Paying 2017-2018 income tax in the Netherlands? Read this.

11 minute read

If you’re an expatriate, figuring out your responsibilities regarding tax - in a different country, under an unfamiliar system - can be a challenge. The situation is even more complicated if you’re a cross-border commuter, a non-resident foreigner living in a different country for a short while, or a freelance or remote worker. However, getting it wrong can prove a costly hassle. You could end up stuck paying a fine, or even face criminal charges if you don’t get your tax declaration in on time, or fail to pay the right amount of tax.

The Netherlands has a notoriously complicated tax system. What you pay depends on many factors, including not only how much you earn, but also your personal circumstances. As you may have already discovered, tax is a complex legal area - and it’s important that you understand your own individual situation.

This overview of the Dutch income tax system is a great starting point. If you think you might need to pay tax on some or all of your income in the Netherlands, it’s advisable to get professional advice to make sure you pay the right amount.

What income is taxable in the Netherlands?

Income tax in the Netherlands is known as inkomstenbelasting, and your annual tax return is your aangifte inkomstenbelasting.

Income in the Netherlands is divided into different types, which are treated differently for tax purposes. Income such as wages, benefits like a company car, income from savings and investments, all comes into scope. It’s worth knowing that some of the basis of taxation in the Netherlands is different to in other countries - for example, the tax on a property you might own and rent out isn't levied on the profit you make from the rent, but on the value of the asset itself. If you’re unfamiliar with the Dutch income tax system, taking professional advice is essential.

(Source, 6 December 2017)

Who has to pay income tax in the Netherlands?

How you’re taxed depends on your personal circumstances. In basic terms, you’ll be classified as either:

  • A resident taxpayer
  • A non-resident taxpayer
  • A partial non-resident taxpayer

Resident taxpayers spend the majority of their time living in the Netherlands, and this is where their main personal ties are. If you fall into this category, then you have to pay tax on worldwide income to the Dutch tax authorities.

However, you might qualify for non-resident status if you spend less than half the tax year in the Netherlands. In that case, you’ll only have to pay tax to the Dutch authorities on money you’ve earned in the Netherlands - but you might not be eligible for many of the tax exemptions on offer for tax residents. Of course, you might also be liable for tax elsewhere in the world too, in this situation.

Partial non-resident taxpayer status is only granted under quite specific circumstances - more on that later.

Resident income tax

In the Netherlands, the tax year is the same as the calendar year - 1 January through to 31 December. While some countries have strict criteria to judge your residence status for tax purposes, the Dutch system is a little less rigid. Instead of setting a residence requirement which says, for example, you’re a resident taxpayer if you live in the Netherlands for more than 6 months, here the system is far more about where your main ties are. That means that, if it's judged that your personal and economic ties are to the Netherlands, you’re a resident taxpayer from day one.

If you’re a resident taxpayer you’ll get a Burgerservicenummer, this is a registration number which is used for paying taxes, and accessing social benefits and so on. As a resident taxpayer, you have to pay tax on any income you make anywhere in the world, to Dutch authorities.

(Source, 6 December 2017)

Non-resident income tax

If you can show your main personal and economic ties aren't in the Netherlands you might be deemed to have non-resident tax status. This means you pay tax in the Netherlands only on the relevant income you’ve earned in the Netherlands.

(Source, 6 December 2017)

Partial non-resident tax

Under some quite specific circumstances, you might be deemed a partial non-resident in terms of your taxes. This scheme has proved somewhat controversial and has been under political pressure, because it essentially lets some foreign residents reduce their tax burden.

This status is available under something known as the 30% ruling. Under this rule, expats coming to work in certain jobs in the Netherlands can take up to 30% of their annual salary tax- free, for a period of up to 8 years. This is said to offset the costs of moving and help attract foreign talent. People who qualify under this 30% ruling can opt to be only partially resident in tax terms, which further reduces their tax burden.

This scheme has been criticised and could be reviewed due to political pressure, and so if you think you might qualify, you should take professional advice to understand the latest situation.

