Income tax in the Netherlands
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In the Netherlands there is an income tax, which is roughly as follows. The fiscal year is the calendar year. Not later than March citizens have to report their income of the previous year. The system integrates tax with fees paid for the basic old-age pension system AOW, the pension system for partners of deceased people AnW, and the national insurance system for special medical care AWBZ. Below the term "tax" is used for the total. The figures are for 2004.
Three categories of income, each with their own tax tariff, are distinguished. They are referred to as "boxes".
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Progressive tax on wages, etc. (box 1)
There is a progressive tax on wages, profits, social security benefits and pensions.
- Part of the income from EUR 0 to EUR 16,265: 33.4 % of EUR 16,265 is EUR 5,432
- Part of the income from EUR 16,265 to EUR 29,543: 40.35 % of EUR 13,278 is EUR 5,357
- Part of the income from EUR 29,543 to EUR 50,652: 42 % of EUR 21,109 is EUR 8,865
- Above that: 52 %.
Under certain conditions a life annuity is treated as a pension: premiums are deducted from the income, the benefits are taxed, and the scheme is not counted as asset in box 3.
For the value of an owner-occupied dwelling and for mortgage debt related to that, this box and not box 3 applies. Based on the value of the dwelling, a "fixed rentable value" is counted, while interest for the mortgage is deductible. The balance may well be negative, thus making the total income less than e.g. the wages.
An employer may set up an employee savings scheme allowing employees to save up to EUR 613 per year of their wages without paying income tax on that part of their wages, provided that they do not withdraw their savings within four years. The employer pays the income tax, but only a reduced rate of 15 %. During this period the savings are also exempted from the tax of box 3.
For taxpayers aged 65 or older (to be referred to as 65+) reduced rates apply for the first two brackets: 15.5 % and 22.45 %, respectively. The discount of 17.9 % of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries.
For employed and self-employed people there is an employment rebate of up to EUR 1,213 (more for people in the age range 57-64, up to EUR 1,935, less for 65+).
The wage withholding tax is a deduction of wages, social security benefits and pensions, as an advance payment for the income tax, paid through the employer, etc.
Flat tax on income from a substantial business interest (box 2)
There is a flat tax of 25 % on income from a substantial business interest, usually meaning a (direct or indirect) shareholding of at least 5% in a private limited company (BV ).
If the fiscal partner of the taxpayer or a blood relative (first vertical kin) holds a substantial interest in a company, the shares of the taxpayer constitute a substantial interest, even if they do not amount to 5%.
Income from substantial interest includes:
- dividends
- capital gains (except in case of succession and divorce)
Flat tax on savings and investments (box 3)
There is a flat tax on savings and investments of 1.2 % per year. It is nominally part of the income tax, as a 30 % tax on a fixed assumed yield of 4 % of the value of the assets. EUR 19,252 (higher for 65+ with a low income) of the value of the assets is exempted.
In the case of approved "green" investments of up to EUR 51,390 the tax is replaced by a rebate of 1.3 % per year.
Total tax
The total tax is the sum of the taxes in the three boxes, minus EUR 1,825 (EUR 1,266 for 65+). It can be less than zero and paid out, but only if one has a spouse and the tax of both together is not less than zero.