In this article, Erik Jan Peffer from Taxt explains important information about your Dutch tax return as an expat in the Netherlands.
Migrating to another country such as the Netherlands can be challenging in many different ways. Getting used to the people, the food, the culture and your job can be tough. Then in the first February following your migration year, you receive your first blue envelope from the Belastingdienst (Dutch tax authorities) which says, "U moet een aangifte inkomstenbelasting doen" (You need to file your income tax return) - but where to start?
Inkomstenbelasting (Income tax return)
In Box 1, your income from (self-) employment, (primary) home ownership, periodic payments and other personal income is taxed. There are various deductibles that can be applied to reduce the taxable income in Box 1. A couple of common deductions in this box are:
- Mortgage interest on the mortgage for a primary residency
- Uncovered medical expenses
- Paid partner alimony
- Entrepreneurial deductions (e.g. general self-employment deduction, the starters deduction, the middle and small business profit exemption)
Box 2
In Box 2, income from substantial shareholdings in a company (inkomen uit aanmerkelijk belang) are taxed. In the Dutch tax system, an individual is considered to have a substantial shareholding if they, either personally or with their fiscal partner, directly or indirectly hold at least 5% of a certain class of shares in the share capital of a limited liability company.
Dividends paid from a substantial shareholding are the most common taxed Box 2 income. The other is capital gains arising from the sale of shares of a substantial shareholding.
Box 3
In Box 3, income from savings and investments is taxed (i.e. wealth). The taxable income is not calculated based on the actual realised returns. Instead, it is calculated over a fictional presumed return on investment determined by a fixed forfeit. The tax is calculated over the fictional returns from various assets, including savings accounts, investments and second homes.
For the year 2024, the prescribed fictional income percentages used for the three categories in which Box 3 income is taxed are as follows:
- 1,03% fictional return on bank accounts
- 6,04% for investments and other assets
- 2,47% (negative return) for debts
The fictional income is calculated over the value of the asset per January 1 of the applicable tax year.
Box 3 income from savings and investments is only taxable if the net difference between assets and debts exceed the tax-free thresholds, which is €57.000 per person (or €114.000 for fiscal partners) for the 2024 tax year.
As of January 1, 2024, the Box 3 tax rate increased from 32% in 2023 to 36%. The tax-free amount in Box 3 will not be indexed per January 1, 2024, however. This will remain €57.000 per person and €114.000 for fiscal partners.
Box 3: Current affairs
Box 3 has been the subject of much debate in the Netherlands in recent years (and still is). In late 2021, the Dutch Supreme Court ruled in the so-called Christmas ruling that the Box 3 levy violates the European Convention on Human Rights (ECHR). As a result of this ruling, the Box 3 system was subsequently adjusted. Effective 2023, the tax levied in Box 3 is done on a flat rate of return divided into the aforementioned categories.
The savings variant (spaarvariant) is the starting point for the Recovery Act that applied from 2017 to 2022. The question to be answered by the Supreme Court in the deferred ruling (deferred until August 2024) is whether the savings variant also violates the ECHR.
This means that the current Box 3 taxation system (Recovery Act / saving variant) could very well be subject to adjustment again if the Supreme Court decides against it. Therefore, appealing the tax assessment for the 2023 tax year (If you pay Box 3 / wealth tax) could be beneficial for you, so don't forget to appeal in time to safeguard your rights.
In the future, there will be a new Box 3 system where taxation will be based on the actual returns from your assets. It was intended that the new Box 3 system would come into force from January 1, 2027, but in practice it will probably take effect in 2028 or later.
Changes in the 30% ruling
The 30% tax ruling is the main tax advantage for skilled expats coming to the Netherlands. It provides a tax-free allowance of up to a maximum of 30% of their salary. The maximum term of the 30% ruling is 5 years and expats will need to meet certain criteria to be entitled to it.
The 30% ruling also provides expats the option of partial non-residency for Box 2 and Box 3. This exempts the individual from Dutch taxation on worldwide assets and on substantial interest income from foreign entities: this is called the partial foreign taxpayer scheme.
Scaling back the 30% ruling
In 2023, it was announced that - starting from January 1, 2024 - the salary to which the 30% ruling can be applied will be capped at the so-called "Balkenende-norm", which is the maximum salary for public servants. This norm is indexed each year and will amount to €233.000 (gross) annually in 2024. A transitional arrangement applies for employees who had an active 30% ruling in December 2022: the cap will only apply to them as from January 1, 2026.
There will also be other amendments to the 30% ruling as of 2024. Firstly, the 30% ruling will get a graduated scheme within its five-year term: In the first 20 months, a 30% tax-free allowance applies, followed by a 20% tax-free allowance for 20 months after that. For the last 20 months of the five-year term, a 10% tax-free allowance will apply.
A transitional arrangement applies to employees to whose salary the 30% ruling is applied to in December 2023; these employees will not be confronted with these adjustments during their ruling term.
Secondly, the amendment will terminate the aforementioned partial foreign taxpayer scheme for 30% ruling holders as of 2025. This means that the exemption on foreign-based Box 2 income (tax on income from more than 5% shareholding) and Box 3 income (tax on the deemed income of worldwide assets) will end. Here too a transitional arrangement applies to employees who have the 30% ruling in December 2023: they will only be confronted with this change as per 2027.
It's important to know that if an employee that has the 30% ruling changes employers during the term, they can still use the transitional arrangement if they enter into a new qualifying employment with a Dutch employer within three months.
30% ruling may have further changes
Last but not least, these adjustments are currently under heavy criticism. It could therefore be possible that when the Dutch cabinet is eventually formed, the government will still determine that the 30% ruling will remain as it was before, or in a modified form.
At Taxt, they have tried to make the process of filing your Dutch income tax return and meeting the compliance requirements as smooth and easy as possible. You can reach them by email attaxteam@taxt.nlor by phone at +31 20 820 0 810 and they will gladly assist you.