(Source, 6 December 2017)

In what instances do Dutch residents working abroad need to pay income tax?

What your tax liabilities are will depend to an extent on how long you’re away from the Netherlands, and what your intentions are. If you maintain your main economic and personal interests in the Netherlands, then you’re likely to be judged to be a tax resident there, even if you're away for some time. In this case, you’ll have to pay tax to the Netherlands. If the country you’re working in has a claim on tax from you, too, then you’ll need to rely on double taxation treaties to make sure you don’t end up paying too much. More on this later.

What are the income tax rates in the Netherlands in 2017-2018?

The Netherlands has a progressive tax system, so a progressively higher tax rate is applied based on how much you earn. The top rates of tax are pretty high in the Netherlands, but there are also deductions and exemptions, so it's worth getting professional advice to make sure you pay the right amount on your earnings.

If you’re employed in the Netherlands, your employer will deduct money from your wages every month under the pay as you earn tax system. You’ll then also have to submit a tax declaration, usually by May 1st in the year after the end of the tax year, to make sure you have paid everything you owe.

The most up to date rates available for the Netherlands are as follows:

Income range The Netherlands income tax rate (%) 2017
up to €19,982 8.9%
€19,982 - €33,791 13.15%
€33,791 - €67,072 40.8%
over €67,072 52%

(Source, 6 December 2017)

What are the tax exemptions in the Netherlands?

Tax is applied on taxable income only. This sounds simple enough. You start with your entire income, and, to work out your taxable income, you remove any relevant deductions, exemptions or allowances. However, as with all things related to tax, it’s quite complicated. The explanatory notes to accompany the 2016 Dutch tax return run to over 100 pages.

Here are some of the exemptions, deductions and credits that you might need to know about.

You might also be eligible for other tax breaks depending on your personal situation. To be eligible for any of these allowances you have to include them on your tax declaration.

Tax credits

Various tax credits might be taken into account when calculating the amount of tax owed. How these are applied depends a lot on your personal circumstances and your earnings for the relevant year. You might be eligible for credits including:

  • General tax credit
  • Employed person’s tax credit
  • Elderly person’s tax credit
  • Life-course leave tax credit
  • Young disabled person’s tax credit

Personal deductible items

You can deduct payments made for certain things, such as medical costs, study and payments made to registered charities from your taxable income.

Other deductible items

You can remove the costs of some other fixed items, like public transport commuting, from your taxable expenses. The list of what can be claimed or deducted across both categories is quite complicated, and there are limits to the amount that can be claimed under every category. Make sure you understand the details when you complete your tax return.

(Source, 6 December 2017)

What are the tax penalties in the Netherlands?

If you don’t pay your taxes properly in the Netherlands it could cost you a lot of cash. If the tax authorities find income they deem to be ‘hidden’, you can be fined up to 300% of the value. If you voluntarily declare income which has previously been hidden, the fine might be reduced but it's still pretty hefty. The penalties and process for dealing with incorrect tax declarations are currently under review in the Netherlands, but getting it right the first time is the best way to make sure you don’t end up out of pocket in the long run.

(Source, 6 December 2017)

What sort of double taxation agreements are there with the Netherlands?

It’s possible for someone to be liable to pay tax in 2 countries. This can fairly easily be the case with the Netherlands, because the way tax residency is decided. If you’re a cross-border commuter to a job in the Netherlands, for example, the Dutch authorities may want you to pay them tax - even if you don’t live there. The country in which you live, might also believe you owe tax, depending on how they decide residency.

You might need to take some professional advice if this is the situation, but you don’t have to panic. To make sure that people don’t actually need to pay double the amount of tax due, many countries have what's known as double taxation agreements. These help to ensure that you only pay tax once on your earnings.

