A tax allowance on capital yields is provided. For income taxes, tax year is equivalent to calendar year. Tax return shall be submitted before May 1 of the subsequent year. Married couples shall submit a joint assessment, except for the case when a divorce petition has been filed.
Value added tax
The value added tax system follows EU regulation. For value added tax there are three categories: foods and essentials, non-foods and luxuries, and special goods. These three categories have rates of 9%, 21%, and 0%, respectively. The non-foods and luxuries percentage was increased from 19% to 21% on 1 October 2012, while the foods and essentials percentage was increased from 6% to 9% percent on 1 January 2019. The special goods cover:
Goods that are exported
Goods that haven't been introduced yet
Catch of Fish
Excised goods
International transport of people
Import VAT
Unlike in some other member states of the EU, the Dutch tax regime allows deferral of import VAT payment. Instead of conducting payment at the time when goods are imported to the EU, the VAT payment may be deferred to periodic VAT return. The import VAT needs to be reported; however, as the amount may be deducted from the corresponding period VAT return, the deferral can prevent cash flow disadvantage arising from paying import VAT immediately at time of import to the EU.
Corporate tax
Generally, private and public companies with Dutch residency are subject to corporate income tax on their worldwide income. Corporate tax rate is based upon taxable amount, which equals taxable profit in the corresponding year minus deductible losses. In 2018, for taxable amount below €200,000, a 20% tax rate was applicable. Taxable amount of €200,000 and above was taxed at a 25% tax rate. The corporate tax rates are both due to decrease by 1 percentage point in 2019, 1.5 percentage point in 2020 and further 1.5 percentage point in 2021; resulting in a 16% tax rate in the first bracket and 21% tax rate in the second bracket. Corporate tax year is equivalent to calendar year unless stated otherwise in the company’s articles of association. Tax year typically follows a 12-month period; deviations are possible in the first year of incorporation.
Innovation box
To foster innovation research, an innovation box provides tax relief for innovative activities. Profits derived from self-developed intellectual property that qualify for the innovation box are subject to a reduced tax rate. Since January 1, 2018, the effective tax rate applicable to corporate income in the innovation box is 7%. This feature of the tax framework provides a notable tax incentive for research and development activities in the Netherlands.
Substantial holding exemption
If qualified for a substantial holding exemption, a parent company is fully exempt from paying tax on the dividends and capital gains it receives from a subsidiary. Substantial holding is defined as holding at least 5% of shares in the subsidiary. The subsidiary concerned may have both Dutch or non-Dutch residency; the equal tax treatment allows non-Dutch subsidiaries to better compete with local ones. Substantial holding exemption prevents double corporate taxation of profits. This feature of the tax regime makes the Netherlands an attractive location for European headquarters. To qualify for substantial holding exemption, at least one of three conditions must be met:
Motive test: shareholding in the subsidiary does not serve as a mere portfolio investment.
Effective tax rate test: according to Dutch tax standards, a reasonable effective tax rate is applicable to the subsidiary.
In the Netherlands, a parent company and one or more of its subsidiaries may form a tax group if certain conditions are met: Primarily, the parent company shall hold at least 95% of shares in the subsidiary. Moreover, the parent company and the subsidiary need to be established in the Netherlands, follow the same financial year and apply the same accounting policies. Members of a tax group are treated as a single taxpayer by tax authorities. Key advantages of fiscal unity are that losses incurred by one company may be deducted from profits generated by other members of the group, and that fixed assets may be transferred between companies without corporate income tax consequences.
Property tax
or land value tax is claimed annually by municipalities. A fraction of the value of real estate is defined as :nl:Onroerendezaakbelasting|onroerendezaakbelasting. The money collected from the real-estate owners in its area can be used by the municipality to maintain the infrastructure. The real-estate values are estimated independently and updated annually. Taxation varies dramatically over different regions and municipalities. In addition to the property tax itself, there is a complicated additional taxation system for different infrastructural support systems: water-level management, water cleaning, waste management etc. Property tax does not belong to personal allowances deductible for income tax purposes.
Inheritance tax
The inheritance tax charges beneficiaries of an inheritance received from Dutch residents. In case of emigration, Dutch nationals are considered Dutch residents for further 10 years. Inheritance tax rate ranges from 10% to 40%. A part of inheritance is exempt from taxation; the amount exempted depends on the relationship of beneficiary to the deceased person.
Wealth tax
Possessions like savings, shares, houses that are not the primary living etc. are taxed when a tax payer has more than € 30,360. For couples, this tax-free amount is double. Consumer goods like cars and furniture, that are not held as an investment, are excluded. The tax rate comes in tiers, and the following numbers are for 2019 and will be updated in future years: it is a 0.58% tax for € 30,361 to € 102,010 of assets, 1.34% for € 102,010 to € 1,020,096 and 1.68% on any euros of assets above € 1,020,096.
