Starting a business in the Netherlands is a great option for entrepreneurs, thanks to the country’s supportive environment for startups, including favorable tax incentives. Whether you’re transitioning from employment to entrepreneurship in the Netherlands, or you’re looking to expand an existing business, understanding the process and available benefits is key to setting yourself up for success. This blog will walk you through the essential steps to start your business and highlight the tax advantages you can take advantage of.

How to start a business in the Netherlands

Starting a business in the Netherlands involves several key steps, and it’s essential to ensure that you follow the correct procedures to set up your company legally. The most common legal forms for entrepreneurs in the Netherlands are the sole proprietorship and the limited liability company (B.V.).

If you’re an individual seeking a more flexible structure, the sole proprietorship might be the best option. It’s a transparent structure where the owner is personally liable for the company’s obligations. As a sole proprietor, you would declare your income through your personal tax return. If you want to take advantage of tax deductions such as mortgage interest and small business discounts, this could be a cost-effective way to go. However, you must work at least 1,225 hours per year for your business to claim these benefits.

Alternatively, if you want to limit your liability and separate your personal and business assets, a B.V. (Besloten Vennootschap) could be the right choice. Setting up a B.V. requires more administrative work and costs, including paying corporate taxes. However, it offers certain advantages, including tax breaks, flexibility in salary and dividend payments, and the potential to apply for the 30% ruling tax break if you’re a highly skilled migrant.

For company setup in the Netherlands, you’ll need to register your business with the Dutch Chamber of Commerce (KvK). This applies regardless of whether you choose the sole proprietorship or the B.V. option.

Business structure options

When you start your business in the Netherlands, you will need to choose a legal structure. As mentioned, the two most common are the sole proprietorship and the B.V. Let’s break down the differences:

1. Sole proprietorship (Eenmanszaak):
   A sole proprietorship is suitable for individual entrepreneurs who want a simple setup with lower administrative costs. The business owner is personally liable for debts and financial obligations, which means your personal assets could be at risk if your business faces issues. However, as a sole proprietor, you can claim various tax benefits such as the small business discount, self-employed tax deductions, and mortgage interest deductions.

2. B.V. (limited liability company):
   A B.V. offers more protection for business owners because it separates the company’s liabilities from your personal assets. A B.V. is often the best option for entrepreneurs looking to scale their business or work with investors. The B.V. also allows for a higher degree of flexibility in salary and dividends. Additionally, the 30% ruling can be applied to those with specialized skills, providing them with significant tax benefits.

Tax incentives for entrepreneurs in the Netherlands

Entrepreneurship in the Netherlands comes with a range of tax benefits designed to encourage business activity and innovation. One key advantage is the 30% tax ruling for highly skilled migrants. This ruling allows foreign workers to pay tax only on 70% of their income, making it an attractive benefit for those moving to the Netherlands to start their business or join a company.

Additionally, entrepreneurs in the Netherlands benefit from various tax deductions such as:

• Small business tax discount (MKB winstvrijstelling): a deduction of 12.7% of your gross profit (as of 2025), applicable if your income falls within the lower tax bracket of 37.48%.

• Self-employed tax deduction: the deduction for self-employed individuals is €2,470 (as of 2025), gradually decreasing until it reaches €900 in 2027.

These tax incentives are designed to ease the burden of running a business, especially for new startups.

Maximize your tax benefits

Starting a business in the Netherlands offers numerous opportunities, especially with the country’s business-friendly environment and tax incentives. Whether you choose a sole proprietorship or a B.V., it’s important to understand the tax implications and structure that best suits your needs.

If you’re considering entrepreneurship in the Netherlands, consulting with a tax professional can ensure that you take full advantage of the available tax deductions, credits, and rulings. With the right advice, setting up your business and navigating the tax landscape can be straightforward and rewarding.

At Taxsight, we help new entrepreneurs navigate the complexities of company setup in the Netherlands and make sure you’re maximizing your tax benefits. Reach out today to start your journey to becoming a successful business owner in the Netherlands.

