Personal Income Tax

Individuals residing in the Netherlands are liable to personal income tax (inkomstenbelasting) on their worldwide income. Non-residents are also liable to personal income tax on certain elements of income derived from Dutch sources, including income from employment within the Netherlands (subject to the terms of any appropriate double taxation agreement).

Withholding taxes

In general, the wage withholding tax (loonbelasting) constitutes a prepayment of personal income tax. All employers in the Netherlands, including the permanent establishments of foreign employers, are required to withhold this tax from payments to their employees and remit it to the tax collector periodically. The tax is levied on employment income of non-resident as well as resident employees. The withholding rates are progressive and in principle are similar to the personal income tax rates.

If the tax withheld exceeds the final amount of personal income tax payable, resident taxpayers may request a refund for the excess tax payments. A request for a refund must be accompanied by a completed tax return. A non-resident is not entitled to a refund, but under some circumstances excess withholding tax is nevertheless reimbursed if a tax return has been filed.

The 30% ruling

The 30% ruling is a tax facility for employees who have been posted from or recruited outside the Netherlands to work in the Netherlands for a Dutch employer, who incidentally, under circumstances could also be a resident of the Netherlands. The ruling is provided in the Wage Tax Act.

The 30%-ruling allows an employer to grant an employee a tax-free allowance of up to 30% of his total remuneration for so-called extraterritorial expenses. The result of the 30%-ruling is a higher net salary. You should keep in mind that if the 30%-ruling is applicable to you this means you might be in a lower tax bracket. As a result your net savings may be lower thanks to your tax relief for the interest rate.

When applying for the 30%-ruling, the employee may choose to have resident or partial non-resident tax status. As a partial non-resident, you are a resident of the Netherlands for income (and deductibles), but you're treated - upon your request - as a non-resident. The ruling applies for a maximum period of ten years. The impact of the 30%-ruling on social security and pensionable base may be that the employee insurance contributions and pension rights may be accrued on your contractual (lower) gross salary only! This may lead to a possible pension gap, so beware.

For more information on the 30%-ruling you can contact the WestHolland Foreign Investment Agency.