Taxes in the Netherlands in 2020 - What's changing?

Here is a round-up of the main tax changes for 2020 and how they will affect your finances.

1. Fewer tax brackets

This year, the tax office will only work with two tax brackets (it was three). Earnings up to €68.507 will be taxed at 37,35%, while earnings over that limit will be taxed at 49,5%. As both rates have come down, a lot of people will benefit from higher net salaries.

2. Tax credits will go up

The tax credit on work and the general tax credit applied to everyone will go up, again boosting your take-home pay. People earning between €20.000 and the € 35.000 will benefit the most from the increase.

3. Electric car tax breaks

Electric cars will continue to be free from vehicle tax (motorrijtuigenbelasting) up to 2025, but next year company car drivers will pay more if they use their cars for private use. Drivers who have an electric car with a catalogue value of under €45.000 will have to pay tax on 8% of the value of their car rather than 4%, as it was this year. More expensive electric cars will be treated the same as petrol and diesel cars, with a 22% tax rate.

4. Child benefits

Middle-income families will be able to claim higher child benefits and new fathers will be able to take five weeks parental leave, paid at 70% of their current salary.

5. Tax breaks for the self-employed

The self-employed tax break will be lowered from €7.280 to €7.030 next year, as the government starts the slow process of cutting the deduction down to €5.000 by 2028. This means that those who are self-employed will pay slightly more tax, although this may be offset by other changes to the income tax system.

6. Study expenses

2020 will probably be the last year you can claim your study expenses as a deduction on your income tax return. From 2021 and onwards, the Dutch government will grant people a subsidy for certain studies instead of the tax break given in previous years.

7. Small business scheme

On January 1, 2020, the Dutch VAT rules for smaller businesses (in Dutch: “Kleine ondernemersregeling” or “KOR”) will be amended. Today, entrepreneurs may only qualify for this so-called smaller businesses scheme if their Dutch VAT payable is below € 1.883 per calendar year.

Now, the new rule will have a more general and discretionary exemption. The new rule entails a full exemption and will apply to a maximum turnover of € 20.000 per annum, instead of the VAT payable. If an entrepreneur successfully applies for the new KOR, they will not have to charge VAT. The flip side to this is that any VAT charged to the entrepreneur cannot be deducted.

8. Lease bikes

The ministry has announced that changes will be made to the use of lease bicycles and electric bicycles. This is to stimulate the use of them.

From 2020, employees will have the possibility to drive not only a company car but also a company bicycle, or both. The employee will no longer have to deal with calculating the kilometres they make via private use of the bike. Instead, they will be able to add 7% of the recommended price of the bicycle (new model) to their taxable income over a period of several years.