For those not familiar with the Dutch tax system: it’s complicated! The Dutch tax code is very comprehensive, complicated and darn terrifying. One thing can be said though, there are very limited ways of reducing or sheltering from taxes (legally that is). Considering we are no experts, or are exceptionally rich and have great tax consultants, we just need to know enough to know what we are up against.
Dutch Taxes – Part 1: An Overview
A quick overview of the Dutch taxes is provided below to get a sense of the system.
Types of Taxes
A few of the long list of taxes applicable in the Netherlands:
- Income Tax (Inkomstenbelasting)
- Tax in income from Interest/shares in corporations (Vermogen en Aanmerkelijk Belang)
- Wealth Tax (a tax based on a fictional return on investment of 4%, over which you pay 30% (i.e. 1.2% of your applicable wealth))
- Dividend Tax
- Value Added Tax (BTW), which is a staggering 21% for many products and services
- Property tax (WOZ)
- Private motor vehicle and motorcycle tax (BPM), this is for purchase of your vehicle only
- Road Tax, this is to be able to operate your vehicle legally on Dutch roads and depends on vehicle weight and CO2 emissions
- Special taxes on gasoline, booze, etc.
Because taxes like values added tax (BTW), property tax (WOZ), private motor vehicle and motorcycle tax (BPM), Road Tax and more are not normally part of your yearly personal tax filing (for business tax filings these may be different), these will not be looked at separately going forward, as you are going to have to pay then anyways (as applicable).
The Dutch income tax filing system consists of 3 groups called “boxes”; these divide income into various categories with their own rules, regulations, deductions and taxation percentages.
An overview of these three boxes:
- Box 1: income from work and property (belastbaar inkomen uit werk en woning)
- Box 2: income from interest/shares in corporations (belastbaar inkomen uit aanmerkelijk belang)
- Box 3: income from savings and investments (belastbaar inkomen uit sparen en beleggen)
Losses in one box cannot be transferred to another box for compensation, which is a bit of a disappointment (e.g. when Box 1 is negative due to limited to no income during Financial Independence, the deduction does not carry over to Box 2 or 3 to cover the increased taxation here as a result of significant assets and/or income).
What are the (total) tax rates on income in these various boxes for 2015?
|Tax Brackets||Taxable Income Range||Taxation Percentage|
|1||Up to € 19.822||36,5%|
|2||From € 19.823 to € 33.589||42%|
|3||From € 33.590 to € 57.585||42%|
|4||From € 57.586 and up||52%|
Box 2: 25% on taxable income.
Box 3: 30% on taxable income.
When looking at this superficially, you want to get most of your income from items in Box 2 and 3. This would be great, because this is where our income streams will be coming from during our Financial Independence. However, there is more to this than meets the eye, more to follow in future posts where Box 1, 2 and 3 will be reviewed in more detail.
There are a fair number of items that will provide a tax deduction, some are general and some are only applicable based on personal criteria (Persoonsgebonden aftrek), here are a few that are of interest to our situation:
- Mortgage interest (Hypotheekrentaftrek)
- Public Transportation (Reiskosten openbaar vervoer)
- Medical Cost (Zorgkosten)
- Gifts/Donations (Giften)
- Kids under 21 (Levensonderhoud kinderen jonger dan 21 jaar)
- Certain high-risk investment losses (Durfkapitaal)
- Education (Studiekosten en andere scholingsuitgaven)
All of the above have certain restrictions on what is permitted and what is not; details can be found with the Tax Man (www.belastingdienst.nl). In the upcoming posts on Box 1, 2 and 3, the applicable deductions will also be reviewed in more detail.
You should always file you income taxes in the Netherlands (and on time!), why? Because if you do not, the tax man will make an estimate of what they think you owe them and include a fine on top of that. Now that is an even better way to have money disappear other than paying taxes.