The taxation of employees in the Netherlands consists of the levy of personal income tax and social insurance contributions, whereas the Dutch social security contributions consist of the national social insurance contributions and the employee social insurance contributions.
The (designated) employer has a withholding obligation for taxes due over the employee’s salary (wage tax) and the social security contributions which become due over the employee's salary.
The national social insurance contributions are basically due by every Dutch individual tax payer, regardless the nature of the income. The levy of the national social insurance contributions is integrated in the income tax and wage tax levy.
The employee social insurance contributions are only due by employer (and for a small part by the employee) on account of qualifying employment income. The levy of the employee insurance contributions is separated from the levy of income tax, with its own taxable basis and rates.
For employees who are temporarily assigned to the Netherlands an exemption from the Dutch social insurance system may apply by virtue of applicable treaties and/or EU regulations.
In the Netherlands, the personal income tax year is equal to the calendar year.
Whether a taxpayer is considered a resident or a non-resident taxpayer, is based on actual facts and circumstances. The center of vital life interests is decisive in this respect. All circumstances are taken into account, such as where the individual has a residency, and where the direct family resides. The Netherlands do not have a physical days of presence test in this respect, however physical presence can also be taken into account as part of the total facts and circumstances to be considered in order to determine residency.
Resident individuals are subject to individual income tax over their worldwide income. Income earned outside the Netherlands may qualify for an exemption by virtue of applicable tax treaties or the Dutch unilateral rules for the avoidance of double taxation.
Non-residents are only subject to individual income tax on certain types of Dutch source income, including
Special rules apply to certain categories of tax payers like for instance sportsmen or artists.
A non-resident taxpayer earning certain Dutch source income can under certain stringent conditions opt for the status of resident tax payer. Usually this is done to qualify for personal allowances and deduction of certain expenses which are generally not availble for non-resident tax payers.
Under most tax treaties a foreign employee who is assigned to the Netherlands by a foreign employer is exempt from Dutch income tax/wage tax if the employee's working days in the Netherlands do not exceed 183 days in a tax year. This rule generally does not apply if the foreign employee has a Dutch employer. Special rules apply for foreign based employment agencies.
Income taxation per "box"
The Dutch individual income taxation is based on three types of income, included in separate boxes of income. Each box has its own rules for computing the taxable base and its own tax rate:
Box 1: taxable income from work and home; this is taxable against progressive tax rates, see further under box-1-the-income-from-labor-and-main-residence-box-1, and under Dutch tax rates for individuals.
Box 2: taxable income from substantial shareholdings; this is taxable against fixed rate over actual income from the shares, see further under box-2-income-from-substantial-shareholdings- , and under Dutch tax rates for individuals.
Box 3: income from savings and portfolio investments; this is taxable against a fixed rate, over fictitious income calculated as percentage of the total value less allocable debt, see further box-3-the-income-from-savings-and-investments-inkomen-uit-sparen-en-beleggen, and under Dutch tax rates for individuals.
Each form of income is taxed in one box only. For example, all elements of employment income - for example, salary, bonus, company car and benefits in kind - are subject to income tax in Box 1. There is supposed to be no double taxation. If the income in one box is negative, this can in most cases not be offset against positive income in another box. However, it is in principle possible to offset the negative amount against a positive income in the same box in past or future years.
For information about the applicable rates , please consult our publication Dutch tax rates for individuals.
Wage tax or wage withholding tax ('Loonheffing') is an advance payment for the individual income tax. Wage tax and national social insurance contributions ('volksverzekeringen') are levied jointly on income from employment.
Virtually all Dutch employers, including non-resident employers with a (deemed) permanent establishment in the Netherlands, are obliged act as a withholding agent and to withhold wage tax and national social insurance contributions from salary payments.
The rates are progressive and depending on the bracket of income. For the rates we kindly refer to the page The withholding tables in the Netherlands. Wage tax rates are basically equal to individual income tax rates, although through the much broader taxable basis of the income tax the ultimate effective rates may deviate. For many individuals the wage tax is however a final tax.
Depending on the level of income from employment and other criteria, individuals may have the legal obligation to file an income tax return. The filing of a tax return is followed by the issuance of a tax assessment in which the wage tax already paid is offset against the final income tax liability.
For more information about the levy of wage taxes, please consult our publication The payroll obligations in the Netherlands.
In addition to the national social insurance contributions that form part of the lowest income tax rate, social security contributions ('werknemersverzekeringen') on employment income are payable by employers. The contributions are calculated on gross salaries (with a maximum amount), less pensions premiums withheld and adjusted for some technical differences with the income for tax purposes.
The rates for the employee insurances are partly dependent on the line of business of the company. For more information please consult The Dutch employees social security insurances.
For an overview of the current rates for the Dutch personal income tax and the national social insurance contributions we refer to our publication Dutch tax rates for individuals.
The Dutch tax system provides for a special incentive for foreign employees who are assigned to the Netherlands. In essence, the incentive allows the employer to pay the employee a tax free allowance up to 30% of gross salary. For more information about this incentive we refer to our publication Expatriate incentive: the 30% regulation.
The Dutch tax system provides special rules for the treatment of (foreign) employee stock option plans.
Where it comes down to, is that employee options are considered to be part of the employee’s taxable wages. In most cases the employer has a withholding obligation, even if the options are granted by another (group) company. Special rules apply for determining against which value and exactly at what moment the options are taxed.
For more information about this subject, we refer to the page The taxation of employee stock options in the Netherlands.
We provide HR assistance and payroll services to employers with an international workforce. We can also assist with the preparation of the Dutch income tax return of Dutch employees, and handle the associated compliance. Most of this work is done on the basis of fixed price lists.
If you are interested in our services, please feel free to contact us via e-mail or to call us at our office in Amsterdam at +31 (20) 5709440, or our office in Rotterdam at +31 (10) 2010466.