Many employees dream of becoming entrepreneurs. However, when transitioning to entrepreneurship, it’s crucial to choose the right business structure to optimize your tax situation. In the Netherlands, you have several options, especially if you’re currently benefiting from the 30% tax ruling.

Choosing the right business structure in the Netherlands

As you prepare to start your business in the Netherlands, you need to decide which structure is the most tax-efficient. The two main options available are:

• Sole proprietorship (Eenmanszaak): A sole proprietorship links directly to the individual and involves simpler reporting through personal tax returns.
• Limited liability company (B.V.): This structure offers more flexibility and may allow you to maintain the 30% tax ruling benefit, which could reduce your overall tax burden.

Sole proprietorship in the Netherlands

A sole proprietorship (known as eenmanszaak) is a straightforward structure where you, as the owner, are responsible for the company’s obligations. The income generated is taxed under Box 1, and it’s included in your personal tax return. Sole proprietors can benefit from various tax deductions, including the small business discount (14% of the gross profit). This reduces the effective tax rate from 51.95% to around 44.67%.

Sole proprietors are also eligible for deductions like:

• Self-employed tax deduction of up to €9,403.
• Mortgage interest deductions, if applicable.
• Business-related expenses like travel, administration, and marketing.

However, the full profit is taxed in the same year, potentially leading to a higher tax burden compared to operating as a B.V. Incorporating a sole proprietorship requires only a registration at the Chamber of Commerce.

The B.V. structure and the 30% tax ruling

The B.V. (Besloten Vennootschap) is an incorporated entity that offers the advantage of limited liability. This structure allows you to apply for the 30% tax ruling, which significantly reduces your taxable income. The 30% ruling allows you to receive 30% of your salary tax-free, making your effective tax rate lower than the regular tax rates.

The B.V. offers flexibility in terms of salary and dividend distribution. As a shareholder of a B.V. with 5% or more shares, you are required to pay yourself a salary, which must be at least €45,000 per year. If your company’s income is insufficient, an exception may be applied.

Tax benefits of the 30% tax ruling

The 30% tax ruling provides substantial benefits for employees transitioning to entrepreneurship. If you opt for the B.V. structure, you can retain the tax-free 30% of your salary, effectively lowering your tax rate to around 36.36%. Moreover, if your business is profitable, the B.V. structure offers opportunities to distribute dividends, though these come with a 15% withholding tax.

In addition to salary benefits, the 30% ruling can provide exemptions for:

• Box 2 dividends from foreign companies.
• Savings and investments in Box 3, excluding real estate in the Netherlands.

The B.V. also offers tax advantages, such as a lower corporate tax rate (20% for the first €200,000 of taxable profit in 2018, with plans to reduce it further in the future).

The B.V. vs. sole proprietorship: Which is right for you?

Choosing between a sole proprietorship and a B.V. depends on your income goals and business growth expectations. A sole proprietorship is ideal for small-scale businesses or freelancers, while a B.V. is more suitable for entrepreneurs who expect substantial profits and plan to scale their operations.

One of the key differences between these structures is that while the sole proprietorship offers fewer administrative responsibilities, a B.V. offers more tax benefits, especially when combined with the 30% tax ruling. The B.V. also provides flexibility in salary and dividend distributions.

If you are currently employed and receiving the 30% tax ruling, it may be beneficial to opt for the B.V. structure. However, if you choose to switch to a sole proprietorship later, you will lose the ability to apply for the 30% tax ruling in the future.

Taxation of the B.V. and dividends

The corporation tax rate for the B.V. is 20% on profits up to €200,000. Profits exceeding this threshold are taxed at 25%. After corporation tax, you can distribute net profits as dividends. Dividends are subject to a 15% withholding tax, and an additional 10% tax is applied in Box 2 when the shareholder files their personal income tax return.

The total tax burden on distributed dividends, including the corporation tax, is around 40%. However, if the 30% tax ruling applies, distributing an additional salary instead of dividends can be more tax-efficient.

