In the next three instalments of the Dutch Tax Series, we will be looking at the three tax “boxes”. As previously noted in Part 1, “Box 1” incorporates income from work and property. The tax burden in this box can be reduced with various approved expenses (deductions) and tax breaks (“heffingskortingen”).
Dutch Taxes – Part 2: Box 1
We have downsized the lists of applicable income/deductions to those most common, or to those that we found interesting to mention. The lists are therefore not complete and you should consult the Tax Services website and/or your tax consultant for more information when required.
Before reviewing the two lists, two topic deserves some special attention. This first is the concept of “Lijfrente”. Lijfrente is a type of insurance policy that provides payments to the insured upon retirement, for the remainder of their life on a periodical basis. It’s a sort of pension that one can arrange in addition to governmental benefits or one’s own pension plan. Due to our unfamiliarity with this product, we will not go into details, perhaps in a later post.
A second is the concept of “capital insurance” for your primary property. This insurance product works as follows: you pay an insurance company a yearly premium, which they invest or save and provide interest. At a predefined maturity date, the funds will be released to the insured to pay down the mortgage debt (if all goes well, your mortgage should be able to be paid off in full). It’s a system that helps with tax deferral/reduction. The funds can also be paid out sooner, for example in case the insured passes away. However, this type of capital insurance is no longer available to us due to changing mortgage rules and will therefore not be reviewed.
Box 1 Income
An overview of what is considered income in Box 1 (amongst others):
- Profits from a company (winst uit onderneming);
- Income from employment, benefit or pension (loon, uitkering of pensioen);
- Tips and other income (fooien en andere inkomsten);
- Foreign income (buitenlandse inkomsten) from work or pension;
- Income from freelance work, running a day-home, being an artist or professional athlete (inkomsten als freelancer, gastouder, artiest of beroepssporter);
- Periodical benefit payments, this includes alimony payments and lijfrente payments (periodieke uitkeringen (zoals uitkeringen van een lijfrente of alimentatiebetalingen));
- Returned excess (social) premiums (terugontvangen premies voor lijfrenten en dergelijke);
- Fictitious income from primary property (eigenwoningforfait); and
- Capital Insurance for primary property (kapitaalverzekeringen eigen woning).
Box 1 Deductions
An overview of what is considered a deduction in Box 1:
- Public Transportation (Reiskosten openbaar vervoer);
- Mortgage interest (Hypotheekrentaftrek);
- Medical Cost (Zorgkosten);
- Gifts/Donations (Giften);
- Care for children under the age of 21 (Levensonderhoud kinderen jonger dan 21 jaar);
- Certain high-risk investment losses (Durfkapitaal);
- Education (Studiekosten en andere scholingsuitgaven);
- Certain cost associated with your own property (aftrekbare kosten van de eigen woning);
- Premiums for income insurance (e.g. Lijfrente premiums); and,
- Personal deductions (e.g. alimony, donations, continued education cost, etc.) (“Persoonsgebonden aftrek”).
As you can tell by the summaries above (which are not even complete), there are many, many different items in the Dutch tax system that are seen as income and/or deductions.
Your taxable income is the defined as your gross income minus approved deductions. On this taxable income, you are required to pay taxes according to the following tax brackets (as applicable):
Taxable Income Range
Taxable Income Range
|1||Up to € 19.822||36,5%||Up to € 19.922||36,5%|
|2||From € 19.823 to € 33.589||42%||From € 19. 922to € 34.027||40.5%|
|3||From € 33.590 to € 57.585||42%||From € 34.027 to € 66.421||42%|
|4||From € 57.586 and up||52%||From € 66.421 and up||52%|
Think were done? Nope, there are a few additional tax breaks (“Heffingskortingen”) applicable to both taxes and social insurance premiums (mandatory premiums paid for unemployment benefits, government pension, etc.).
These tax breaks include (among others):
- A general tax break (“algemene heffingskorting”), available to everyone
- Labour Tax break (“Arbeidskorting”), applied on income from labour
- Work Tax Break (“Werkbonus”), only for those who have limited income from labour
- Income combination Tax Break (“Inkomensafhankelijke combinatiekorting”)
- Tax break for “normally” retired folks (“Heffingskortingen voor AOW-gerechtigden”)
To get an idea of these tax breaks, here are a two tables shown income and the associated approximate tax breaks for the General Tax Break and the Labour Tax Break.
|Box 1 Taxable Income||General Tax Break (2015)||General Tax Break (2016)|
|€ 10.000||€ 2.203||€ 2.230|
|€ 20.000||€ 2.199||€ 2.226|
|€ 30.000||€ 1.967||€ 1.747|
|€ 40.000||€ 1.735||€ 1.267|
|€ 50.000||€ 1.503||€ 788|
|€ 60.000||€ 1.342||€ 308|
|€ 70.000||€ 1.342||€ 0|
|Labour Income||Labour Tax Break (2015)||Labour Tax Break (2016)|
|€ 10.000||€ 100||€ 400|
|€ 20.000||€ 2.220||€ 3.103|
|€ 40.000||€ 2.220||€ 2.864|
|€ 60.000||€ 1.811||€ 2.064|
|€ 80.000||€ 1.011||€ 1.264|
|€ 90.000||€ 611||€ 864|
|€ 100.000||€ 211||€ 464|
|€ 110.000||€ 184||€ 64|
|€ 120.000||€ 184||€ 0|
The taxes you owe will be reduced by the applicable tax break(s). Determining how much tax you actually have to pay is therefore not easy. Fortunately the government provides very good and “free of charge” (not really, as you already paid taxes to fund it ;-)) software to prepare your taxes and submit online.