How does income tax work

For the Immigrant from South Africa and other countries … a small overview to describe how the Dutch income tax system works

Let’s start with a perspective from an employment with a monthly salary.

When earning a monthly salary, your employer withholds the P.A.Y.E (salary tax) from your gross salary and pays this to the Belastingdienst monthly. When your employer withholds the correct amount every month according the national ‘white table’, your annual income tax return will show a zero return.
If your employer withholds too little, you must pay extra in your annual income tax return, and if withheld too much, you will receive a refund.

The Income Tax Public Platform

Important; you cannot file your Income Tax for the year of your arrival and registration on this platform. You first need to complete the M Form.

Your tax return and many interesting tax deductibles

  1. When you buy a house, mortgage costs.
  2. Interest on your mortgage or loan.
  3. A claim for travel costs single distance home-work not reimbursed by your employer or only partly reimbursed.
  4. Medical costs not been covered by your commercial health insurance, note: not the own risk amount !!!
  5. Donations to a AMBI foundation.
  6. And more…..

The 30% Ruling

Having the 30% ruling means that your nett salary is higher due to your employers grant of tax-free allowance equivalent to 30% of the gross salary. Your Income tax has no effect on the 30% ruling because your PAYE is not affected by this ruling.

The 3 Boxes of the Income Tax system

Box 1

Tax on income from work and home ownership

Income from work includes:

  • Salary or business profits ( freelancer) ; ( see section ‘Income in Netherlands’ & ‘Business opportunity’ ).
  • Benefit, pension, annuities and maintenance payments.
  • Income from abroad;  ( see ‘section ‘Income in Netherlands’).
  • income earned as  childminder, artist or professional athlete.

Income from Home ( ownership):

  • The WOZ value income, deductible mortgage interest and home purchase cost one-off.

Income in box 1 is taxed at a progressive rate with four tax brackets. Once you have reached the state pension age, a special rate applies.

Box 2

You pay tax on any substantial interests.

You have a substantial interest if you, or you and a tax partner together, own at least 5% of the shares, options or profit-sharing certificates in a company. You pay 25% tax on income from substantial interests.

Box 3

You pay tax on income from your wealth.

You pay tax on income from your wealth, including savings, shares and a second home. It is calculated as the value of all assets (such as savings and shares) minus any debts.