Choosing the best business structure for your entrepreneurial journey

When transitioning from employment to entrepreneurship in the Netherlands, choosing the right business structure is essential for optimizing your tax situation. Whether you opt for a sole proprietorship or a B.V., each structure has its advantages, depending on your income level and future business goals.

If you expect high income and growth, the B.V. structure combined with the 30% tax ruling could offer significant tax savings and flexibility. For smaller, low-risk businesses, a sole proprietorship may be the simpler option. Always consult a tax professional to determine which structure best fits your specific needs.

The Dutch tax system for individuals is structured into different “boxes,” each designed to tax different types of income and assets. Each “Box” has specific rules, rates, and requirements. Understanding the different tax boxes is essential for filing a Dutch tax return, as it can affect your total tax liability and potential deductions.

When is a Dutch tax return required?

As a Dutch resident, you are generally required to file a personal tax return if you have any taxable income, assets, or debts that need to be declared. The filing is mandatory if the Dutch tax office (Belastingdienst) sends you a letter with a filing request. However, if you expect a refund on overpaid taxes, such as payroll taxes or dividend taxes, you can voluntarily file a tax return. You can also file your return up to five years retroactively to claim any refunds you are entitled to.

Filing deadline for Dutch tax returns

The deadline for submitting your personal tax return in the Netherlands is generally May 1st. However, certain types of tax returns have different deadlines. For example, if you are filing an M-form (for individuals who immigrated or emigrated during the year) or a C-form (for non-resident taxpayers), the filing deadline is July 1st. In some cases, the Dutch tax office may extend the deadline if a request is made or if the tax office sends a letter granting an extension.

Can you request an Extension for Filing?

Yes, it is possible to request an extension for filing your tax return in the Netherlands. If you are unable to meet the May 1st deadline, you can apply for a filing extension, which typically grants you a few extra months. Additionally, if you work with a tax consultant, they may be able to get an extended filing deadline on your behalf, as they have a specific arrangement with the tax office.

What should be included in the tax return?

When filing your Dutch tax return, it is crucial to ensure that all taxable income and assets are included. This includes income from employment, self-employment, pensions, alimony, and more. Failure to declare all taxable items could lead to penalties or additional tax liabilities. In addition to income, various deductions may be applicable, which can help reduce your taxable income and overall tax bill.

Box 1: Taxation on employment and main residency

Box 1 pertains to income from employment, freelance work, pensions, and alimony, as well as your main residence. Personal income from employment or self-employment is taxed in Box 1. The tax rate for income in Box 1 is progressive, and the rates for 2023 are as follows:

• Income up to €73,031: taxed at 36.93%
• Income above €73,031: taxed at 49.50%

Deductions in Box 1

Several deductions can be claimed in Box 1 to reduce taxable income. These deductions can include:

• Mortgage Interest: If you own a property that serves as your main residence, the mortgage interest paid can be deducted from your taxable income.
• Tuition Fees: Though tuition fees were previously deductible, this is no longer the case starting in 2022.
• Medical Expenses: Certain medical costs not covered by your healthcare insurance can be deducted.
• Private Pension Contributions: Contributions made to an additional private pension may be deductible, depending on the specific circumstances.
• Disability Insurance Premiums: Self-employed individuals can deduct premiums paid for disability insurance.
• Travel Expenses: Travel costs for commuting to work (if more than 10 kilometers) can also be deducted if not fully covered by the employer.

However, certain costs cannot be deducted, such as premiums paid for additional pensions or disability insurances if they don’t meet specific criteria.

Box 2: Taxation on substantial interest

Box 2 pertains to income derived from substantial interest in a company. If you own at least 5% of the shares in a company (either directly or indirectly), the income you receive from dividends and the sale of shares must be declared in Box 2. The tax rate for Box 2 income is a flat 26.9% for 2023. This applies to both Dutch and foreign companies, provided the minimum shareholding requirement is met.

