Dutch residents are required to file an annual personal tax return if they have taxable income or if the Dutch tax office requests it. Additionally, if you expect a refund on payroll taxes or dividend taxes withheld on your investments, you may choose to file your taxes. Filing your tax return correctly is crucial to avoid penalties and ensure you receive any tax refunds you’re entitled to.
What makes you a tax partner in the Netherlands?
In the Netherlands, you are considered a tax partner if you meet specific conditions. Tax partnerships allow certain income and deductions to be allocated between partners to potentially reduce the overall tax burden.
You are automatically considered a tax partner if you are married or have a registered partnership. You may also qualify if you live together at the same address and meet additional criteria such as having a notarial cohabitation agreement, co-owning a property, having a child together, or even acknowledging the child of your partner. If you were tax partners in the previous year, this condition would continue.
For couples living together, being registered at the same address plays a central role in establishing a tax partnership. This makes it easier to manage joint finances and file tax returns.
Tax implications of tax partnerships
The Dutch income tax system divides taxable income into three categories, or “boxes,” each with its own tax rate. Understanding which income falls into which box is crucial when filing a personal tax return.
- Box 1: Income from employment, self-employment, pensions, alimony, and primary residence.
- Box 2: Income from substantial interests in companies (5% or more shares).
- Box 3: Income from savings, investments, and property.
As tax partners, you can divide some types of income and deductions between the two of you. This allocation can help optimize your tax situation by reducing the taxable amount of the higher-earning partner, leading to possible tax savings or even refunds.
Income and deductions in Box 1
In Box 1, most income, such as employment wages, self-employment income, pensions, and alimony, cannot be allocated between partners. This income is always taxed with the person who receives it. However, certain deductions, such as mortgage interest for your primary residence, paid tuition fees, donations to registered charities, medical expenses not covered by insurance, and partner alimony, can be allocated between partners.
This allocation is particularly beneficial if one partner has a higher income, as the deductions can reduce their taxable amount. However, some deductions cannot be transferred, including premiums paid for additional private pensions, disability insurance, and travel expenses for work.
Allocation in Box 2
In Box 2, which concerns income from substantial interests (owning 5% or more of a company), dividend income can be allocated to your tax partner. This is beneficial for couples who hold substantial shares in a company. By allocating this income, you can potentially reduce the overall tax burden on the couple’s combined income.
Assets and savings in Box 3
In Box 3, assets such as savings, investments, and second homes are taxed. Tax partners have the ability to allocate these assets to each other. This strategy allows you to increase the tax-free threshold, as the assets are divided between both partners. By dividing assets, you can also move some of the combined value into lower tax brackets, reducing the overall tax rate for both partners.
For 2022, the tax rates for Box 3 income above the threshold of €50,650 (for tax partners) are as follows:
- €0 – €50,650: 0.56%
- €50,650 – €1,013,000: 1.35%
- Over €1,013,000: 1.71%
Allocating savings and investments can be beneficial in minimizing your tax liability, particularly if one partner holds a large portion of the assets.
The impact of the 30% ruling on tax partners
If one partner qualifies for the 30% ruling, they can opt to be treated as a partial non-resident taxpayer. This status allows both partners to benefit from certain tax exemptions for Box 2 and Box 3 income.
- Box 2: For dividend payments from foreign companies, the 30% ruling allows for an exemption from Dutch taxes.
- Box 3: Similarly, taxes on savings and investments are exempt during the period the 30% ruling applies.
However, real estate that is not your primary residence in the Netherlands will still need to be declared in Box 3, as this is an exception to the 30% ruling.
Taxsight can help you
Being a tax partner in the Netherlands offers several advantages, including the ability to optimize your tax situation by allocating income and deductions between partners. By understanding the tax system and strategically allocating income and expenses in Box 1, Box 2, and Box 3, you can potentially reduce your taxable income and ensure you’re paying the correct amount of tax. If one partner is eligible for the 30% ruling, this can further benefit your tax return by reducing taxes on foreign income and savings.
