Tax time in the Netherlands: Annual tax return

All your Dutch friends and colleagues are getting nervous, with people talking about April 1 as being D-day, gathering pay slips, annual statements and bank reports... What is going on?

Well, it’s tax time in the Netherlands!

Filing a Dutch tax return

The Dutch tax year runs from January 1 till December 31. The tax office sends out letters, generally in the last week of January, to invite people to submit their tax return. The filing deadline for the 2013 tax year is April 1, 2014.

If you haven’t received a letter

You are obliged to submit a tax return if you have received an invitation or, if you haven’t received an invitation, if you know that you have income and or assets that need to be reported.

In this case, you need to ask the tax office to invite you to file the return. This invitation will include a filing date that is at least four weeks after the date that the invitation was issued.

Tax filing extension

If you are not able to gather all your documents in time, you can apply for an extension. You have to apply for the extension before April 1 and you will be granted one until September 1.

If you use an intermediary to submit your return, they will most likely receive an extension for a period of 12 months.

How to file your return

A return can only be submitted electronically. You can download the software programme from the tax office’s website, buy software or enlist the services of tax advisor, who submits the return on your behalf.

The advantage of the program from the tax office is that it will already have the information provided to the tax office by your employer and bank(s). However, it is still important to check if this information is correct, as you can’t derive rights from this partly pre-filled return.

The downside is that the program is only available in Dutch. For those who arrived in or departed from the Netherlands during the course of the year, their return has to be submitted on paper.

The Dutch income tax system

In the Dutch income tax system there are three categories of taxable income with their own rate:
- Box 1: taxable income from work and dwellings
- Box 2: taxable income from substantial interest
- Box 3: taxable income from savings and investments

The income tax payable is the aggregate amount of the tax on the taxable income in the three boxes:

› Box 1

The tax on taxable income for income from work and dwellings (Box 1) is:

- First bracket: 36,25 per cent on the first 19.645 euros (this rate comprises 5,10 per cent tax and 31,15 per cent social security contributions)

- Second bracket: 42 per cent on the next 13.718 euros (this rate comprises of 10,85 per cent tax and 31,15 per cent social security contributions)

- Third bracket: 42 per cent tax on the next 23.168 euros

- Fourth bracket: 52 per cent tax on the excess

Taxable income from work & dwellings (Box 1)

Taxable income from work and dwellings is the aggregate amount of:
- taxable wages
- taxable income from an owner-occupied dwelling
- taxable income from other activities (such as freelance income, payments for services and income from copyrights)
- expenditure for income provision (such as the premium for retirement annuities; these are tax deductible)
- personal deductions (this deduction may partly run over into Boxes 2 and 3)

› Box 2

Taxable income from a substantial interest in a legal entity is taxed at a flat rate of 25 per cent.

Taxable income from a substantial interest (Box 2)

A taxpayer is regarded as having a substantial interest in a company if he (alone or together with his partner) holds, directly or indirectly, at least 5 per cent of the shares in a B.V.

› Box 3

The tax levied on income from savings and investments is based on the assumption that a taxable yield of 4 per cent is made on the net assets, irrespective of the actual yield (such as interest, dividend, capital gains and losses). The yield of 4 per cent is taxed at a flat rate of 30 per cent.

Taxable income from savings and investments (Box 3)

Examples of assets and debts that fall in Box 3:
- savings
- a second home or a rental property
- shares and other securities
- consumer loans
- debts that do not belong in either Box 1 or 2.

The net assets (the fair market value of the assets after the deduction of the fair market value of the debts) are taxed at the value of January 1 of that particular calendar year.

In Box 3 taxpayers are entitled to a tax-free threshold of 21.139 euros (tax-exempt capital).

Personal allowances

Tax payers are entitled to deduct personal allowances. The following personal allowances are accepted:
- alimony (spousal support) payments
- fixed deduction for child support for children who are not part of your household
- donations to charity
- cost of maintenance for a monument building
- expenses for study to improve your opportunities in the Dutch labour market
- specific health care expenses

Every allowance has its own limits and thresholds.

Tax credits

Once the total tax liability is calculated, the amount will be lowered with tax credits. The most common credits are:
- general tax credit
- employment tax credit
- working parents credit
- single parent credit

The general tax credit and the employment tax credit are most likely taken into account on your pay slip, whereas the working parents credit and the single parent credit need to be claimed in your income tax return.

First year’s return

If you came to live or work in the Netherlands or left the Netherlands in the course of the year, then filing a tax return may well be advantageous for you.

Dutch wage and income tax is calculated on the basis of the four progressive tax brackets. The higher your income, the higher your tax bracket.

The wage tax that is withheld at source from your salary is levied on the basis of your estimated annual salary, which is then calculated back to a monthly amount.

Therefore, if you only worked for half of the year in the Netherlands, your gross annual salary will be lower than estimated. The amount of wage tax withheld will therefore be too high. An income tax return will result in a rebate of this wage tax.

In addition, the largest portion of the first and second tax brackets consists of national insurance contributions. If you have only lived and worked for part of the year in the Netherlands, you may be exempt from national insurance contributions for the full year of part of the year. 
 

Patricia van der Hut is a partner at Broadstreet, providing specialist tax and accountancy services to expats.