30% ruling and Box 2

For individuals with a substantial interest in a foreign company, the 30% tax ruling may apply. This tax ruling provides a tax exemption for dividends received from foreign companies. To qualify, the foreign company must not be considered a Dutch company based on international tax residency rules.

Box 3: Taxation on savings, investments, and real estate

Box 3 covers income from savings, investments, and property (including second homes). If the total value of your savings, investments, and property exceeds €57,000 for a single person or €114,000 for tax partners (in 2023), it must be declared in Box 3. Assets are valued as of January 1st of the relevant tax year. For tax year 2023, the tax rate in Box 3 is 32%, and the tax is applied to a fictional return on income derived from assets.

Box 3 taxation rates for 2023

For the assets declared in Box 3, the tax rate is applied as follows:

• Up to €71,650: taxed at 0.56%
• From €71,650 to €989,736: taxed at 1.34%
• Above €989,736: taxed at 1.71%

30% ruling and Box 3

Residents who benefit from the 30% ruling may opt to be treated as partial non-residents. This status exempts them from paying taxes on savings and investments in Box 3, with the exception of Dutch real estate that is not considered their primary residence. This means that foreign assets, including savings and investments, are not subject to Dutch taxes under this ruling.

How to optimize your tax return in the Netherlands

Understanding how the Dutch tax system divides income and assets into Boxes 1, 2, and 3 is crucial for proper tax filing. By taking advantage of tax credits, deductions, and exemptions, Dutch tax residents can optimize their tax returns and potentially reduce their tax liability. Whether you are filing a personal income tax return or dealing with complex situations like Box 2 income or Box 3 assets, seeking professional advice can help ensure that all applicable rules and opportunities are utilized to your benefit.

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.

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.

If you live in the Netherlands, you are required to declare all your worldwide income and assets when filing your personal tax return, including any real estate holdings. It’s not just tax residents who must report their property; non-residents with real estate in the Netherlands are also required to make a declaration.

As a resident of the Netherlands, you are required to declare your worldwide income and assets, including any real estate. It’s not only Dutch tax residents who must report their property but also non-residents owning real estate in the Netherlands. Let’s explore when you become a Dutch tax resident and what needs to be reported.

When do you become a tax resident?

Your tax residency in the Netherlands is determined by a variety of factors, including where your permanent home is located and where you have the strongest economic ties (such as with your partner or children). Personal factors generally weigh more heavily than professional ones when determining your residency.

You become a Dutch tax resident once you move to the Netherlands with the intention to live and work there and register with the local municipality. From this point onward, you are subject to Dutch tax obligations, meaning you will most likely need to file an annual tax return in the Netherlands.

Your tax residency begins on the date you immigrate. For example, if you move on July 1, you become liable for tax in the Netherlands starting from that date.

Dutch Tax system overview

The Dutch income tax system is divided into three categories of taxable income, referred to as “Boxes,” each with its own tax rate:

• Box 1: Income from employment and main residence
• Box 2: Income from substantial interest in a company
• Box 3: Income from savings and investments

This article focuses on Box 1 and Box 3 and the various deductions available in these categories.

Box 1: employment income and deductions

Employment income and withholding tax

In the Netherlands, most residents are employed by an employer, and income from employment falls under Box 1. Dutch employers are responsible for withholding payroll taxes, which act as an advance payment on the personal income tax due in Box 1.

Deductions available in Box 1

Several deductions apply in Box 1, including:

• Mortgage interest: If you own a property that serves as your main residence, you may deduct the interest paid on your mortgage from your taxable income. This deduction is calculated based on the WOZ value (official property value) and is subject to the applicable tax rate.
• Other deductions: You can also claim deductions for expenses like paid tuition fees, donations to registered charities, certain medical costs not covered by health insurance, and premiums paid for additional private pensions. Travel expenses to work (if more than 10 kilometers) using public transport, and not fully reimbursed by your employer, may also be deductible.

