Income tax in the Netherlands
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In the Netherlands there is an income tax, which since 2001 (Wet inkomstenbelasting 2001) is roughly as follows. The fiscal year is the calendar year. No later than March citizens have to report their income of the previous year. The system integrates tax with fees paid for the basic old-age pension system AOW, the pension system for partners of deceased people AnW, and the national insurance system for special medical care AWBZ. Below the term "tax" is used for the total. The figures are for fiscal year 2007.
Three categories of income, each with their own tax tariff, are distinguished. They are referred to as "boxes".
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[edit] Progressive tax on wages, etc. (box 1)
There is a progressive tax on wages, profits, social security benefits and pensions.
- Part of the income from EUR 0 to EUR 17,319: 33.65 % of EUR 17,319 is EUR 5,827
- Part of the income from EUR 17,319 to EUR 31,122: 41.4 % of EUR 13,803 is EUR 5,714
- Part of the income from EUR 31,122 to EUR 53,064: 42 % of EUR 21,942 is EUR 9,215
- Above that: 52 %.
Under certain conditions a life annuity is treated as a pension: premiums are deducted from the income, the benefits are taxed, and the scheme is not counted as asset in box 3. The conditions concern the type of life annuity and the necessity, based on the principle that the more the income is, the more pension plus life annuity one needs to build up for the future, up to a maximum.
For the value of an owner-occupied dwelling and for mortgage debt related to that, this box and not box 3 applies. Based on the value of the dwelling, a "fixed rentable value" is counted, while interest for the mortgage is deductible. The balance may well be negative, thus making the total income less than e.g. the wages.
An employer may set up an employee savings scheme allowing employees to save up to EUR 613 per year of their wages without paying income tax on that part of their wages, provided that they do not withdraw their savings within four years. The employer pays the income tax, but only a reduced rate of 15 %. During this period the savings are also exempted from the tax of box 3.
For taxpayers aged 65 or older (to be referred to as 65+) reduced rates apply for the first two brackets: 15.75 % and 23.5 %, respectively. The discount of 17.9 % of the income in these brackets corresponds to the AOW contributions, which are not owed by the AOW beneficiaries. There are plans to abolish this discount for people with an income which is more than EUR 15,000 per year above the AOW pension, if they have not worked until the age of 65. Details of the plan are yet unknown.
For employed and self-employed people there is an employment rebate of up to EUR 1,392 (more for people in the age range 57-64, up to EUR 2,138, less for 65+).
The wage withholding tax is a deduction of wages, social security benefits and pensions, as an advance payment for the income tax, paid through the employer, etc.
See also nl:Box I (inkomstenbelasting) (in Dutch).
[edit] Health insurance premium
From 2006 there is a new national health insurance scheme (zorgverzekering(swet), Zvw ). The premium is partly income-dependent and paid as a tax supplement. It applies for the "contribution income" (bijdrage-inkomen ), which is part of box 1, including labor income, social security benefits, pensions, and life annuities (it does not include the "owner-occupied dwelling income"). It is withheld if the wage withholding tax applies. The rate is 6.5% for e.g. wages and 4.4% for e.g. life annuities, coming on top of the tax percentages mentioned above. The total income for which these rates apply is limited to 30,015 euro.
[edit] Flat tax on income from a substantial business interest (box 2)
There is a flat tax of 25 % on income from a substantial business interest, usually meaning a (direct or indirect) shareholding of at least 5% in a private limited company (BV ).
If the fiscal partner of the taxpayer or a blood relative (first vertical kin) holds a substantial interest in a company, the shares of the taxpayer constitute a substantial interest, even if they do not amount to 5%.
Income from substantial interest includes:
- dividends
- capital gains (except in case of succession and divorce)
For 2007 only there is a reduced rate ranging from 22 to 25%.
See also nl:Box II (inkomstenbelasting) (in Dutch).
[edit] Flat tax on savings and investments (box 3)
There is a flat tax on the total value of the savings and investments of 1.2 % per year. It is nominally part of the income tax, as a 30 % tax on a fixed assumed yield of 4 % of the value of the assets. EUR 20,014 (higher for 65+ with a low income) of the value of the assets is exempted.
In the case of approved "green" investments of up to EUR 53,421 the tax is replaced by a rebate of 1.3 % per year.
See also nl:Box III (inkomstenbelasting) (in Dutch).
[edit] Total tax
The total tax is the sum of the taxes in the three boxes, minus EUR 2,043 (less for 65+), see also nl:Heffingskorting (in Dutch). It can be less than zero and paid out, but only if one has a spouse and the tax of both together is not less than zero.
