Basic of Taxation

Dutch residents are taxed on their worldwide income. Non-residents are taxed on income with a Dutch source, subject to certain exemptions (for example applicable tax treaties).

A person’s residence is prescribed in law as determined based on all relevant facts and circumstances. Several criteria are used to determine whether an individual is a resident, individually or in totality:

1. Where a permanent home is maintained;
2. Where employment duties are (physically) performed;
3. Where the individual’s family resides;
4. Where the individual is registered with the local authorities;
5. Where bank accounts and other assets are maintained;
6. The length of intended stay in the Netherlands

The partial non-residency election for holders of the 30% ruling has been abolished as of 2025.

Box 1

Box 1 income includes income from employment (local and foreign), pensions, annuities and similar other income that does not qualify as Box 2 or Box 3 income.

Certain rebates and exemptions are available, for example the labour credit for employees. Foreign taxes paid on foreign income are either credited back under the offset method (verrekeningsmethode) or the income itself is exempted (vrijstellingmethode), based on the applicable tax treaty. Generally the exemption method is more favourable.

Primary Residence

The value of a taxpayer’s owned primary residence (WOZ-waarde) is used to calculate a fictitious ‘owned residence income’ (eigenwoningforfait) which is added to the Box 1 income, unless there is no (or very low) mortgage debt associated with the property. Additionally, unlike Box 3 investments, rental income from holiday or Air BnB type rentals of a primary residence is taxable in Box 1.

Interest paid on a mortgage (or mortgages) for a primary residence is generally tax deductible provided the mortgage is a linear annuity mortgage that includes both capital and interest repayments and is for a maximum of 30 years.  This deduction is capped both in terms of a maximum rate (37.48%) as well as a maximum percentage based on whether all of the profits of previous primary residence sales were reinvested in the current primary residence or not.

30% Ruling & Extra Territorial Costs

An employer may choose to reimburse certain extra-territorial costs tax free for foreign employees, including (but not limited to) double housing costs, language courses and leave to travel to their country of origin (home country).

Under certain circumstances, an employer and employee may jointly apply for the 30% ruling, which allows an employer to designate up to 30% of an employee’s salary as tax free for up to 5 years (27% from 2027). Should this occur then extra-territorial costs may not be additionally reimbursed tax free.

Box 2

Box 2 income is any income from a substantial interest in a company, such as:

• Dividends
• Profits on sale of some or all of a Box 2 investment.

 

However, it does not include Box 1 income, for example where an individual owns a company and draws a salary from that company. In such a case the salary is taxed in Box 1.

A substantial interest is defined as an interest that exceeds at least 5% of the issued shares (or a class of shares) or the right to acquire a 5% interest in a company. It should be noted that the direct and indirect holdings (or rights) of the taxpayer, their spouse/partner, and other close relatives, are considered in aggregate when determining whether or not the 5% threshold is breached.

Whereas residents are taxed on worldwide substantial interests (subject to tax treaty relief), non-residents are taxed only on substantial interests in Dutch companies (again, subject to tax treaty relief).

Box 3

Box 3 is often referred to as a wealth tax. This is slightly misleading as the income to be taxed is not the value of the wealth itself but a fictitious/deemed income calculated based on the value of the wealth of the taxpayer as at 01 January in the year of assessment.

It should also be noted that the value of a taxpayer’s savings and investments in Box 3 is reduced by the value of any debt other than debt taxed elsewhere (e.g. mortgages on a primary residence, which are dealt with in Box 1).

An interesting aspect of Box 3 is that, because a fictitious income is being taxed, actual income being generated by Box 3 assets such as rental income on 2^nd homes is not taxed anywhere under the Dutch system.

The fictitious income (or deduction) is taken by multiplying the value of assets and liabilities by a determined percentage, depending on class:

Class	Fictitious Income (Deduction) Percentage
Bank deposits and similar	1.03%
All Other Assets (including crypto)	6.04%
Debts	(2.47%)

 

A personal exemption of €57,684 applies to Box 3 assets for an individual taxpayer, or €115,368 in the case of fiscal partners filing jointly.

Once the value of Box 3 has been determined and the fictitious income calculated, that amount is then multiplied by 36% to obtain the Box 3 liability.

Anti-arbitrage rules exist to prevent taxpayers from moving assets between classes on 31 December to ensure a lower (fictitious) taxable Box 3 income by increasing cash holdings on 1 January, only to reinvest on 2 January. In short, any transactions that occur three months before or after year end that have the effect of converting Other Assets into cash will be disregarded for Box 3 purposes unless the taxpayer can prove a bona fide reason for the transaction. It is not yet clear what this looks like in practice or what the Tax Authorities will accept as a valid reason.

