Dutch residents are generally required to file an annual personal tax return if they have any taxable items to report or if the Dutch tax office sends a filing request. You may also choose to file your taxes if you expect a refund from withheld payroll taxes or dividend taxes on stocks.
Understanding the Dutch tax system
The Dutch tax system for individuals is divided into three categories, referred to as “Boxes,” each with its own tax rates:
- Box 1: Income from employment and main residence
- Box 2: Income from substantial interest (5% or more shares in a company)
- Box 3: Income from savings and investments
This article provides insights into how deductions work in Box 1 and Box 3.
Deductions and taxes for employment income
Personal income tax in Box 1
The majority of individuals working in the Netherlands have an employer, and their employment income is considered taxable in Box 1, where payroll taxes are deducted by the employer.
Payroll tax is essentially an advance payment of the personal income tax in Box 1. If your taxable income is reduced by eligible deductions, you may receive a refund of the withheld payroll taxes.
Key deductions in Box 1
The main deductions available in Box 1 include:
- Mortgage interest: If you own property that serves as your main residence, you can deduct the interest paid on your mortgage from your taxable income. Costs related to the mortgage, such as notary fees and advisor fees, are also deductible.
- Foreign workdays: Dutch employers typically report all workdays on the employee’s payslip. However, if you worked outside the Netherlands, you may be eligible for double taxation relief, potentially allowing you to get a refund for Dutch payroll taxes on those days. This can apply if your employer cross-charges these workdays to a foreign subsidiary or if you work more than 183 days in another country while still residing in the Netherlands.
For U.S. citizens who have the 30% ruling, these requirements may not apply, and they could still be eligible for a refund.
- Immigration year (M-Form): if this is your first year in the Netherlands, you will need to file an M-form, which could result in a tax rebate. Payroll tax is typically withheld based on a full year’s salary, but if you worked in the Netherlands for only part of the year, you may also be eligible for a refund of national insurance contributions.
- Other deductions: other deductible costs include tuition fees, donations to registered charities, certain medical expenses not covered by insurance, premiums for additional private pensions, and travel expenses if you commute more than 10 kilometers to work by public transport and the employer doesn’t fully cover these costs.
Taxable assets and deductions in box 3
Income from savings and investments
Dutch residents must declare any investments, savings, or property exceeding €30,846 (double threshold for tax partners) in Box 3 of their tax return, regardless of whether these assets are held inside or outside of the Netherlands.
The fair market value of the assets, minus any liabilities, is assessed on January 1st of the relevant tax year. For instance, for the 2020 tax return, the valuation would be on January 1, 2020.
Refunds and relief in Box 3
If you own stocks and receive dividends, you can claim the withheld dividend tax in your tax return. For Dutch dividend tax, the withheld tax will automatically be refunded. For foreign dividend tax, you may be able to receive double taxation relief on the Box 3 tax due, typically up to 15% based on tax treaties.
The 30% ruling and Box 3
If you have the 30% ruling, you can opt for partial non-resident taxpayer status. This means that you and your tax partner won’t be taxed on savings and investments in Box 3. The only exception to this is real estate located in the Netherlands that is not your primary residence, which must still be declared.
