Taxation in the Netherlands is completed in accordance with specific regulations grouped under the Tax Code. These regulations apply separately to natural persons and corporate entities based on the incomes they earn and their residency.
Below, our Dutch accountants explain the most important provisions of the Tax Code and the latest amendments it has undergone. If you need help in any accounting or taxation matter, our firm in the Netherlands can help you.
Tax residency in the Netherlands
In order to be taxed in the Netherlands, a natural person or company must first establish its residency. According to the Tax Code in the Netherlands, natural persons are deemed Dutch residents for taxation purposes if they legally live in this country and will be taxed on their worldwide income here. In the case of foreign citizens earning income in the Netherlands, they will be taxed in the Netherlands for the income they make here, thus being granted the status of non-residents. However, non-resident taxpayers can choose to be taxed in accordance with the rules applicable to Dutch residents.
A natural person’s tax residency is established based on the following criteria:
- – he or she spends most of the time in the Netherlands;
- – he or she has a partner who lives in the Netherlands;
- – he or she works in this country, therefore earns a salary here;
- – he or she is enrolled with the national healthcare system;
- – he or she has children enrolled with Dutch schools or universities.
Family members of physicians residing of the Netherlands are also considered Dutch residents.
When it comes to the tax residency of corporate entities, a Dutch company will be subject to the corporate tax on its worldwide income if it is a resident of this country. A company is deemed a tax resident of this country if it has a management place in the Netherlands. This implies the following aspects:
- the company’s managers and directors make business decisions at the Dutch headquarters;
- the Netherlands is the country where company directors meet and work;
- the company keeps its financial records and prepares its financial statements in the Netherlands;
- the company is registered in this country and the shareholders live and meet here.
The last circumstance is not mandatory for a company to be considered to have its management place here, as foreign shareholding in allowed in Dutch companies. Moreover, full foreign ownership is permitted and the shareholders in a Dutch company need not live in this country.
There are also entities that are not considered tax residents in the Netherlands if they operate as collective investment funds. These are the investment vehicles used to operate the funds. In most cases, these are partnerships, limited partnerships and funds for mutual accounts.
Our Dutch accountants can provide more information on the determination of residency according to the Tax Code.
Tax rates under the Dutch legislation
The Dutch Tax Code, known as Algemene wet inzake rijksbelastingen, is a legal act that was introduced at a national level in 1959. It provides the legal framework with regards to the taxation of legal entities and natural persons and it describes the basic rules and the procedures that must be followed throughout a financial year. According to the regulations of the Act, the Dutch taxes can be categorized in the following categories:
- • income tax – it is divided between corporate income tax, applicable at the standard rate of 25%, and personal income tax, charged on a progressive system and ranging between 36,65% and 51,75%;
- • value added tax (VAT) – the standard VAT is charged at a rate of 21%, and the reduced VAT is applied at a rate of 9%;
- • dividend tax – it is generally charged at a rate of 15% on the dividends one must receive;
- • inheritance and gift tax – charged at rates ranging from 10% to 40%, depending on the value of the inheritance and the relation a person has with a deceased citizen;
- • customs – they can be charged on products as VAT or as excise duty and the rates vary based on the type of product; for example, the tax charged by the customs authorities in the Netherlands for cigarettes is of EUR 180,32 for 1,000 units, starting with 1st of January 2020.
The Dutch income tax is divided between the corporate tax, applicable to local and foreign companies, and the personal income tax, applicable to natural persons obtaining taxable income in the Netherlands. Our team of Dutch accountants can offer more details regarding the manner in which these taxes are charged here, as well as on the obligations natural persons and companies have, as per the stipulations of the Dutch Tax Code.
Personal income tax in the Netherlands
The Tax Code in the Netherlands stipulates that the personal income tax is divided amongst the following: employment and business income, income from a limited liability company, where the individual has more than 5% of the shares of the company and income from savings and investments.
The tax law mentions that any individual receiving an income obtained from an activity carried out in the Netherlands is taxed following the procedures for personal income tax, depending on the category in which the respective income is included. The law also provides specific tax reductions available for certain categories of persons, such as those working in the Netherlands, or for those studying here or participating in a training.
The 30% Dutch rule is a personal tax reduction that applies to specialized foreign employees working in the Netherlands in certain fields where trained personnel is hard to find. The basic purpose of this right to obtain a tax reduction is to provide a compensation on the costs that are associated with employment for foreign employees during their work contract in this country. In the Netherlands, citizens have to report their income for the previous year by April 1. Our team of Dutch accountants can present more details on other tax measures applied to foreign employees.
If you have a Dutch company, you can use our services for payroll in the Netherlands. We can handle all the aspects related to employment from a financial point of view. From labor contracts to paying social security contributions, you can rely on our accounting firm in the Netherlands for professional support.
