Becoming a Dutch tax resident: Claim your tax deductions

Are you planning to move to the Netherlands, just arrived or living and working here for a while and in need of tax assistance? Taxsight provides tax advice at the highest level.

From the moment you become a Dutch resident, you have to fulfil Dutch tax requirements. In the Netherlands, Dutch residents are taxed on their worldwide income. So, when do you become a Dutch resident and what elements fall under Dutch taxation?

Dutch tax resident

The tax residency of a person is based on facts and circumstances. Your tax residency depends on several factors, such as your permanent home and the country with which you (and your partner and children) have the most economic ties. In general, personal factors hold the most weight.

You become a Dutch tax resident if you relocate to the Netherlands with the intention to live and work here and if you are registered with your local municipality. As a Dutch resident, you have to fulfil the country’s tax obligations, which means you are, most likely, obliged to file your annual personal tax return in the Netherlands.

Your tax residency starts from the moment of immigration. That means that if a person immigrates on July 1 of a certain year, it makes them taxable in the Netherlands as of that moment.

The taxation system in the Netherlands 

In the Dutch income tax system, there are three categories of taxable income; each referred to as a "Box" and each having its own rate:

• Box 1 - Taxable income from work and main residency
• Box 2 - Taxable income from a substantial interest
• Box 3 - Taxable income from savings and investments

This article will delve into box 1 and box 3.

Income (self) employment

The majority of people in the Netherlands are employed by an employer. Employment income is considered a personal taxable income in box 1. Generally, personal income from employment generated by Dutch residents is taxed in the Netherlands.

The taxation of employees in the Netherlands consists of personal income tax and social security premiums. The employer has a withholding obligation for these taxes. On top of that, the employer has to pay employer contributions over the employee’s gross salary.

Therefore, payroll tax will be withheld by the employer. Payroll tax is an advance payment for the personal income tax in box 1.

Personal tax return

Given the fact that payroll tax and social security premiums are withheld by the employer, the personal tax return of the employee doesn’t result in additional taxation for them under normal circumstances.

It is very important that your personal Dutch tax return includes all the income that you generate. It is also good to check whether you have made any tax-deductible costs. Some of the tax-deductible costs are:

• Paid tuition fees
• Donations to certain registered charity funds
• Certain medical expenses which are not covered by healthcare insurance
• Paid premiums for additional private pension could be (partly) deductible
• Premiums paid for your disability insurances (applicable for entrepreneurs)
• Travel expenses to work (if more than 10 kilometres) made with public transport and not fully covered by the employer

First tax return in the Netherlands

For your first year in the Netherlands, the immigration year, you have to file an M-form. This could result in a tax rebate if you were employed in the Netherlands for at least part of the year.

This is due to the fact payroll tax is withheld on the basis of a full year's employment, rather than pro rata. Furthermore, if you have only lived and worked in the Netherlands for a part of the year, you may be partially exempt from national insurance contributions, which could result in a refund.

Self-employed

Self-employed persons, such as sole proprietors, need to take care of their own taxes. They have to declare their profit and loss statement and their balance sheet to the tax office.

Main residency in box 1

If you own a property, and you use it as your main residence, this property is considered a box 1 asset. If your house is financed with a mortgage, the mortgage could qualify for the mortgage interest deduction. The paid interest is deductible after the correction from the WOZ value of the house (value given by the municipality). This mortgage interest deduction is calculated using the applicable tax rate. A lower deduction is applicable if you fall under the highest tax rate. 

Taxable income from savings and investments (Box 3)

Dutch tax law mandates that all Dutch residents with investments, savings or property with a value of more than 30.360 euros (tax partners have a double threshold), need to declare these items in box 3 of their annual personal tax return.

It does not matter where the assets are held. If you have assets outside of the Netherlands, you will also need to declare those.

The net assets (the fair market value of the assets after the deduction of the fair market value of the debts) are valued on the reference date of January 1 of the relating tax year. For the 2019 income tax return, the reference date is January 1, 2019.

Some examples of assets and debts that fall into Box 3 are:

• Savings
• A second home or a let property
• Shares and other securities (if less than 5 percent)

Below are the box 3 rates for 2019. The tax rates after the threshold of 30.360 euros are as follows:

Taxation second houses

Second houses and houses in which you don’t live are normally subject to box 3 taxation. The amount you declare is, in general, the WOZ value minus the mortgage value, if applicable. Property owned on January 1 of a particular year needs to be declared on the income tax return of that year.

Real estate abroad

As a resident taxpayer, you have to report your worldwide savings and investments on your Dutch tax return. However, due to tax treaties, special rules apply for real estate located abroad.

On the basis of most tax treaties, the right to levy tax on real estate is allocated to the country where the real estate is located, rather than the country where the taxpayer is residing. This means that real estate abroad needs to be declared on your Dutch tax return, but on the basis of the tax treaty, Dutch residents are entitled to a double taxation deduction that equals the Dutch tax burden.

30% ruling

Note that if you fall under the 30% ruling, you can opt to be treated as a partial non-resident taxpayer. As a partial non-resident taxpayer, you and your tax partner do not have to pay tax on savings and investments in Box 3. The only exception is real estate, specifically when the property is located in the Netherlands but is not your primary residence. This real estate will have to be declared on your personal income tax return.

Individuals and entrepreneurs can contact Taxsight for tax advice, tax compliance and accountancy. They also assist corporations with their tax matters. Individuals, as well as corporations, can contact the company with their questions regarding the 30% ruling.