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Expat Taxes in the Netherlands

Expat Taxes in the Netherlands

The Dutch workforce is made of a large percentage of foreign employees, mostly from other EU countries, however, non-EU residents also find it quite appealing to work here. Partially, expats choose to work in the Netherlands thanks to the taxation system which is quite unique in Europe when it comes to the benefits provided to foreign employees.

The expat tax in the Netherlands is thoroughly explained in the article below. Also, if you are interested in opening a company in the Netherlands, our specialist in company formation are at your service.

How are foreign citizens taxed in the Netherlands?

The taxation of foreign citizens in the Netherlands implies paying the same levies as Dutch citizens, the only difference being that the former will only be taxed on the income they obtain here.

When it comes to the Netherlands and the tax rates of foreigners, these are not different from those applies to Dutch citizens and permanent residents, however, there are several aspects related to benefits for foreign citizens.

An important thing to consider when paying taxes as a foreign citizen in the Netherlands or any other country is related to double taxation. In the case of the Netherlands, foreigners are required to file income statements here and in their home countries.

One of the most important aspects to consider about the expat tax in the Netherlands is that it is based on the Box system.

Our Dutch company formation specialists can provide information on how hiring foreign employees can help business owners.

Expat incomes subject to taxation in the Netherlands

The following incomes generated by foreign citizens in the Netherlands are taxed here:

  1. income obtained through employment, which is based on a gross and net amount,
  2. the payroll tax which derives from the salary of foreign employees,
  3. various contributions for pension, healthcare and unemployment,
  4. income from investments and real estate ownership,
  5. other taxes related to owning various assets in the Netherlands.

The most important thing to consider about the Netherlands and the tax rates for foreigners is that there is a special provision called th3 30% tax ruling under which foreign employees are exempt from paying 30% of their salary taxes. However, there are several conditions to be met. These are:

  • – the employees must have been recruited from outside the Netherlands (they must have not lived here prior to getting hired);
  • – their work contracts are temporary.

You can rely on us for accounting services and obtain most of the benefits applicable to expats paying taxes in the Netherlands.

The income levy applied as an expat tax in the Netherlands

Foreign and Dutch citizens must pay the income tax in the Netherlands if they work or complete other activities here.

Foreigners who work here must pay the income tax on the income they make here based on the tax declarations they file with the Dutch authorities. They are required to file annual tax returns under the Box taxation system based on which they will pay the due amount of money. However, considering that the Netherlands offers preferential tax rates for foreigners under certain rules, including double tax treaties, the amounts paid by expats can be lower.

Those who are employees will pay the wage tax which is usually withheld by the employer. This levy is part of the payroll tax and foreign citizens need not worry about it.

However, there are also many foreign citizens working as self-employed in the Netherlands, case in which these must compute and pay the income tax based on the information provided in their tax returns.

No matter if you have been living in the Netherlands for several years or have just arrived, if you need guidance, our accountants here can help you determine the expat taxes you are due.

If you are a sole enterpriser interested in opening a company in the Netherlands, we also have tailored solutions for you.

The expat tax in the Netherlands and the Box system

Taxation in the Netherlands is the same for local and foreign citizens in the sense that they need to file their tax returns in accordance with the Box system.

The system uses 3 boxes corresponding to income from employment and real estate ownership (Box 1), interests and income obtained from ownership in companies (Box 2), savings (Box 3). A foreigner must check the box related to the types of income obtained (they can check one, two, or all boxes, if necessary).

Based on the boxes checked, the Netherlands tax rates for foreigners are computed, however, at the same time, they are also provided with information about the deductions and reductions they can benefit from. These are also known as tax allowances, and in this country, expats can benefit from:

  • – work-related costs,
  • – travel expenses,
  • – housing and even daily expenses.

In order to benefit from all these allowances, a foreign citizen is required to register with the Dutch tax authorities.

For information how to register with the authorities in the Netherlands, you can obtain information from our company registration advisors. Here is a video on this subject:

Tax rates for foreigners in the Netherlands

In the Netherlands, the tax rates for foreigners are the same as for Dutch citizens and permanent residents and imply the following:

  • – the income tax is levied progressively and starts at 8.90%*,
  • – the maximum rate is set at 51.75*,
  • – under the Box 2 income, the rate is 25%,
  • – under the Box 3, the income rate is 30%.

*The rates expressed above are available for 2020 and are subject to slight changes on a yearly basis due to the variations of employment incomes.

Also, it should be noted that starting with 2019, the 30% ruling will be available for 5 years. For 2020 and 2021 a transitional arrangement is in place.

Filing annual tax returns as an expat in the Netherlands

When it comes to foreigners in the Netherlands and the expat tax they need to pay, it is important to file annual returns even after the wage tax has been withheld. This happens because the wage levy is retained from the gross salary as an advance tax or direct payment, which why one must still file a tax return. However, the Dutch system is very well regulated, and the local tax office will send out notifications on the returns that must be filed.

One of the main reasons for which tax returns still need to be submitted is that through them, advance payments will be reconciled with the remaining one. For example, a Dutch tax return can also contain the following information:

  • – the foreign citizen’s spouse or civil partner’s income;
  • – mortgage payments (if any);
  • – savings and other amounts of money from various investments;
  • – study and healthcare costs.

Studies and healthcare-related expenses can be deducted by Dutch taxpayers.

The Dutch taxation may seem difficult to understand because of the many boxes one must check when filing tax returns, especially when it comes to individuals.

Also, it should be noted that Dutch citizens, residents, and expats must file their tax returns anytime between March 1st and April 30th. Extensions can also be obtained by May 1st to avoid penalties. For this purpose, we kindly invite you to discuss with our specialists who can also help you file for extensions, if necessary.

Considering that in the Netherlands the tax rates for foreigners suffer minor changes on a yearly basis, it is best to work with local accountants who can provide updated information and guidance throughout the entire year.

The 30% ruling as an expat tax deduction in the Netherlands

The Netherlands offers various tax benefits to expats, among which the 30% ruling which is an incentive granted to foreign employees hired by Dutch companies. In order to obtain it, both the employee and employer must meet certain conditions.

The employee must be a skilled person and must have never worked in the Netherlands before, while the company hiring him or her must recruit one directly from his/her country of origin.

This benefit is computed based on the gross yearly salary from which 30% is deducted from the income tax paid by the expat. Moreover, other allowances, bonuses and benefits can also enter this rule.

In 2019, the 30% ruling suffered a small change – its duration is now of 5 years.

If you want to take advantage of this rule under the Netherlands reduced tax rates for foreigners, you can talk to our specialists.

Expats and the Netherlands’ double tax treaties

The Netherlands is not only a great country to start a business in, but also to work in thanks to the important number of double tax treaties it has signed over the years. Now, the Netherlands has more than 90 such agreements under which expats and business owners can benefit from tax deductions and exemptions.

If you are a foreigner and want to know more about the expat tax in the Netherlands under a double tax convention, our dedicated team of accountants can help you.

You can rely on us for various services ranging from the simplest ones to more complex ones, among which tailored support provided to foreigners who need more attention from an accounting point of view.

If you need information about the expat tax in the Netherlands, you can rely on our specialists who can help you calculate it. You can also request our company registration services in the Netherlands, so do not hesitate to contact us.