Taxation is an important matter when deciding to move to a foreign country. This principle also applies in the Netherlands, however, the government here has made important changes in the tax system once the number of immigrants has started to grow. Not only did this attract skilled employees, but also businesspersons who helped with the development of the economy.

In the Netherlands, taxation is based on progressive levies in the case of natural persons, and two thresholds in the case of companies.

Below, our company formation specialists in the Netherlands explain how the tax bracket system works in this country. If you need advice on taxation or business registration, you can rely on us.

Taxation in the Netherlands

The income tax is the most important levy in the Netherlands and is imposed on both natural persons and companies, under the form of the personal income tax, respectively the corporate tax. The rates applied to each category of taxpayer depend on the earnings generated during the year and is levied based on specific tax brackets.

We offer assistance in various taxation matters, however, you can also rely on us if you want to open a company in the Netherlands. We recommend the Dutch startup which benefits from special tax advantages when formed as a limited liability company.

Here is our infographic on tax brackets in the Netherlands:

Personal income tax brackets in the Netherlands

Natural persons are levied the income tax under several brackets which are also based on whether the taxpayer is a resident of the Netherlands or not. Also, the taxation of individuals relies on the Box System which implies checking one or more of the 3 boxes determining the type of income to be taxed.

The first box should be checked by those who obtain income from:

- employment;
- real estate property which is occupied by the owner;
- various benefits related to income.

The second box should be checked by persons who obtain income from interests, such as company share ownership. Finally, the third box should be checked by natural persons obtaining income from investments and savings.

We remind Dutch residents that they can check the boxes fitting their situations. This way, it will be easy for them to determine the tax brackets they enter into.

Tax brackets under Box 1

It should be noted that while the tax rates do not change, the annual income of a taxpayer can vary, which is why the Dutch tax brackets can also be slightly different from year to year.

Those checking Box 1, will be subject to the following tax brackets:

- 36.65% for an annual income ranging between 0 and 27,711 euros;
- 38.10% for annual income ranging between 27,712 euros and 68,507 euros;
- 51.75% for annual income of more than 68,508 euros;
- these rates include de the national insurance premium of 27.65%.

The income presented here is calculated for 2020, which is why for updated information, we recommend you discuss with our Dutch company formation agents.

Tax brackets for Boxes 2 and 3

Those who check Box 2 or 3, or even both should know that there are no tax brackets applied for incomes generated through substantial interests or savings and investments. The income checked in Box 2 is subject to a flat rate of 25%, which that checked in Box 3 is levied at a rate of 30%.

We also provide tailored accounting services for those who need assistance in understanding how to tax bracket system in the Netherlands works.

Non-resident individuals and tax bracket system in the Netherlands

Foreign citizens working or obtaining income from other sources in the Netherlands will be taxed on the earnings they make here only. Apart from the tax brackets that apply under the national taxation system, these can also benefit from various tax exemptions which will decrease the total amount paid by a foreign national in the Netherlands. Among these, the 30% ruling which is available for foreign workers employed by local companies.

We remind foreign citizens from non-EU countries who want to come and work here that they need to apply for work permits with the Immigration and Naturalization Service.

Taxation of companies in the Netherlands

Companies in the Netherlands are subject to the corporate tax on income which is levied under two brackets. The lower rate which is levied on business profits of less than 200,000 euros and which is set at 16.5% and the standard one which is imposed at a rate of 25%. The latter applies to amounts exceeding 200,000 euros.

An important aspect to consider by those who want to open companies in the Netherlands is that starting 2021, the standard corporate tax rate will be lowered to 21.7%, while the reduced one will decrease to 15% next year.

For more information on the tax brackets in the Netherlands, please contact us.

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