Filing your Dutch taxes: The 2019 update
The new tax rules per January 1, 2019, are meant to increase the average spending budget. This sounds good, but it is still worth checking if you can save more money on taxes. Read this tax update by J.C. Suurmond & zn. to make sure your 2018 tax return is optimised and you are aware of the 2019 changes.
Why you should always check if filing your tax return is beneficial
Are you relieved that you haven’t received a tax office invitation from the Belastingdienst to file a Dutch tax return? That may not be smart because it might pay off to file your taxes anyway! It is quite possible that you can claim money back, especially in your migration year and if you have a higher than average income.
Furthermore, expats often have more tax deduction possibilities than Dutch taxpayers. But to make use of these, you will have to file a tax return. It is possible to file your tax returns up to five years retroactively (so, 2014).
Will the changes to the 30% ruling have an impact on your tax return?
The initial Dutch government plan to cut the 30% ruling period from 8 to 5 years without a transition period for current expats caused great turmoil. The result of the many protests is that if you are already making use of this favourable ruling, it will now terminate after 5 years unless this period is reached in 2019 or 2020. In this case, the 30% ruling will terminate as per the original 30% ruling decision or at the latest, January 1, 2021.
This means that the 30% ruling period change will, most likely, not affect your 2018 tax return, unless you reached the end of your 8 years in 2018.
Why you should declare your foreign assets
When the 30% ruling comes to an end, you will have to declare your worldwide assets on your Dutch tax return, because without the 30% ruling you will no longer be able to opt for partial non-domestic taxation. You may be able to request double taxation deduction on foreign property.
Generally, taxpayers that have been making use of the 30% ruling for a number of years are somewhat uncomfortable about suddenly mentioning their assets on the Dutch tax return, especially the foreign ones.
However, it is very important to do this correctly, as the Dutch tax authorities are proactively seeking non-declared assets in foreign bank accounts. You will be risking a fine of up to 300% if you “forget” to mention them on your tax return.
On the tax return, assets are taxed in “box 3”. Withheld dividend tax or tax on interest can be (partially) reclaimed. The tax-free threshold for box 3 has been increased slightly from 30.000 to 30.360 euros per person (60.720 euros for fiscal partners).
Box 3 rates
The box 3 rates also changed in 2019. The first bracket (up to 71.650 euros) will be taxed at 0,58% (2018: 0,6%). The second bracket (71.650 - 989.736 euros) will be taxed at 1,34% (2018: 1,3%). The third bracket (989.736+ euros) will be taxed at 1,68% (2018: 1,61%).
Will the income tax system changes affect you?
Income from salary, pension etc. is taxed in box 1. The tax rate of box 1 depends on your income. There are four tax brackets with different percentages per income group. However, in 2019, changes have been introduced which will lead to a two-bracket system in 2021. The idea is that working must bring more profit. People with an income between 20.000 and 68.000 euros are meant to benefit the most from the new tax system.
These bracket changes do not yet apply to the 2018 tax return, but it is good to be prepared for the future. If you have a gross salary of 65.000 euros, your net salary will increase by 1.205 euros in 2019, and 1.565 euros in 2021.
Will you receive the same amount of mortgage interest tax deduction?
If you are going to be living here for a longer period, buying a house is often more favourable than renting. The interest rate for mortgages in the Netherlands is still at its lowest. The mortgage on your primary residence, as well as mortgage-related expenses, is tax deductible, although this tax deduction will be limited. People with an income below 68.507 euros will not be affected by this measure.
The mortgage interest tax deduction will ultimately no longer be deductible at the top tax rate. This change will take effect over the coming years, starting in 2019. Eventually, deductions will then take place at the base rate of 37,05%. In 2018, the maximum rate at which mortgage interest can be deducted is 49,50%. This will be gradually reduced from 49% in 2019 to 37,05% in 2023.
Are there other deductions that you can make use of?
Tax deductions such as gifts to charities, alimony, business facilities and study costs will ultimately no longer be deductible at the top tax rate as described above. In 2018, the tax rate for these tax deductions is 51,95%. This will also decrease to 37,05% in 2023. So, deductions this year and next year will lead to a higher refund than deductions in later years. Something to keep in mind!
Owning a second home in the Netherlands
Although not directly related to the 2019 tax changes, this is an interesting tax return topic for expats. Real estate is one of the items that is not always taxed under the same "Box" or category. If you have a property that you live in, this is taxed in Box 1. Under the Box 1 regime, mortgage interest is deductible; a threshold amount applies based on the value of your house.
If you own a property that you do not live in, for example, a property that is rented out, this is taxed in Box 3. In Box 3, the net value (the property value minus the mortgage) is taxed as an asset. For foreign real estate, you should request "double taxation deduction".
Real estate is also an item that is (almost) always taxed in the country where it is located. So, if you own a house in the Netherlands, this remains taxable here even when you move abroad. In that case, there are also possibilities to keep this item taxed in Box 1 rather than Box 3.
What about the levy rebates change?
The system which once knew mainly fixed levy rebates has now changed into a system which encourages earning a moderate employment income. Generally, it will have a positive effect on the levy rebates if you have an income (employment) between 20.000 and 60.000 euros. The general levy rebate decreases as the income increases. Once your income reaches approx. 100.000 euros, most levy rebates will have decreased to nil.
- The general levy rebate (algemene heffingskorting) will be increased from 2019 till 2021 for people with an income of up to 50.000 euros
- The old age rebate will increase
- The employment rebate will increase from 2019 till 2021, which is supposed to make working more profitable for people with an income between 20.000 and 60.000 euros.
- The payment of the levy rebate to the non-working spouse will be decreased further.
Please note that levy rebates are automatically calculated by your employer or payroll company.
What do you need to know if you own a business?
The Dutch government wants to make the Dutch business climate more attractive and has taken a few measures.
Corporate income tax
The corporate income tax for profit above 200.000 euros will be decreased step by step from 25% to 20,5% in 2021. For profit under 200.000 euros, the corporate income tax will be decreased from 20% to 15% in 2021. Business owners with a business in the form of a sole proprietorship (eenmanszaak) or partnership (VOF) profit from the lower income tax rates. However, for businesses in the high tax bracket, this advantage is largely undone by the fact that business facilities are only deductible at the lower tax rate.
Box 2 rate
The box 2 rate, which is applied when taking dividends out of your company, will be increased from 25% to 26,9%. This will partly compensate for the reduction of the corporate income tax. These changes will take place over a period of three years, starting from 2019. Although the box 2 rate over dividends will be somewhat increased, balance taxes for shareholders of BV companies are becoming considerably lower.
Especially for higher profits, the BV will soon become more favourable than a sole proprietorship.
Want to gain maximum tax benefit?
Do you want to be 100% sure on how to file your Dutch tax return? Consult a trustworthy tax advisor and save yourself time, money and worry!
Lennart Suurmond is a tax advisor at J.C. Suurmond & zn. Tax consultants. Need advice on the best way to file your 2018 tax return? Contact them now!