Tax credits in Netherlands
Tax credits
Everyone has the right to credits on taxes to be paid: the general tax credit. On top of that, you may receive additional credits.
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Overview tax credits
Tax credits consist of a national insurance contributions component and a tax component (not the elderly person’s tax credit and the single elderly person’s tax credit). The component that you will receive depends on your situation.
The right to the national Insurance component
If you have compulsory insurance in The Netherlands, then you are entitled to the national insurance component of your tax credit. If you are not insured for national insurance, then you are not entitled to this. If you want to know when you are or are not insured and how the national insurance is levied, please see The levying of national insurance contributions.
The right to the tax component
If you live abroad and are a taxpayer in The Netherlands, then you are not automatically entitled to the tax component of your tax credit. You are only entitled to this if you choose to be treated as a resident taxpayer, or if you are a resident of Germany, Belgium, Suriname, the Dutch Antilles or Aruba.
- Allowance for German residents
- Allowance for Belgian residents
- Allowance for residence of Suriname, the Dutch Antilles and Aruba
You are always entitled to the tax component of the employed person’s tax credit, even if you do not choose to be treated as a resident tax payer. You must then satisfy the criteria for the employed person’s tax credit.
Composition of tax credits
In the Netherlands, the Tax and Customs Administration levies the income tax and the national insurance contributions for AOW, ANW and AWBZ as one aggregate amount. For this reason, the tax credits relate to both income tax and national insurance contributions.
For 2008, the 33.60% levy you owe in bracket 1 on your Box 1 income (see Tax rates) consists of:
- 2.45% in income tax
- 17.90% in AOW contributions
- 1.10% in ANW contributions
- 12.15% in AWBZ contributions
Example
In 2008, the general tax credit amounts to € 2,074. For persons under 65, the component of the general tax credit that relates to income tax amounts to 2.45/33.60 part of € 2,074 = € 151 in 2008.
Maximum size of the tax credit
The tax credit cannot exceed the combined income levy. The combined income levy is the total amount of taxes and national insurance contributions that you owe on the taxable income in Boxes 1, 2 and 3.
In 2008, the following tax credits are available:
| Tax credit | Persons younger than 65 | Persons of 65 and older |
|---|---|---|
| General tax credit | € 2,074 | € 970 |
| Employed person’s tax credit (maximum) | ||
| - up to 57 years | € 1,443 | |
| - 57, 58 or 59 years | € 1,697 | |
| - 60 or 61 years | € 1,947 | |
| - 62, 63 or 64 years | € 2,201 | |
| - 65 years or older | € 1.029 | |
| Combination tax credit | € 112 | € 54 |
| Supplementary combination tax credit | € 746 | € 350 |
| Single parent’s tax credit | € 1,459 | € 683 |
| Supplementary single parent’s tax credit (maximum) | € 1,459 | € 683 |
| Young disabled person’s tax credit | € 656 | |
| Elderly person’s tax credit | € 485 | |
| Single elderly person’s tax credit | € 555 | |
| Tax credit for leave under the life-course savings scheme | € 191 | |
| Tax credit for parental leave | PM | |
| Tax credit for socially responsible investments (maximum) | 1.3%* | 1.3%* |
| Tax credit for investments in venture capital (maximum) | 1.3%* | 1.3%* |
* of the exemption in Box 3.
Three types of income: the box system
For income tax purposes 3 types of taxable income are distinguished. These income types have been classified into 3 so-called boxes:
- Box 1: taxable income from employment and home ownership
- Box 2: taxable income from a substantial interest
- Box 3: taxable income from savings and investments
Box overview
The following overview shows the income, deductible expenditure and tax rates pertaining to each box.
| Box 1: Taxable income from employment and home ownership | Box 2: Taxable income from a substantial interest | Box 3: Taxable income from savings and investments |
|---|---|---|
| Wages, pension payments, social benefitsIncome from other activities
Company car Profits from business activities Owner-occupied property Negative expenditure on income insurance Negative personal allowance Periodic benefits |
Income from shares and profit-sharing certificates that are part of a substantial interestIncome from the disposal of these shares and profit-sharing certificates | Notional yield (4%) on capital (assets minus liabilities): the income from savings and investments |
| Deductible expenditure Box 1 |
Deductible expenditure Box 2 |
Deductible expenditure Box 3 |
|---|---|---|
| Employee’s allowanceDeduction of mortgage interest and other deductible expenditure
Expenditure on income insurance: annuities and other premiums Offsettable losses from employment and home ownership |
Deductible expensesOffsettable losses from a substantial interest | None |
| Deductible items not related to any of the boxes |
|---|
| Personal allowance |
| Tax rate Box 1 | Tax rate Box 2 | Tax rate Box 3 |
|---|---|---|
| Progressive, with a maximum rate of 52% | 25% | 30% |
Income in several boxes
If your income falls into two or three different boxes, its components will be treated and – where possible – taxed separately. This means that:
- In general, every type of income falls into one particular box. Therefore, your income cannot be taxed twice.
- Different tax rates are applicable to the taxable income in Boxes 1, 2 and 3.
- Any negative income (loss) in one box cannot be offset against positive income in another box. A special facility applies to losses in Box 2.
Deductible expenditure
Deductible expenditure that is directly related to revenue in a particular box will reduce the income in that box.
Example
The income from an owner-occupied property falls in Box 1. If you contracted a loan to purchase the owner-occupied property, the interest paid is deducted from the income from the property. Both the property and the loan pertain to Box 1.
Some types of deductible expenditure are not directly related to particular revenue. Examples of such expenditure are donations and extraordinary illness-related expenses. These types of deductible expenditure together constitute the personal allowance. The personal allowance can be deducted from your income in Box 1. Any remaining expenses can be deducted in Box 3 and Box 2.
Calculation of the tax owed
The tax you owe on the income in the three boxes is levied as one amount with any national insurance contributions owed. This amount is reduced by the tax credits to which you are entitled. More information can be found at:
- The levy of national insurance contributions
- Tax credits
