Navigating the complex landscape of tax regulations, especially for expats, is critical to living abroad.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me ([email protected]) or WhatsApp (+44-7393-450-837).
As the global landscape evolves, so do the tax policies of individual nations.
Netherlands Income Tax
According to the Netherlands tax system, the Netherlands income tax for residents applies to their worldwide income.
Whereas non-residents are only required to pay taxes on specific sources from the Netherlands, including:
- Employment Income
- Business Income
- Director’s Fees
- Income from Dutch Immovable Property
Under the Netherlands tax system, global income is categorized into three taxable income boxes, each taxed separately.
Box 1 covers income from work and home ownership, featuring progressive rates for 2024 at 9.32%, 36.97%, and 49.50%.
Box 2, for substantial interest income, is taxed at a flat rate of 26.9%, with 2024 adjustments introducing new brackets.
Box 3, covering savings and investment income, is taxed at a flat rate of 36%. Notably, the Netherlands income tax doesn’t apply at a local level.
The Netherlands tax return due date is on May 1 and the Netherlands tax year is 1st Jan to 31st Dec.
Netherlands Tax Rates for Foreigners
The Netherlands tax rates for foreigners, i.e., expat taxes are complex and expats who are resident taxpayers can opt for being considered non-residents.
For eligible non-resident individuals falling under the Qualifying Non-Resident Taxpayer category, certain deductions and benefits, including the Netherlands expat tax benefit, become available.
Conditions for non-residents include:
- Having 90% or more of their income subject to Dutch wage and income tax
- Residing in specific regions
- A catch-all provision for scenarios not meeting the 90% threshold
Despite potential exceptions, non-residents can apply for personal allowances according to European law.
Additionally, non-residents must submit income declarations to their country of residence’s tax authorities.
The ‘30% ruling’ allowed resident taxpayers to elect partial non-resident treatment, applying to Box 1 and receiving personal deductions and credits.
However, this provision is set to be abolished in 2025, with a transitional arrangement for expats using it until the end of 2026.
Changes Made to the Netherlands Tax for Expats
Employers and employees can opt for a practical approach, designating up to 30% of the employee’s salary as a fixed tax-free reimbursement for extraterritorial expenses under the 30% ruling.
This not only benefits the employee by receiving 30% of the agreed salary tax-free but also benefits the employer, by allowing a higher net salary without additional costs and exempting social security contributions on the 30% tax-free portion.
The 30%-ruling, however, has specific conditions.
Employees must be hired from abroad, have a taxable salary exceeding certain thresholds, and have lived outside the Netherlands in the two years preceding employment.
If conditions are met, the ruling can be applied via Dutch payroll for a maximum of 5 years.
During this, the salary is formally reduced, with at least 70% subject to Dutch wage tax and social security contributions, and at most 30% as a tax-free allowance.
However, changes effective from 2024 will cap the 30%-ruling application to taxable wages up to €233,000.
Any payments beyond this amount will not qualify for the ruling, capping the maximum tax-free amount at €69,900 in 2024.
Transitional legislation protects employees who applied the ruling in December 2022 from the cap until 2026.
Proposed changes include reductions in the tax-free percentage over time and the elimination of the option to be treated as a partial non-Dutch tax resident from 2025, though these proposals are not finalized.
Seeking tax advice from an advisor for taxes in Netherlands is recommended due to uncertainties surrounding these changes.
The exact Netherlands tax rate will vary based on certain conditions like deductions, treaties, and so on.
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