Under the present Income Tax Act residents are liable for income tax on their world-wide income. Non-residents residing in an eu Member State or in a country with which the Netherlands has concluded a double taxation convention providing for the exchange of information may opt for enforcement of the sections of the Income Tax Act for residents. Non-residents are taxed only on the income from a limited number of sources in the Netherlands. The Netherlands has concluded many double taxation conventions to prevent the double taxation of world-wide income. If no convention is applicable, tax relief may be obtained on the basis of the Unilateral Decree for the prevention of double taxation. (If certain requirements are met, foreign employees temporarily posted to the Netherlands may request the application of a special tax arrangement known as the 30% ruling).
Partial non resident tax payer status as a result of the 30% ruling
The legal definition stipulates that someone’s place of residence is determined ‘according to circumstances’. Several factors are of relevance when deciding whether someone maintains personal and economic ties with the Netherlands. These include a family home, employment, or registration in a municipal register. Nationality is not a determining factor, but it may be relevant in some cases. The law also provides for a number of special cases. The crews of ships and aircraft with a home harbour or airport in the Netherlands are deemed to be residents of the Netherlands unless they have established residence abroad. Dutch diplomats and other civil servants serving abroad remain residents of the Netherlands. Foreign diplomats and the staff of certain international institutions are exempt from Dutch income tax.
People pay tax individually as far as possible. Therefore partners pay tax on their own income and can only use their own deductible items. However, some income and deductible items are joint. Joint income and deductible items can be divided randomly between both partners as long as 100% of the income and deductible items is declared. The choice applies, among other things, to the notional rental value for owner-occupiers and the deductible items from the owner-occupied dwelling, childcare expenses and items that come under the personal deduction.
If partners are married or have registered their partnership at the Records Office, they are automatically each other’s partners (unless they are permanently separated). Partners living together have to meet certain conditions in order to be considered fiscally as partners.
From 1 January 2001, there are three types of tax for taxable income. These types of income are brought together in three so-called boxes:
- Box 1: taxable income from work and home;
- Box 2: taxable income from substantial interest;
- Box 3: taxable income from savings and investments.
Residents and non-residents are taxed on their taxable income. The taxable income is the income less the deductible losses. For residents the income may have previously been reduced by certain payments that are not related to the acquisition of income (personal deduction). The personal deduction is first subtracted from income from work and home (box 1). The income in box 1 must not result in a negative amount as a result of the deduction. Any remainder can be deducted from the income in box 3. Likewise, it must not result in a negative amount. If there is still a portion left, it can be deducted from the income from a substantial interest (box 2). If the personal deduction can not be subtracted from the total income in boxes 1, 2 and 3, the remainder can be carried over to the following year.
Tax rates and personal allowances
The amount of tax owed is calculated by applying the tax rates to the taxable income. The result is reduced by one or more tax credits. Everyone has the right to a general credit on the tax owed: the general tax credit. Additional credits over and above are available. Which additional credits apply depends on someone’s personal circumstances. For individuals with income from current employment the credit is increased depending on the applicable salary and age. For taxpayers with children special credits are applicable.
Tax rate for income from work and home
The tax rate is a rising scale with 4 brackets. In first 2 brackets the rate is a combined rate consisting of a tax percentage and a percentage for social security contributions. A lower rate in the first two brackets is applicable to people aged 65 and over, as they are no longer liable for several social security contributions.
Returns and assessments
For income tax purposes the tax year coincides with the calendar year. If the financial year of a business does not coincide with a calendar year, the results of such a year are attributed to a calendar year.
Wage tax as an advance levy
People on the payroll are subject to tax on the pay they receive. Employers withhold the tax directly from the payroll and pay this on a regular basis to the tax authorities. The rates, deductions, and any exemptions are consistent with those applicable to income tax. This means that in many cases collecting wage tax is sufficient and no income tax return needs to be filed. This means that for many employees the wage tax is not an advance levy in respect of income tax, but is in effect the final levy.
Income tax returns and assessments
- No income tax assessments will be made unless:
- the tax due exceeds € 22, taking into account the wage tax or dividend tax withheld
- a preliminary refund has been decreed ahead of or in the course of the calendar year, or
- the taxpayer has filed an income tax return.
- As is the case with corporation tax, provisional assessments and advance levies are credited against the final income tax assessment.
Taxpayers may have to file an annual tax return within three months of the end of the relevant financial year. At the request of the Tax Inspector the taxpayer is obliged to supply all relevant information needed to determine his or her tax liability.