Tac Administration

Although taxpayers are treated as individuals for administration periods, spouses, registered partners and other persons living as a joint household may qualify as ‘fiscal partners’ for Dutch tax purposes. This allows the allocation of certain incomes and deductions between the partners to achieve the most favourable tax outcome:

1. Taxable income from a principal residence (Box 1)
2. Box 2 income
3. Box 3 income
4. Certain personal non-business deductions

 

The Dutch personal tax year runs from 01 January to 31 December. Personal tax returns must be filed by 01 May following the year of assessment and are generally available to file online from 01 March each year. Paper returns may also be filed; these must be requested from the Dutch Tax Authority. Filing extensions may be requested and are usually granted.

Depending on a taxpayer’s circumstances, different returns may be required:

• M-Form in the years in which a taxpayer immigrates to and/or emigrates from the Netherlands
• C-Form where a taxpayer has been non-resident for an entire tax year
• F-Form where a taxpayer has died during the year of assessment

 

Where an individual taxpayer has a large income that is not subject to payment via normal withholding mechanisms such as wage taxes, provisional payments may be required. It is also possible to file a provisional tax return where a refund is expected – in this case, the refund will be paid to the taxpayer in monthly instalments. This is commonly done where a taxpayer owns a primary residence and the mortgage interest deduction usually results in a refund each year.

The Dutch Tax Authority communicates extensively via regular mail, and it is critical that taxpayers have an address that they are able to receive this mail at.

DIRECTOR/MAJOR SHAREHOLDER CONSIDERATIONS

The Minimum or ‘Usual’ Wage Regulations (‘gebruikelijk loon’)

The Netherlands has developed an extensive, highly complex anti-income tax avoidance framework for company directors who are also considered ‘major shareholders’ (directeur-grootaandeelhouder) – sometimes slightly inaccurately referred to as the ‘managing director/shareholder rules’ in English.

Effectively, these rules require directors of companies who also own (directly or indirectly, alone or together with their spouse/partner and other close family members) more than 5% of the issued share capital of a company to pay themselves a ‘usual’ or ‘normal’ wage.

Generally these rules target, for example, directors of personal holding companies that charge management fees to other operating companies.

Calculation of the Minimum Wage

There is a misconception that the minimum wage for a DGA is whatever the Dutch Tax Authority sets it at annually – currently this is €56,000 per annum in 2024. This has an element of the truth to it, but it is NOT the complete picture!

The minimum salary for a DGA is determined to be the highest of the following three criteria:

1. Comparable Salary – what would a non-DGA in a ‘normal’ company performing the same role be earning?
2. Highest Earning Employee – what is the salary of the highest earning employee of your company?
3. Set Amount – this is the benchmark set by the tax authorities which is the €56,000 that most people refer to (as of 2024).

 

Implications of the Minimum Wage

The minimum wage for a DGA must be paid before any dividends may be declared to that DGA. This has the effect of reducing the amount a DGA can earn via dividends, which are taxed at a lower rate in Box 2 than a salary in Box 1.

Reduction of the Minimum Wage

Often when an entrepreneur incorporates a company there is little or no income – at least far lower than the applicable minimum wage. In such a case, a DGA may request a reduction in the minimum wage from the tax authority. This must be done in writing, and must include a motivation for the reduction, the amount of the reduction and the proposed duration of the term of the reduction. The Dutch Tax Authority must agree in writing to the proposal.

Declaring but not Drawing a Salary as a DGA

It is worth remembering that a salary may be declared but not drawn in cash. In such a case, the net salary payable is booked against a type of loan account called a ‘current account’ (rekeningcourant). However, where a salary is declared the wage taxes on that salary must paid to the tax authority each month regardless! When the net salary is eventually paid out, it will not be taxed again. Provided the amount of the salary declared meets the minimum wage applicable the DGA will be compliant with the Usual Wage Rules, regardless of whether or not the salary is physically paid in cash.

Non-Resident DGAs & the Usual Wage Rules

If you otherwise meet the criteria to be considered a DGA but are not resident in the Netherlands, the Dutch Tax Authorities have taken the position that they cannot enforce the Usual Wage Rules and therefore you are free to pay yourself whatever you wish. Of course, it is advisable to check whether there are similar regulations in your country of residence.

You will, however, remain liable for Box 2 taxation as part of the Dutch personal tax system on your Dutch substantial interests.

Other Considerations for Director-Major Shareholders

It is important to note that as a director-major shareholder you do not pay the same social security contributions that regular employees pay. This may seem advantageous initially as it lowers your contributions as an employer and employee.

However – this means that you are not covered by social securitiy in the event you cannot work. Whereas a normal employee who loses their job is often able to claim uninsurance benefits, you as a DGA are excluded from this. Whilst this is an obvious anti-abuse mechanism for some situations (you cannot make yourself redundant and then claim unemployment) it also includes situations that may not be your fault – for example, long term sickness or physical impairment that prevents you from working.

Therefore, it is highly advisable as a DGA to take out private unemployment insurance (arbeidsongeschiktheidsverzekering) and potentially consider income protection as well.

It also means that you do not build up a government pension. You will not be eligible for public pension payments when you reach retirement age. Therefore, it is again advisable to consider taking out a private pension (either via your company or personally) to supplement your retirement.