The annual tax return: seven ways of cutting your Dutch tax bill

Photo: Joep Poulssen

It’s that time of year again… the deadline for filing your annual tax return (May 1) is fast approaching.

But don’t be fooled by the Dutch tax office advertising slogan –  ‘we can’t make it nicer, but we can make it easier’. Anyone with anything but the standard situation will know that ‘easy’ is not the best word to describe the stress of filling in a Dutch tax return. Take heart, however, from the fact that as a foreign resident, you are more likely to be paying too much tax rather than not enough.

But before you seek specialist help or decide to give it a go yourself, check out these seven basic tax breaks which might apply to you.

1 Personal deductions

Have you had high medical bills not covered by insurance, or are you a generous giver to charity? There are all sorts of personal expenses which you can deduct from tax. It makes sense to cluster them into one year as much as possible so that you meet the threshold for the tax break. Items which can be entirely or partially deducted include:

  • Charitable donations
  • Study expenses
  • Healthcare costs (if not covered by insurance)
  • Alimony payments
  • Life annuity payments

If you are married or have a registered partnership you can submit your tax returns jointly. This allows you to allocate deductions to the partner with the highest income.

2 Non working spouse deduction

If your partner does not work, you may be entitled to an extra tax break. The tax credit of approximately €1,000 applies if the working partner has earned at least €20,000 and you have been in the Netherlands for at least six months.

3 The 30% ruling

The 30% ruling basically means 30% of your salary is tax free for a maximum of eight years. In general to qualify you must have been living abroad – at least 150 kilometres from the Dutch border – when you were recruited. Your salary must also be more than €3,100 per month. You may need expert advice to find out if you qualify and to make sure your tax return is correctly filled in.

4 Double taxation deduction 

As a resident of the Netherlands, you need to declare foreign assets and bank accounts in your Dutch tax return. If you own property in another country, you can usually avoid paying tax on it through the double taxation deduction. It might be worth talking to an expert to find out if you qualify.

If the 30%-ruling applies to you, you can opt for partial non-domestic taxation. In that case, you don’t need to declare your (foreign and NL/domestic) assets apart from any property you may own in the Netherlands.

5 Mortgage interest tax relief

If you buy a house in the Netherlands the mortgage interest is tax deductible if the property is your primary residence. The tax break is being gradually reduced but the Dutch system is still considered to be one of the most generous in the world and it does make a big difference to your monthly repayments. If you leave the Netherlands again you can rent the house out, keep it for your own use or sell it. If you sell the property, please note: there is no capital gains tax in the Netherlands.

6 Listed building maintenance

The maintenance on listed buildings – rijksmonumenten in Dutch – is tax deductible up to 80%. This means that if you own a listed building the maintenance costs can be offset against tax. This deduction will be scrapped next year so if you own a Rijksmonument or intend to buy one, it would be wise to have any maintenance done before the end of 2017.

7 Sole trader deductions – the tax break for freelancers

If you are a freelancer or self-employed, there are several tax breaks open to you. Two of them only apply if you spend more than 1,225 hours a year on business-related activities:

  • An annual self-employed tax break of € 7,280
  • A new business deduction of € 2,123. This may be used three times in the first five years of the business
  • Besides these tax breaks there is also a small business exemption which makes 14% of the profit tax free

Do keep in mind that registering as self employed may not be wise if your income is low. It is often more sensible to count minor earnings as additional income rather than waste precious tax free amounts which will be more beneficial once your income has gone up.

If you live in rental property and work at home, you may be able to deduct part of the rent from tax because you use it as an office.

The deadline for filing your tax return is May 1. But don’t despair if you have left it too late. If you need an extension to the deadline or expert help, contact the team at J C Suurmond for sound advice.