The lowdown on tax box 1, 2 and 3 – plus other common tax terms
When you land in the Netherlands, you aren’t just dealing with a different language, employer and queuing etiquette – you also have to deal with the Belastingdienst.
The Dutch tax office, or Belastingdienst, has been making efforts to employ more of a ‘personal’ approach, which will be good news for expats.
Nowadays, there’s a comprehensive set of English pages at www.government.nl about everything from the basics of the income tax system to coronavirus support measures for business. But tax advisers like Blue Umbrella, who offer support and online filing for expats from all countries, still frequently get questions about a few common topics.
What are the Dutch tax boxes?
Unlike other countries, the Dutch divide income (or notional income) into three types, known as boxes.
Box 1 is about income from work and ownership of a home that you live in. It includes salaries, tips or business profits, pensions, benefits and maintenance payments, and any income from abroad. Brace yourself: this is not a low-tax nation. There are two tax brackets, the lower one (up to €68,507) with a tax rate of 37.1% and the higher one with a tax rate of 49.5%.
Box 2, less well known, taxes a ‘substantial interest’ in any company. It kicks in if you or you and your tax partner own at least 5% of the shares, options or profit-sharing certificates in a business. You pay 25% tax on this income.
Box 3, the ‘wealth tax’, taxes your savings and investments, including any additional property. It is based on a fictional rate of income that the state believes these assets will be generating and is taxed as a proportion of this.
Some costs related to buying and funding your own home can be offset against box 1 income. But although you can, for instance, offset notarial costs involved to buy a house, you cannot offset the costs of any estate agent who advised you.
The mortgage interest tax relief scheme, which is being phased out, provides a deduction from income based on the mortgage interest you have paid. Against this, the state sets an eigenwoningforfait, an imaginary income linked to the value of the house you own and live in (which for homes worth more than €1.1m, may reduce or even negate the mortgage rebate.)
However, someone who gets a decent hypotheekaftrek rebate might want to fill in a provisional tax return before the year has ended. This would mean that you could be repaid the deduction on a monthly basis, helping with your monthly mortgage bill. Beware: if you are refunded too much money, after you file your full annual tax return, you will have to pay it back (with interest).
Still available to Dutch tax payers is the option to offset study costs against future income. Although this perk will soon disappear, you will still be able to use it for 2021, as long as in every year after you have made the study costs you file a tax return (with zero income if relevant) until you start making money and having an income in the Netherlands.
You need to have incurred at least €250 in study costs and not have had a grant or were entitled to a grant.
From January 2022 there will new budget to stimulate study and study costs will no longer be deductible.
There is currently also a non-working spouse refund if the working partner earns more than €10,000.
This compensates the non-working partner for a general tax credit that he or she would have had on actual earnings. It needs to be claimed by filling in tax returns for both partners.
However, the non-working spouse refund is due to expire in 2023 (for people born after 1962).
M for migration
In the year that you move to or leave the Netherlands, you will probably only have completed a partial tax year, but your employer might have deducted taxes from your monthly salary based on your full-year obligations.
It may be in your interests to file the ‘M’ form, in Dutch, so that you can reclaim this overpaid tax.
Beware: In most cases the tax office will let you know that you need to file a return if it believes that you owe the state money, but it is normally up to you to reclaim overpaid tax!
For more advice and help with your personal tax situation, contact Blue Umbrella at https://www.blueumbrella.nl/
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