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New Dutch government planning to reform the tax system

New Dutch government planning to reform the tax system

The new Dutch government is planning on putting a new tax system in place in 2019, if the Dutch tax office (Belastingdienst) can handle it.

The current Dutch tax system

Currently, there are 4 tax brackets in the Dutch tax system and the percentage of tax you pay depends on your earnings per year.

If you have a yearly taxable income of up to 19.981 euros, then you fall under the first tax bracket and will pay 36,55 percent in tax. The next bracket concerns those earning 19.982 euros up to 33.790 euros. In this case, the tax applied is 40,8 percent.

In bracket three, the same tax, 40,8 percent, is applied to earnings of up to 67.071 euros. Those earning above 67.071 euros fall under the last tax bracket and pay 52 percent of their salary in tax to the Dutch tax office.

Many expats in the Netherlands fall under a slightly different tax rule, namely the 30% ruling. However, in order to take advantage of this ruling, you must meet certain requirements.

Proposed Dutch tax system

The incoming Dutch government wants to move to a system with only two tax brackets instead of four. In the proposed tax system, the first three tax brackets will merge into one, and those earning up to 68.000 euros will be taxed 37 percent. Those earning above this amount will be taxed 49,5 percent.

The new system is especially beneficial for middle to high-income earners, as those on a middle-income can profit from lower tax rates for longer, and high-income earners see a reduced tax rate. 

Employers also see an advantage to the proposed system, as employees with a higher income are less likely to ask for a raise.

Realising a two-bracket system

In order to realise such a tax system, the Dutch government is looking at increasing value-added tax (BTW) to cover a net decrease in tax of five billion euros. This will mean a price increase for groceries and energy bills, but how much is yet to be disclosed.

Other measures, such as cuts to tax deductions for mortgages in the Netherlands, are yet to be decided upon.

 

Mina

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Mina Solanki

British girl living in the Netherlands, enjoying the sun *coughs*, I mean rain, and filling her time with adventures.

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COMMENTS

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Chris Coutinho 16:41 | 3 October 2017

Howdy Mina, Could you add a link/source to the original Dutch document you're referencing here regarding the change in taxation? I'm having trouble finding it. Was this from the Prinsjesdag announcement? Thanks in advance

minasolanki 10:43 | 4 October 2017

Howdy Chris, This wasn't from the Prinsjesdag announcement; it has been mentioned in various news sources. On NOS you can also read about the plans: https://nos.nl/artikel/2195407-nieuw-kabinet-wil-belastingen-met-5-miljard-verlagen.html Hope this helps!

SureshSuresht 13:27 | 22 August 2018

But I saw the calculation of tax for 2019 and there is not much increase in salary. When i looked into more details it is due to the reduction in tax credits. What I don't understand is, when you reduce tax and reduce credits as well then what is the point in claiming that they are doing something good to increase net pay. On top of this, the monthly bills will be expensive due to increase in BTW. The minor increase in netto salary will not be enough to cover the increase in monthly bills. In short, this is just wasting time and creating employment within tax office. Please correct me if I got it wrong. What do you think?

Anando Kumar Paul 21:58 | 21 September 2018

Hi Mina, This is a nicely explained article. Can you please tell me if a person earns i.e. 88K then what will be his tax brackets for 2019? 68K with 37% and 20K with 49.5% or 88K with 49.5% Thanks in advance.