First-year tax return (M-form)

If it’s your first year in the Netherlands, you will need to file an M-form, which may result in a tax rebate. Payroll tax is typically withheld based on a full year’s salary, even if you worked in the Netherlands for only part of the year. Additionally, if you only resided in the Netherlands for part of the year, you may be partially exempt from national insurance contributions, potentially resulting in a refund.

Box 3: tax on savings and investments

Reporting savings and investments

Dutch residents are required to declare any investments, savings, or property worth over €30,360 (double threshold for tax partners) in Box 3 of their tax return. This includes assets held both inside and outside of the Netherlands. The fair market value of these assets, minus any debts, is assessed on the reference date of January 1st of the relevant tax year.

Examples of Box 3 sssets and debts

Examples of assets that fall under Box 3 include:

• Savings
• Second homes or rental properties
• Stocks and other securities (if you own less than 5% of a company)

Tax rates for Box 3 in 2019

For the 2019 tax year, the following tax rates applied:

• €0 – €71,650: 0.58%
• €71,650 – €989,736: 1.34%
• Over €989,736: 1.68%

Second homes and Box 3

Properties that are not your main residence, such as second homes or rental properties, are generally taxed in Box 3. The tax is based on the property’s WOZ value minus any mortgage value, if applicable. Properties owned on January 1st of a given year must be declared in that year’s tax return.

Real estate abroad and double taxation relief

As a Dutch tax resident, you must report your worldwide assets, including real estate abroad. However, most tax treaties allocate the right to tax real estate to the country where the property is located. This means you must declare foreign property in your Dutch tax return, but you are eligible for relief from double taxation, which reduces the Dutch tax burden by the amount of tax paid abroad.

The 30% ruling and Box 3

If you qualify for the 30% ruling, you can opt to be treated as a partial non-resident taxpayer. As a result, you and your tax partner will not be taxed on savings and investments in Box 3. The only exception is real estate located in the Netherlands that is not your primary residence; this must still be declared on your Dutch tax return.

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.

If you live in the Netherlands, you are required to declare all your worldwide income and assets when filing your personal tax return, including any real estate holdings. It’s not just tax residents who must report their property; non-residents with real estate in the Netherlands are also required to make a declaration.

Dutch tax residents and their real estate

As a tax resident of the Netherlands, there are a few important considerations when it comes to reporting your real estate:

Box 1: main residence

If you own a property that serves as your main residence, it is categorized under Box 1. If the property is financed through a mortgage, you may be eligible for a mortgage interest deduction. This means that any interest paid on the mortgage can be deducted from your taxable income. Additionally, costs related to the purchase of the property, such as notary fees, may also be deductible.

Box 3: secondary properties

Properties that are not your main residence, such as second homes, are typically taxed under Box 3. These are taxed based on the WOZ value (the official property value) minus the mortgage value, if applicable. Real estate held on January 1st of a given year must be declared in that year’s income tax return.

Real estate abroad and double taxation relief

If you’re a tax resident in the Netherlands, you must declare any real estate abroad. However, tax treaties between the Netherlands and other countries generally allocate the taxation rights on real estate to the country where the property is located, not to your country of residence.

While you still need to declare foreign property in your Dutch tax return, you are entitled to relief from double taxation. This means you can receive a tax credit in the Netherlands equal to the amount of tax paid in the foreign country on the property.

Moving to a new home

If you buy a new house before selling your old one, you may still benefit from Box 1 tax advantages for both properties. This is possible if the old property is empty and for sale. The tax benefit can be extended for up to three years, including the year of relocation. The same rule applies if the new property is empty and available for your use, for example, during renovations.

Non-residents and real estate in the Netherlands

If you are a non-resident who owns property in the Netherlands, you will generally be liable for Dutch tax. Under most tax treaties, real estate in the Netherlands is taxed in the country itself. As a non-resident, the property is typically subject to Box 3 taxation based on the WOZ value, less any applicable mortgage debt.

What happens if you leave the Netherlands?

