Tax rates in Netherlands
You can have three types of taxable income: in Box 1, in Box 2 and in Box 3. You calculate the amount of tax you owe by applying the tax rates to these taxable incomes.
The tax amount you calculated on the basis of the tax rates should subsequently be reduced by one or more tax credits. This is because all taxpayers are entitled to a general reduction of the tax owed: the general tax credit. In addition, you may qualify for supplementary tax credits, depending on your personal situation. For more information, please refer to Tax credits 2008.
Tax rate for income from employment and home ownership (Box 1)
The rate for income from employment and home ownership is a progressive rate that is charged over four ‘brackets’. As a result, you will pay a proportionally higher amount of tax as your income increases. The following table shows the brackets and the corresponding tax rates in 2008.
| Bracket | Taxable income from employment and home ownership | Income tax rate |
|---|---|---|
| 1 | up to € 17,579 inclusive | 2.45% |
| 2 | € 17,579 to € 31,589 inclusive | 10.70% |
| 3 | € 31,589 to € 53,860 inclusive | 42.00% |
| 4 | € 53,860 and more | 52.00% |
If you are also insured under the statutory pension insurance (AOW), surviving dependants’ pension insurance (ANW) and exceptional medical expenses insurance (AWBZ) schemes, you will also pay national insurance contributions on the Box 1 income. These contributions are owed on the taxable income in Box 1 up to € 31,122 inclusive (in 2008). The percentage for national insurance contributions (AOW, ANW and AWBZ) is 31.15. If you are 65 or older, the percentage will be 13.25. For more information, please refer to The levy of national insurance contributions.
Tax rate for income from a substantial interest (Box 2)
The income from a substantial interest is taxed at a fixed rate of 25%.
Tax rate for income from savings and investments (Box 3)
The income from savings and investments is taxed at a fixed rate of 30%.
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
