Few people like them, but almost everyone has to pay them. Income taxes and social security contributions are relatively high in the Netherlands, and the tax system is not the simplest.
Income tax is in Dutch inkomstenbelasting. In the annual income tax return (aangifte inkomstenbelasting) there are three types of income, namely box 1, box 2 and box 3.
For most taxpayers, the most important is box 1 , i.e. tax on income from work and housing (werk en woning).
Income from work (inkomsten uit werk) includes, among others, salary (loon), business profit (winst uit een onderneming), benefits (uitkering), pension (pensioen), maintenance payments (alimentatie), income from abroad (buitenlandse inkomsten) or income earned as a freelancer.
If someone has a flat that is their main place of residence, they must add the so-called eigenwoningforfait to their income. It is calculated based on the value of the flat ( WOZ-waarde ).
In 2024, for apartments and houses worth between 75,000 and 1,320,000 euros, the eigenwoningfortfait amounted to 0.35% of the value of the apartment. For values above 1,320,000 euros, this percentage was higher (2.35% of each euro of value above 1,320,000 euros), and for values below 75,000 euros, this percentage was lower (from 0 to 0.25% depending on the value).
The combined income from work and eigenwoningfortfait are taxed according to a progressive tax scale. There are two main income tax rates . In 2024, for people who have not yet reached retirement age ( AOW -leeftijd), they were: for income up to 75,518 euros per year – 36.97%, and for income above this amount – 49.50% (the actual tax rate is lower, however, because many reliefs apply).
People of retirement age pay lower taxes. In 2024, their income up to €40,021 (for those born up to 1945) or up to €38,098 (born in 1946 or later, but of retirement age) was taxed at a rate of 19.07%. Income above these amounts was already taxed at the same scale as the income of people who had not yet reached retirement age.
The income tax rates in the Netherlands may seem high, but it should be noted that up to an income of 38,098 euros (in 2024), they also include social security contributions (Volksverzekeringen premiums). These are pension contributions (AOW premiums, as much as 17.9% in 2024), Wlz premiums (contributions financing support for the chronically ill, pensioners; in 2024 9.65%) and Anw contributions (financing benefits for orphans and next of kin of the deceased; only 0.10%). In total, this is as much as 27.65% of social security contributions. In the case of income up to 39,098 euros per year, the “actual income tax” is therefore only 9.32%, and the rest – social security contributions.
In Poland, the values of tax (PIT) and contributions (ZUS) are often given separately (“I pay this much tax, and this much to ZUS”), so it may seem that the income tax rate in Poland is much lower than in the Netherlands. However, if you add up the income tax and social security contributions rates, the resulting total tax and contribution rate in Poland will not differ that much from the Dutch one.
The amount of tax paid is also affected by various tax reliefs . One such relief is arbeidskorting (maximum 5,532 euros in 2024). This is a relief applied in the context of income from work, calculated by the employer according to a rather complicated table . Another relief that almost all taxpayers are entitled to is algemene heffingskorting (maximum 3,362 euros in 2024).
The payroll tax withheld from the employee’s gross income and transferred to the Belastingdienst Tax Office is called loonbelasting, and together with the social security contributions withheld from the employee’s income – loonheffing. In addition, the employer must add employee insurance contributions (premies werknemersverzekeringen) and health insurance contributions (premie Zvw) to the labor costs – but these amounts are no longer included in the employee’s gross income (these are so-called employer costs).
After taking into account all income tax reliefs, the actual amount of payroll tax is usually significantly lower than the rates themselves suggest. This applies in particular to employees with lower incomes. It is not the case that the state takes away as much as 36.97% of income from low-earning people. In the case of an employee with the minimum wage in 2024, it is, for example, only about 7% (net earnings, i.e. take-home pay, are lower than the gross amount). The minimum wage is therefore relatively poorly taxed. In turn, an employee earning as much as 10,000 euros gross per month will pay a total of about 41% income tax on the entire amount.
The second type of income from which income tax is charged ( box 2 ) is the so-called aanmerkelijk belang. This is a tax imposed on people who own at least 5% of the shares in a company and have income from this, e.g. in the form of dividends or income from the sale of shares. Box 2 therefore applies to a relatively small group of taxpayers.
The last category of income tax is box 3 , or the tax on savings and investments (sparen en beleggen), or in other words – wealth tax . This is about the capital accumulated by the taxpayer, reduced by any debts.
The basis for this tax is the total value of, among other things, accumulated savings, bonds and shares (reduced by debts). In this context, the value of the first owner-occupied apartment is not included in the assets. Any subsequent owner-occupied apartments owned by the taxpayer are already taken into account.
This tax is imposed only on taxpayers whose assets, net of debts, exceed a certain amount. In 2024, it is €57,000 for a taxpayer filing individually and €114,000 for a couple. Assets below these amounts are exempt from income tax.
Property above these amounts is taxed at different rates depending on its type. The tax base is the projected profit estimated by the Belastingdienst Tax Office. For savings deposited in a bank, Belastingdienst calculates the tax base assuming an interest rate of 1.03% in 2024, and in the case of shares, bonds, second homes and other property components, it is 6.04%. Only from this calculated tax base is the tax amount calculated, calculating (in 2024) 36% of this amount.
So if someone had €77,000 in savings in the bank at the beginning of 2024, they should pay tax on €20,000 (because €57,000 is exempt from tax). The tax base will be 1.03% of €20,000, or €206, and the tax itself should amount to €74.16 (or 36% of €206).
Calculating income tax and social security contributions in the Netherlands is not, at least in theory, easy. Every year, taxpayers must file a tax return (aangifte inkomstenbelasting, or belastingaangifte) for the previous year. This can be done online by logging in with DigiD on the website of the Dutch Tax Office, Belastingdienst.
The tax office usually automatically completes part of the tax return online. The Belastingdienst enters, for example, the amounts withheld from the taxpayer’s income by the employer. These include, for example, contributions and taxes due, as well as the amounts of basic reliefs used when calculating tax on income from work.
Self-settlement of income tax may be too difficult for some taxpayers. This applies, for example, to many foreign employees who do not know the Dutch language or the local tax system well. In such a situation, you can use the help of professional accounting and tax consulting firms that complete such declarations on behalf of the taxpayer. Many such firms advertise in these pages.
By completing the annual declaration, the taxpayer finds out whether he or she has to pay extra to the tax office or is entitled to a refund of part of the tax. Foreign employees who are only temporarily in the Netherlands can often get back part of the tax and contributions they have paid. It is therefore worth taking care to settle the tax and do it on time.
Tax returns for 2023 can be filed with the Dutch Tax Office from 1 March 2024. They must be filed no later than 13 July 2024. The Tax Office may impose a fine on a taxpayer who fails to comply with this obligation or files a tax return after the deadline.