If you leave the Netherlands for an extended period, your Dutch home may no longer qualify as your main residence and will be removed from Box 1 taxation. However, you can still choose to keep the property in Box 1 under certain conditions. The key factors are whether the property is for sale, rented out, or kept available for your use:

• Rented out: if you rent the property, it will fall under Box 3 taxation based on the WOZ value, less any mortgage.
• For sale: if you put your property up for sale when leaving the Netherlands, you can keep it in Box 1 for up to three years, including the year you relocate. You will still be eligible for the mortgage interest deduction. If the income in the relevant year is insufficient to offset the deduction, it can be carried forward for up to nine years.

Temporary emigration and keeping property in the Netherlands

If you emigrate temporarily, for example, to work in another country, you may still wish to retain your property in the Netherlands for when you return. In such cases, the house may remain in Box 1, allowing you to continue claiming the mortgage interest deduction, and you won’t be taxed under Box 3.

To qualify for this, the following conditions must be met:

• You must have owned the property for at least one year prior to emigrating, and it must have been your primary residence during that time.
• The property cannot be made available for rent.
• You must not reside in another home purchased abroad during your stay abroad (though renting is allowed).

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.

In the Netherlands, employers can provide their employees with tax-free allowances through the Work Expenses Scheme (WKR), often using what is known as the “free space.” While many employers prefer to give gifts like holiday presents or gift bags to employees at the end of the year, another option is to offer this amount as an additional payment, allowing employees to choose how to spend it. This also applies to contractors who are employed by their own BV and are on the payroll of their business.

Tax-free allowance amounts

For the year 2025, the free space under the Work Expenses Scheme is set at 2% for salaries up to €400,000. For salaries exceeding this amount, the free space percentage decreases to 1.18%. The free space is calculated based on the total taxable salary of all employees, and it can be used for various tax-free allowances, payments, and provisions.

For example, if your taxable salary is €80,000 per year, and the company’s total salary expenses for all employees amount to €800,000, the overall tax-free percentage will be less than 2% due to the combined salaries. Here’s a simplified breakdown for a company with 10 employees:

• Total taxable salary: €800,000
• Free space at 2% for the first €400,000: €8,000
• Free space at 1.18% for the remaining €400,000: €4,720
• Total free space: €12,720

This results in a tax-free allowance of €1,272 per employee (€12,720 / 10), which could be given as a tax-free gift by the employer.

Customary amounts for tax-free allowances

There is a condition that the allowance provided is “customary,” meaning it should not deviate by more than 30% from what is considered normal for similar situations. The Dutch tax authorities regard allowances of up to €2,400 per person per year as customary, so for amounts under this limit, it is not necessary to check whether the payment deviates by more than 30%.

For instance, if your employer is satisfied with your performance, they may give you a tax-free allowance of €2,400, regardless of your annual salary.

Additional exemptions

It’s important to note that this tax-free allowance is separate from other standard expenses that employers can cover, such as travel expenses, study costs, etc. These are considered targeted exemptions under the Work Expenses Scheme, and they don’t affect the free space allowance.

If you’re planning to relocate to the Netherlands and either continue your freelance career or start a new business, it’s important to choose the right business structure for tax efficiency. TaxSight explains your options and the tax benefits available to newcomers.

Choosing the right business structure

In the Netherlands, two common business structures are widely used:

• Sole proprietorship (Eenmanszaak)
• Limited Liability Company (B.V.), which may allow you to apply for the 30% tax ruling.

Sole proprietorship: simple, but with higher taxes

A sole proprietorship is a straightforward structure where the business is directly linked to the owner. As the owner, you’re personally liable for the company’s obligations and taxes. After deducting business costs, your profits are taxed through your personal income tax return.

Tax credits for sole proprietorships

As a sole proprietor, you can take advantage of tax deductions such as:

• The small business exemption: this provides a 14% deduction of your gross profit (meaning only 86% of the profit is taxed).
• Self-employed tax deduction: for 2021, this is €6,670, plus an additional €2,123 for the first three years of your business. However, to qualify for these deductions, you must spend at least 1,225 hours on your business activities in the calendar year, including direct work, travel, and administrative tasks.

