Expert Expat Tax Tips for the Netherlands

The Netherlands is a popular destination for expatriates from the UK for a number of reasons; firstly the fact that the Netherlands is so geographically close to Britain makes it appealing for those who will be working abroad but perhaps leaving their family behind.  Secondly the Dutch are very welcoming, and typically us Brits get on very well with our Dutch neighbours.

A further reason why going to work in the Netherlands is an appealing option for many expats is because there are solid and professional employment contracts available still, even in these tough economic times, and the business language there is English.  However, tax in the Netherlands is even higher than in the UK – for certain people, depending on how much they earn.  So, if you’re planning on relocating one of the first things that you should really dig into before you go, but the one thing you’re probably postponing because there are more pleasant things to do, is understanding how you will be taxed in the Netherlands.

This article contains expert expat tax tips for the Netherlands from Balthazar Tax Consulting, a tax consultancy that specialises in advising foreign companies and individuals who invest or work in or via the Netherlands.  It makes for essential reading for anyone contemplating a move to the Netherlands because if you know what you’re doing, and it turns out that you are eligible, you may well be able to get your hands on a special expat tax reduction!

When you’re planning to live and work in the Netherlands it is inevitable that you will have to deal with Dutch taxation.  As a resident of the Netherlands you will be a resident taxpayer for Dutch tax purposes, which means that your worldwide income will be subject to tax in the Netherlands.

As an expat, two Dutch taxes will likely apply to you: payroll tax and personal income tax.

Dutch Payroll Tax

In most cases your salary will be subject to Dutch payroll tax.  Your employer withholds this tax on your salary and files the payroll tax returns.  Thus, your employer takes care of all the requirements to pay this tax for you.

The Dutch payroll tax is an advance levy to the Dutch personal income tax.  This means that the Dutch payroll tax withheld by the employer reduces the amount of personal income tax to be levied.

The 2009 Dutch payroll tax rate for individuals will be applied at 33.5% for the taxable amount up to and including EUR 17,878.  For the amount of EUR 17,879 up to and including EUR 54,776, the Dutch payroll tax rate will be 42%.  For the excess taxable amount the rate will be applied at 52% (a scary figure I’m sure you will agree, and one that knocks Mr. Darling’s 50% into perspective!)  These percentages include the Dutch social security contributions that are levied too though, so you don’t have the equivalent of NI on top.  See, the Dutch aren’t quite as sneaky about their taxes as our own dear Chancellor!

Personal Income Tax in The Netherlands

The salary you receive as a resident of the Netherlands will be subject to Dutch personal income tax as well.  However, when Dutch payroll tax has been withheld on your wage, you will in most cases not have to pay any or only very little personal income tax on top.  Which is a relief!  This is because the Dutch payroll tax is an advance levy to the Dutch personal income tax, and as such, the former reduces the amount of personal income tax to be paid.  In some cases you are even able to claim a payroll tax refund because certain exemptions apply to you.

The Dutch personal income tax rates on your wage are exactly the same as the Dutch payroll tax rates (see above).

Any savings or investments you have when you are a resident of the Netherlands will also be subject to personal income tax.  The personal income tax on savings and investments is levied over the fair market value of such savings and investments at a rate of 1.2% per year (for 2009).  When the fair market value of your savings and investments does not exceed EUR 20,315 (for 2009), you are exempt from paying personal income tax on any of your savings and investments.

Each year you need to file a personal income tax return to report the amount of tax due.  The filing date of the tax return is 3 months after the calendar year-end, and we’d recommend you get a Dutch based tax assistant to assist you, because these guys will be able to make you aware of any ways you can legitimately reduce your taxation liability.

Furthermore, as an expatriate living in the Netherlands you will, in most cases, be able to reduce the amount of Dutch personal income tax due via applying for a so-called ’30% tax ruling. 

Now this is where it gets interesting!

What is the 30% Dutch Tax Ruling for Expats and Why is it So Cool?

The 30% tax ruling is an incentive introduced by the Dutch government to attract skilled expats to the Netherlands.  When the 30% ruling applies, 30% of your salary will be exempt from Dutch tax (i.e. payroll tax and personal income tax).  In addition, your savings and investments will be exempt from Dutch tax when you apply for such exemption in your personal income tax return.

The 30% tax ruling is a very attractive incentive for expats and can be relatively easily obtained from the Dutch tax authorities.  You may apply for the 30% ruling when you have specific skills that are rare on the Dutch labour market – you can usually get it if you are well educated and/or have sufficient professional and high level working experience.

As the 30% tax ruling is a very attractive incentive for expats going to live and work in the Netherlands, it is recommended that every expat has it investigated whether or not he or she can obtain the 30% tax ruling before they relocate.  After all, you don’t want to assume you can benefit from it and then discover that you can’t and that you’ll be taxed up to 52%!

Again, we’d suggest you enlist the services of professional taxation specialists in the Netherlands to advise you, and the information contained in this article was supplied by Balthazar Tax Consulting, who are available for any questions you have about expat taxation in the Netherlands.