The Netherlands has double taxation agreements with the following countries:

The Netherlands double taxation agreements
Armenia Luxembourg
Austria Macedonia
Azerbaijan Malawi
Albania Malaysia
Aruba, St. Maarten Mexico
Australia Malta
Bahrain Mongolia
Bangladesh Morocco
Barbados Moldova
Belarus New Zealand
Belgium Nigeria
Bermuda Norway
Bulgaria Oman
BES Islands Pakistan
Brazil Poland
Curacao Portugal
Croatia Panama
Canada Portugal
China Qatar
Czech Republic România
Denmark Russia
Egypt Saudi Arabia
Estonia Singapore
Finland Slovenia
France Slovakia
Ghana South Africa
Germany Spain
Georgia Sri Lanka
Greece Sweden
Hungary Switzerland
Hong Kong Taiwan
Israel Tajikistan
Indonesia The Philippines
Ireland Turkey
Iceland Turkmenistan
India Tunisia
Italy Thailand
Japan Ukraine
Jordan UAE
Kuwait UK
Kyrgyzstan USA
Kazakhstan Uzbekistan
Korea Uganda
Latvia Venezuela
Lithuania Vietnam

(Source, 6 December 2017)

Should I file a tax return?

If you’re employed, your employer will deduct the tax and social security contributions due on your annual salary. However, you’ll still have to submit a tax declaration. Usually, resident employed people are asked to get their return filed by 1 April in the year following the relevant tax year. Non-resident taxpayers must submit their return before 1 July.

If you’re self-employed you have to file a tax return online every year. It's due on 1 May in the year after the tax year has ended.

(Source 1, Source 2, 6 December 2017)

How do I pay income tax in the Netherlands?

You can submit your tax declaration either in paper form or online. In some circumstances, you might have to use a paper version of the form, so it's worth checking. If you have lived in 2 countries over the course of the year, for example, you might need to submit paperwork in hard copies by snail mail.

Paying income taxes online

You can pay your tax return online, but in order to access the system, you have to register and have a password. You can apply for a password online, but it will be mailed to your registered home address, so you need to be able to collect the letter to use it.

Once registered, however, using the online system to submit your tax return and then pay your bill, is usually quicker and easier than if you were using the paper forms. This is the route the Dutch tax authorities recommend for dealing with your taxes, to keep it as simple as possible.

If you’re an expatriate, paying taxes in the Netherlands, you might need to do so using a bank account held in a different country or currency. If that’s the case, then you’ll need to take into consideration any charges that will be added to the transfer you make to pay your taxes.

And it's not just the upfront charges, but the rates used when converting your cash from a different currency to euros which could cost you more than you think. That’s because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. Instead, to make sure they make a profit, they mark up the rate by 4-5%. They keep the difference, and you end up out of pocket.

If you’re a foreigner paying taxes to the Dutch authorities, a great alternative is to use Wise. Because Wise works differently than banks, you can get your money transferred quickly and safely, using the real exchange rate, and just a fixed, upfront fee.

There’s no magic involved here. It’s actually pretty simple. Because Wise doesn't use the pricey SWIFT system for making bank transfers, this brings down the costs of making international transfers, and the savings are passed on to the customer.

Depending on your situation, you might be able to pay your taxes directly using a Wise transfer, or if you don’t already have a bank account in the Netherlands, you could transfer the payment to a friend or family member who does, to bring down the costs.

Another great tool if you often have to move your money between different currencies, is a new Wise borderless multi-currency account. Hold your money in any one of dozens of different currencies - including euros - and then switch between them whenever you need to. It’s simple and can save you money, because you get the real exchange rate every time, and there’s only a small transparent fee for changing your cash.

Taxes are a tricky topic for everyone. But they’re even more complicated if you’re an expatriate working abroad, a cross-border commuter, or if you juggle life between different countries. Invest some time doing research in advance, to make sure you’re clear on your options and duties when it comes to tax. Getting it wrong can be an expensive mistake.

Whatever taxes you ultimately need to pay, you don’t want to be out of pocket because of unfair fees levied on converting your currency. Wise might be able to help you save money on cross-border transactions. See if you can get a better deal from Wise, if you find yourself needing to pay your taxes abroad.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.

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