Although a sole proprietorship is easier to set up (just a registration with the Chamber of Commerce), the full profit is taxed in the same year, which can lead to higher taxes compared to a B.V.

Limited liability company (B.V.) and the 30% tax ruling

Another option is to operate as a B.V., where you can pay yourself a salary and possibly apply for the 30% tax ruling, provided you meet the requirements. A B.V. is treated as a separate legal entity, and its tax obligations are distinct from those of a sole proprietorship.

Obligations of a B.V.

A B.V. must fulfill several requirements, such as:

• Filing monthly payroll tax returns
• Quarterly VAT returns
• Annual corporate income tax return
• Annual filings with the Chamber of Commerce

Salary obligations for shareholders in a B.V.

If you own 5% or more of a B.V., you are required to receive a salary if you perform work for the company. The B.V. must withhold wage tax on this salary. The minimum required salary is €47,000 gross annually (as of 2021), although an exception may apply if the business has limited income or the work performed is minimal.

The 30% tax ruling: a key benefit for expat entrepreneurs

To qualify for the 30% tax ruling, your salary must be at least €38,961 (as of 2021). The 30% ruling can reduce your tax burden by taxing only 70% of your salary.

Here are the tax rates for 2021:

• Up to €68,507: 37.10%
• Over €68,507: 49.50%

Additional benefits of the 30% ruling

With the 30% ruling, you can apply for partial non-resident taxpayer status. This status allows you to exempt income from savings and investments (Box 3) from Dutch income tax. However, property located in the Netherlands is still taxable.

If you’re a substantial shareholder (owning 5% or more of the shares in a foreign company), dividends received while under the 30% ruling are exempt from Dutch taxes.

B.V. taxes and dividend distribution

After the B.V. deducts its costs, the remaining profit is taxed. The corporate tax rates for 2021 are:

• 15% on the first €245,000 of taxable profit
• 25% on profits exceeding €245,000

Once the taxes are paid, the net profit can be distributed as dividends to shareholders. The dividend tax withheld by the B.V. is 15%, plus an additional 11.90% in **Box 2** of the shareholder’s personal income tax return, resulting in a total tax rate of **26.90%** for dividends under €67,804.

If the 30% tax ruling applies, it may be more advantageous to distribute additional salary rather than dividends, as it can result in lower overall tax rates.

Why choose a B.V. with the 30% ruling?

The B.V. structure, especially in combination with the 30% ruling, can be a good option for entrepreneurs planning for business growth. This structure offers more flexibility in terms of salary and dividend payments and may be more tax-efficient for those with higher earnings.

Note that if you choose to operate as a sole proprietorship, you won’t be able to apply for the 30% ruling later on.

Need help with tax matters?

If you need assistance with setting up your business structure or understanding tax implications in the Netherlands, Taxsight is here to help. With years of experience in both local and international tax issues, their team can provide tailored tax advice for your needs.

Starting your own business or going freelance in the Netherlands requires careful consideration of your tax structure. The structure you choose can significantly impact your business and its finances. TaxSight has created this guide to help you understand the different business structures, so you can choose the one that best suits your needs.

Understanding business structures in the Netherlands

In the Netherlands, there are several common business structures, each with different tax implications:

• Sole proprietorship (Eenmanszaak)
• Limited liability company (BV), which may make you eligible for the 30% tax ruling

Sole proprietorship: a simple business structure

A sole proprietorship (eenmanszaak) is a straightforward business structure where the business is tied directly to the owner. As the owner, you are personally liable for the company’s obligations, including taxes. The profit from the business is reported on your personal income tax return, after deducting expenses.

