The Dutch income tax system explained

The Dutch tax system, especially for an expat, is anything but simple. The Netherlands is a socially conscious country, and you can expect to pay a substantial proportion (up to 52 percent) of your salary to the taxman. But your personal situation (non-working partner, for example), type of work, residency status and other assets and earnings (particularly from abroad) affect your position considerably. In many cases, you will still be filing a tax return in your home country and will be entering the land of double taxation agreements. There are many expat financial specialists who can complete your tax forms for you or provide other consultancy services.
Other useful information can be found on the Expatica website (Ask the Expert) where financial experts answer readers' questions. The Ministry of Finance publish a guide (in English) to the Dutch Taxation System (www.minfin.nl). The tax office is the Belastingdienst (www.belastingdienst.nl) and their website has some information in English.

In general tax returns are submitted digitally, except the M form which still must be filed on paper. The M form must be filed in the year of migration. The deadline for the tax return is 1 April, for the M form 1 July. If you are not able to file before 1 April, you can request an extension. To file a return, you will need a digital signature or DigiD (www.digid.nl) or the services of a tax consultant. The DigiD is essentially a personal login that you use with all government agencies enabling some transactions (paying parking fines, applying for permits etc.) to be done over the internet. Authentication requirements may vary according to the sensitivity of information in transit.  
Particularly in the year of arrival and the year of departure, filing a tax return may result in a substantial rebate. Tax returns can be completed retrospectively for a period of five years.

Residency status
If you have demonstrable ties to the Netherlands (for instance, you live here, you work here, your family is based here) you are generally regarded as a 'resident taxpayer' from day one. If you live abroad but receive income that is taxable in the Netherlands you are generally a 'non-resident taxpayer'. Non-residents can also apply to be treated as residents for tax purposes (in order to gain access to Dutch deductible items) and an additional category of partial non-resident taxpayers covers those eligible for the so-called 30 percent ruling (see below). As a resident taxpayer you are taxed on your assets worldwide.

The box system
Different categories of income are treated differently for tax purposes on the tax return and there are three types of taxable income: 
Box 1: Income from profits, employment and home ownership. This includes wages, pensions, social benefits, company car, and WOZ value of owner-occupied property (max. 52 percent)
Box 2: Income from substantial shareholding (5 percent minimum holding -25 percent rate)
Box 3: Taxable income from savings and investments. Income from property for instance, owned but not lived in as a main residence, is taxed here: not the actual income but the value of the asset (fictitious return: 4 percent taxed at 30 percent = 1.2 percent).

Calculating tax: the amount of tax payable is calculated by applying the various tax rates to the various taxable incomes in the boxes. The amount calculated is then reduced by one or more tax credits.

Tax credits and allowances

Everyone is entitled to a general tax credit (EUR 2,001 in 2013) and may be additionally entitled to other credits. The employed person's tax credit is age- and income-related (average cases EUR 1,533 in 2013); the single parent's tax credit (EUR 947 plus at maximum EUR 1,319 under additional conditions in 2012). The general tax credit comprises an income and social security element (to which you are only entitled if you have compulsory Dutch social security coverage). Your employer will take these into account when deducting wage withholding tax but not any other personal circumstances. You claim other allowances and potential refunds when you file your tax return or request a provisional refund.

Partners
Where possible, partners are taxed individually but, when only one partner works, the other partner is generally entitled to a refund of general tax credit and deductible expenditure can be apportioned to take advantage of tax credits. Please note that the conditions for unmarried couples to qualify as a partner have been changed as of 2011.

30 percent ruling

This is a tax incentive for employees, recruited from abroad who bring specific skills to the Netherlands. It acknowledges the additional expenses incurred by expats (extraterritorial costs) by allowing the employer to grant a tax-free lump sum to cover these costs up to a maximum of 30 percent of the sum of wages and allowances. Applications (completed by both employer and employee) should be made to the Belastingdienst Limburg Kantoor Buitenland in Heerlen. The conditions for qualifying for the 30 percent ruling were changed as of 2012 to be more relevant to the intended focus group.

Mortgages and tax implications
When arranging a mortgage it is important to look at the whole picture: interest, cost of life insurance, savings plan and investment accounts. If you are intending to sub-let, you may need to pay off a substantial part (say 30 percent) of the mortgage to get permission from the lender. When your interest rate comes up for renewal, it is important to check that it is still competitive.

Tax implications include:
Interest payments are tax-deductible if the property is your primary residence and the loan is used for acquisition of the house.
There is no capital gains tax in the Netherlands but increases in the value may impact your mortgage relief if and when you use the profits to buy another house in the Netherlands.
Tax is levied on the deemed rental value of the house (WOZ) determined by the local authority.
Expenses in financing the purchase of a house are tax-deductible.

[For more detailed information read Expatica article Tax advantages for expat house buyers.]

Essential contact information for tax payers in the Netherlands

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