Topic 3 Key players in the taxation system
In the Netherlands, paying taxes is obligatory. When a person receives a C Form asking them to make a tax return or when they have made income while working in the Netherlands, they must pay the tax. It is necessary to report income tax, which can be done through the annual tax return either online or with the assistance of a Dutch tax expert (aangifte inkomstenbelasting).
The Dutch tax system consists of three different categories of taxable income that are each taxed separately under a schedule known as a box. The tax rates on the boxes vary. The three boxes are used to calculate a person’s taxable income total.
This is the taxable income from home ownership (for a principal house) and work (employment) and income provisions from Benefits. The national insurance tax is charged at a rate of 27,65% for box 1.
This is taxable income from substantial interest with a tax rate of 26,9%.
This refers to taxable income from investment and savings with a tax rate of 31%.
In the Netherlands, there’s no local taxes on income.
There are various tax types in the Netherlands
As mentioned previously, anyone who earns money while residing in the Netherlands must pay taxes, whether they are a Dutch national or an International.
Taxes are collected by the Belastingdienst (the Dutch tax office) through a number of channels. The following are the primary tax categories you will probably run into in the Netherlands:
You must pay taxes on your income if you work or earn money in the Netherlands.
Wage tax is the term for the amount of income tax that will be deducted from your pay if you work for a company (which is contained within payroll tax). The annual tax return is how you calculate and pay your income tax if you work for yourself in the Netherlands.
It is the term used to describe taxes and other contributions that an employer deducts from an employee’s pay in order to prevent the employee from having to pay them as income tax in the future. Your net pay (netto salaris), which is the amount you receive after taxes have been taken out, differs significantly from your gross wage (bruto salaris), which includes taxes.
The Belastingdienst additionally collects taxes through the income or sales tax (omzetbelasting), recognized within the Netherlands as BTW (belasting over de toegevoegde waarde). All organizations, excluding some foundations and institutions, ought to add BTW to the charge in their goods and services. There are 3 distinct levels of BTW: zero%, 9% and 21% (the maximum common charge).
Though the wage tax has been withdrew from your gross salary, the need to fill an annual income tax return is necessary if the Dutch tax office requested it.
Why do I need to fill out the annual tax return?
It is imperative to balance out the “prepaid” tax with extra financial positions like:
- A mortgage.
- Extra income, investments, or savings.
- Your partner’s income.
- Tax deductions such as healthcare or studies costs.
The 30% compensation ruling is a tax benefit for international employees in the Netherlands. The most tremendous benefit is the reduction from 100% to 70% of the taxation amount therefore making 30% of the wage tax-free.
Import tax (douane): A tax paid from items imported from abroad.
Motor vehicle tax (motorrijtuigbelasting): A tax when a vehicle is under your name or when you buy a vehicle either import or within.
Gift tax (schenkbelasting): Tax for gift accepted
Transfer tax (overdrachtsbelasting): Tax paid when buying a business or property
The Dutch tax office started from 1 July 2015 has informed the general public on the increase in the penalties for undeclared income. The penalty increment from 30% to 60% for voluntarily declaring hidden income, inheritance or wealth. A risk of fine up to 300% for every hidden income uncovered by the Belastingdienst. But from 2018 and ahead, taxpayers with unreported investment and savings income do not longer have an option for voluntary disclosure.