Tax advantages for sole proprietorships

As a sole proprietor, you may be eligible for certain tax credits, such as:

• Profit exemption (MKB-winstvrijstelling): a deduction of 12.7% of your gross profit (as of 2025), applicable if your income falls within the lower tax bracket of 37.48%.
• Self-employed person deduction: the deduction for self-employed individuals is €2,470 (as of 2025), gradually decreasing until it reaches €900 in 2027.
• Starter’s deduction: if you’re new to the business, you can claim a €2,123 deduction for the first three years of your sole proprietorship.

To qualify for these deductions, you must work at least 1,225 hours in your business annually, including time spent on activities like administration and market research.

VAT registration for sole proprietors

When you register as a sole proprietor, you will typically be automatically enrolled in the VAT system, requiring quarterly VAT filings.

Limited liability company (BV) and the 30% tax ruling

Another option is to operate as a limited liability company (BV), which is a separate legal entity. This option allows you to pay yourself a salary and may make you eligible for the 30% tax ruling, subject to meeting specific criteria. Operating as a BV has different tax obligations compared to a sole proprietorship.

BV tax obligations

A BV is treated separately from its owner and is required to meet additional filing requirements, including:

• Monthly payroll tax returns
• Quarterly VAT returns
• Annual corporate income tax return
• Filing annual reports with the chamber of commerce

Shareholder salaries in a BV

If you own 5% or more of the shares in a BV, you are required to receive a salary if you perform work for the company. The BV must withhold wage tax on this salary. The minimum salary is determined by the usual wage rules, and for 2024, it must be at least €56,000 gross annually. If the BV does not generate sufficient income or if the work performed is minimal, exceptions may apply.

The 30% tax ruling

To fully benefit from the 30% tax ruling, your salary must be at least €67,000. However, to be eligible for the ruling, you only need to earn €46,660 (as of 2025). The ruling allows you to pay taxes on only 70% of your salary, reducing your tax burden.

Note that the maximum tax-free percentage for the 30% ruling will decrease to 27% by 2027. Employees who received the ruling before 2024 can continue to use it until their eligibility ends.

Maximum tax-free amount for the 30% ruling

The 30% tax ruling applies only up to a maximum salary of €246,000 (as of 2025). Starting in 2026, this maximum will also apply to employees who were already receiving the ruling before 2023.

BV tax r ates in the Netherlands (2025)

The corporate tax rates for a BV are as follows:

• 19% on the first €200,000 of taxable profit
• 8% on profits exceeding €200,000

Dividend taxes in a BV

Once the BV’s profits are taxed, they can be distributed as dividends to the shareholders. The dividend tax is 15%. Additionally, dividends up to €67,804 (as of 2025) are taxed at 9.5% in Box 2 of the shareholder’s personal income tax return, bringing the total tax rate to 24.5%. Dividends exceeding this threshold are taxed at 31% (as of 2025), bringing the combined tax rate for higher dividend payouts to around 44%, assuming the 19% corporate tax rate applies.

If you qualify for the 30% ruling, it may be more advantageous to take an additional salary instead of a dividend to reduce your tax liability.

BV vs. sole proprietorship: which is right for you?

Operating a BV, particularly with the 30% tax ruling, can be a beneficial option for those who expect their business to grow. It offers more flexibility in terms of salary payments and dividends, and it can help limit personal liability. However, setting up and managing a BV comes with additional requirements and costs compared to a sole proprietorship.

For entrepreneurs expecting steady income and business growth, a BV may be the better option. It’s especially useful if you plan to hire employees or scale your operations.

Getting started with a BV and the 30% ruling

If you’re planning to start a business in the Netherlands, consider setting up a BV and applying for the 30% ruling, if applicable. This can offer significant tax advantages. Whether you’re moving to the Netherlands to start your business or transitioning from regular employment to your own business, it’s essential to take the necessary steps early to optimize your tax position.

Need expert tax advice?

Are you considering starting a business or transitioning to self-employment in the Netherlands? TaxSight specializes in both local and international tax matters, and we are here to help. Contact us today at +31 (20) 261 3221 or email info@taxsight.nl for expert advice tailored to your needs.