Taxation system for individuals

Where does the expat pay taxes?

Every individual who lives in the Netherlands theoretically pays taxes on his or her worldwide income. Non-residents pay tax on income from Dutch sources. Although tax on employment income is normally withheld at the source, taxpayers are usually still required to file an individual income tax return after the completion of a tax year. This allows taxpayers to report additional income, claim certain deductions and to offset the pre-levied wage tax against income tax due.

What are the main rules of the Dutch Individual Income Tax system?

When trying to get a good understanding of the Dutch individual income tax system, it is important to understand that the Dutch tax code distinguishes between three different types of income or ‘boxes' of income, each with a different tax rate.

The first box comprises of income from entrepreneurship, income from employment and income from a principal residence. This income is taxed at progressive tax rates with a maximum of 52%. This is also the category where most of the deductions can be claimed.

The second box only applies to individuals that own a significant shareholding in an entity.

The third box applies to passive investment income. Under this box however, no actual interest, dividend or capital gain income are taxed. Taxable basis in the third box is the average value of assets on January 1 and December 31 of a particular year. The average value is deemed to generate 4% return on investment, which is taxed at 30%.

The overall tax burden, resulting from Box I, II and III is then reduced by certain credit amounts for the taxpayer and his or her partner (even though the partner has no income of his or her own). Therefore, even though only one of the partners may have employment income, it can be required for the spouse to file an income tax return too, in order to claim certain credit amounts.

What is the filing deadline for individual income tax returns in the Netherlands?

The Dutch fiscal year corresponds to the calendar year. Individual income tax returns for a particular tax year need to be filed by April 1 of the subsequent year. However, it is possible to apply for an extension of time to file a tax return, which is normally granted until March 1 of the following year.