Everything You Need To Know About the Netherlands Individual Income Tax in 2022

Netherlands Individual Income Tax guide

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The Netherlands taxes both residents and foreigners on income earned within the Netherlands. Resident taxpayers are taxed on their worldwide income, no matter where it is earned. Foreigners are only taxed on income that is derived from certain sources within the Netherlands, such as employment, director’s fees, business income, or income from Dutch immovable property. The Netherlands individual income tax is a progressive tax system, with tax rates ranging from 9.42% to 49.50%.

There are various tax credits and deductions that can be applied to reduce the amount of tax owed. For example, the Netherlands offers a “foreigners’ tax credit” called “the 30% rule” to certain taxpayers who are not Dutch residents. This credit can effectively reduce the amount of taxes owed by up to 30%. The Netherlands also has a value-added tax (VAT) of 21%, which is levied on most goods and services. However, there are some exceptions, such as for food, books, and housing.

Foreigners who are employed in the Netherlands are typically required to obtain a Dutch Tax Number in order to be able to file their taxes. This number can be obtained from the Tax Office or online. Locals who work for a Dutch employer will already have a Dutch Tax Number and do not need to take any additional steps.

Netherlands Individual income Tax rates

In the Netherlands, income tax rates are divided into three different ‘boxes’ (box 1, box 2 & box 3) based on the type of income. Box 1, which includes salaries and income derived from home ownership, is taxed at a progressive rate ranging from 9.42% to 49.50%. Box 2, which includes dividends & capital gains, is taxed at a fixed rate of 25%. Box 3, which includes investment income and capital gains, is taxed at a progressive rate ranging from 10% to 30%. An individual’s taxable income is based on the aggregate income in these three boxes.

For example, if an individual has an aggregate income of €50,000 in the first and second boxes, they would be taxed at a rate of 52% on the €50,000. However, if they had an aggregate income of €50,000 in the third box, they would be taxed at a rate of 30% on the €50,000. The Netherlands has one of the highest personal income tax rates in Europe.

Box 1: Wages & salaries

BracketTax RateAnnual Taxable Income (EUR)Quick Calculation (EUR)
19.42%Up to 35,4723,341
237.07%Between 35,472 and 69,39812,576
349.50%Over 69,398

Sample Calculation:

Yearly income = 80,000 EUR

Bracket 1: 9.42% * 35,472 = €3,341 on for the first €35,472

Bracket 2: 37.07% * 33,926 = €12,576 tax on the next €33,926

Bracket 3: 49.50% * 10,602 = €5248 tax on the remaining €10,602

Total = 3,341 + 12,576 + 5248 = €21,165 tax due on an annual salary of €80,000

Box 2: Dividends & Capital Gains

All dividends and capital gains are taxed a flat 25% in the Netherlands.

BracketTax RateAnnual Taxable Income (EUR)Quick Calculation (EUR)
125%

Box 3: Savings & Investments

Savings and investments in the Netherlands are taxed at 1.2% per year. Investments made in “green” projects or companies can apply for exemption from the Box 3 1.2% tax (up to €56,420). This exemption also qualifies for a tax credit of 0.7% of the “green” investment which is unusable only in Box 3. 

BracketTax RateAnnual Taxable Income (EUR)Quick Calculation (EUR)
11.2%

Tax Residency in the Netherlands

Netherlands tax residency is governed by the Residence Act, which sets out the conditions under which an individual is considered to be a resident of the Netherlands for tax purposes. An individual is considered to be a resident if they have a home in the Netherlands, or if they have their main place of work or business in the Netherlands. An individual is also considered to be a resident if they have a spouse or partner who is a resident of the Netherlands.

If an individual does not meet any of these criteria, they may still be considered a resident if they have significant personal or economic ties to the Netherlands. Non-residents are only subject to income tax on income derived from Netherlands sources.

To obtain Netherlands tax residency status, individuals must submit a residence application to the Dutch Tax Authorities. The application must include documentation proving the individual’s identity and nationality, as well as evidence of their ties to the Netherlands. Once the application has been approved, the individual will be issued with a Netherlands Tax Identification Number (TIN). individuals who become residents of the Netherlands are required to file an annual income tax return. The deadline for filing is May 1st.

Deductions & exemption

If you are a resident taxpayer in the Netherlands, you may be eligible for a tax deduction in order to avoid double taxation on your incomes derived from overseas, even in aunties that do not have a treaty with the Netherlands. To receive the deduction, you will need to file a tax return and provide documentation of your income from other countries. If you are a non-resident taxpayer, you are not eligible for the deduction. However, as a non-resident you only need to pay taxes on income derived from the Netherlands.

Tax law for foreigners & The 30 Percent Rule

The Netherlands is actively working to attract foreign talent in order to keep up with the competition in the global labor market. One of the ways they are doing this is by offering tax deductions for highly skilled individuals who work in the Netherlands. The 30% rule is a tax break that allows these workers to deduct 30% of their salary from their taxable income. This deduction is available for a maximum of eight years.

The Netherlands has been successful in attracting highly skilled workers from all over the world, and the 30% rule has been an important part of this effort. The Netherlands is a world leader in many industries, and attracting top talent is essential to maintaining this position. The 30% rule has helped the Netherlands to stay competitive in the global economy and to attract the best and brightest from all over the world.

Tax return

Income tax returns in the Netherlands are due by May 1st of each year. The application and filing procedure is relatively simple and can be done online. Taxpayers will need to provide their personal information, income details, and any deductions or credits that they are entitled to. Once the return is filed, the Netherlands Revenue Service will calculate the tax liability and issue a refund if necessary.

How NNRoad can help

NNRoad is a global Employer of Record & PEO provider with a base in the Netherlands. We are able to advise you and your Netherlands dispatched or payroll employees on their individual income taxes. For more information on our HR and payroll related services in the Netherlands, please visit our Netherland county services page or contact us directly.

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