Corporate income tax in the Netherlands
The corporate income tax applied to Dutch companies represents a tax of 25% of their worldwide profits. Certain items of income are exempt from the corporate tax: dividends and capital gains derived from qualifying subsidiaries and income attributable to a foreign business. Subsidiaries qualify for the exemption if they represent an active company or if the Dutch parent company holds an interest of at least 5% of the company. Foreign branches can also qualify as an exemption from the Dutch corporate tax if the branch is a permanent establishment or representative office.
The payment of the Dutch corporate tax is done during the financial year based on the estimates calculated on the tax due. The real value of the tax will be determined after completing the corporate tax return. Here, the obligation to complete the corporate tax return has to be done in a period of maximum five months after the end of the financial year. Our accounting firm in the Netherlands can present more information on the tax obligations that must be met in a financial year.
Accounting regulations for Dutch companies
Dutch companies must comply with the specific accounting regulations in accordance with the International Financial Reporting Standards (IFRS) which apply to resident and non-resident public companies. Small companies must comply with the provisions of the Civil Code or of the Dutch Accounting Standards and based on these they are required to file specific tax information with the authorities.
Medium and large-sized companies can choose between the Dutch Accounting Standards and the IFRS.
The financial documents must be filed in accordance with the corresponding tax year for which they were prepared. In the Netherlands, the financial year is the same with the calendar year, however, companies can choose otherwise by amending their Articles of Association. Based on this principle, the tax year is 12 months, however, companies can also choose between shorter or longer tax years upon the registration or liquidation of their activities.
Generally, Dutch companies are required to file financial statements and cash flow statements, however, depending on their legal forms, other information can be required.
Private companies, partnerships, cooperatives and insurance companies must file their accounts, while large companies must publish their balance sheets and profit and loss accounts. These are also required to undergo audits in the Netherlands.
You can rely on our Dutch accounting firm for assistance in determining tax residency in accordance with the provisions of the Tax Law.
Are there are new tax laws applied in the Netherlands?
Yes, starting with the 1st of January 2020, new tax laws became applicable in the Netherlands. The new tax measures were approved on 17th of September 2019 and then adopted by the House of Representatives. The new regulations with regards to the taxation of companies and natural persons are included in the tax law known as the Tax Plan 2020, which is formed by a set of measures.
The Dutch Tax Plan 2020 package is comprised by the following bills: the Tax Plan 2020, the Climate Agreement Tax Measures Act, the Withholding Tax 2021 Act, the Abolition of Tax Deductions for Educational Expenses Act, the Act Implementing the Directive of Harmonisation and Simplification of Trade Between Member States and other tax measures, which were prepared in the last quarter of 2019 to become applicable at a national level starting with the beginning of 2020.
A novelty of the new tax law refers to the VAT charged for goods and services sold in the Netherlands. Thus, starting with the 1st of January 2020, the reduced VAT rate, of 9%, will also be applied to electronic publications, such as newspapers, magazines and books, but also to news websites registered in the Netherlands.
As we presented at the beginning of the article, one of the taxes that are included in the Dutch Tax Code is the customs tax. The customs tax, administered by the Customs Administration of the Netherlands, was modified under the new tax law. The newest regulations increase the value of the excise duty, one of the customs duties applicable in the Netherlands, for the trade of cigarettes and tobacco products.
Thus, starting with the 1st of January 2020, the price of a standard pack of cigarettes (containing 20 units) will be increased by EUR 1 from the value at which the product was sold up until the end of 2019. At the same time, the price at which a kilogram of tobacco will be sold will increase by EUR 5. Those trading these types of products can request more information from our team of accountants in the Netherlands, who can present the laws regulating the sale of tobacco in this country.
Our accounting firm in the Netherlands can help you in a wide range of taxation matters in relation to your company.
What are the regulations for small Dutch businesses?
The Dutch Tax Code also provides the legal framework for the taxation of small businesses operating here. Up until the end of 2019, businesses could qualify under the tax schemes for small businesses only as long as their VAT payable in a tax year was of maximum EUR 1,883.
Under the new tax law, small businesses can qualify for the tax benefits available for their class of business if their turnover in a financial year is of EUR 20,000, the novelty being that such businesses can benefit from a VAT exemption. Our team of Dutch accountants can offer more information on other tax procedures that can be applied to small businesses.
You can also rely on us if you need an audit for your company in the Netherlands.
Please address to our Dutch accountants for more details regarding the tax system available in the Netherlands. Our team of accountants in the Netherlands can provide step-to-step information on the process of paying taxes in this country, as a natural person or as a legal entity. Our Dutch accounting firm can present further details on the Tax Code in the Netherlands and can also present additional information on the taxes available here and the tax compliance procedures.