The Dutch Government is responsible for the administration of education, justice, policing, road construction and maintenance. It also provides social security (volksverzekeringen) benefits, care for the elderly and subsidies for housing and for the arts and culture, among other things. Implementing these government tasks costs money. Individuals and companies pay this money to the Dutch government in the form of taxes and social security contributions. Government expenditure is largely financed from tax revenues. Most of the proceeds from social security contributions are spent on social security and health care. It is the Tax Administration, as part of the Ministry of Finance, that is responsible for tax collection and to some extent responsible for collecting social security contributions.

International aspects of taxation in the Netherlands

Individuals resident in the Netherlands are subject to income tax on their worldwide income. Companies established in the Netherlands are subject to corporate income tax on their worldwide profits. This is known as resident tax liability. Measures have been taken to avoid double taxation, where resident taxpayers pay tax twice on all or part of their worldwide income or profits.
In addition, individuals non-resident in the Netherlands are subject to income tax on income from a number of sources in the Netherlands. Companies resident outside the Netherlands are subject to corporate income tax on their taxable profits from certain sources in the Netherlands. This is known as non-resident tax liability.

Non-resident taxpayers paying income tax may opt to be treated as resident taxpayers.

Corporate income tax

A profit-generating company pays corporate income tax. The amount of tax to be paid and the country in which a company is subject to taxation depends on a number of factors. Below is an outline of how corporate income tax is regulated in the Netherlands.

Income tax

Natural persons who have an income pay income tax. Individuals may receive income from different sources. Income tax takes into account the origin of the income and distinguishes three categories. These categories are known as ‘boxes’. The income in each of the three boxes is taxed at a different rate. The total of the tax owed in the three boxes is the income tax payable.

Value added tax (VAT)

Every taxable entrepreneur must pay turnover tax on turnover. Turnover tax is also known as VAT (value added tax). The everyday term ‘VAT’ will be used in this brochure.
In the Netherlands value added tax (VAT) is levied at each stage in the chain of production and on the distribution of goods and services based on the 6th European VAT Directive. The tax base is the total amount charged for the transaction excluding VAT, with certain exceptions. As deductions are made at previous stages of the chain, VAT is not cumulative. The VAT that a taxable entrepreneur pays on expenses or investments (the input tax) may be deducted from the VAT he charges (the output tax). If the balance is positive, tax is payable to the tax administration; if it is negative, a refund is given by the tax administration. The tax paid by the end-consumer of the goods or services is not deductible. The amount of tax is based on the applicable VAT rate and the price, exclusive of VAT, of the goods or services received.

Environmental taxes

The following environmental taxes are imposed in the Netherlands: taxes on groundwater, tap water, waste, fuel and the energy tax. These taxes are components of the Environmental Taxes Act. Alongside these taxes are various other taxes connected with mobility, which could also be considered to be environmental taxes. For example, excise duties on mineral oils, motor vehicle tax, and the tax on passenger cars and motorcycles.

Wage withholding tax

Everyone in the Netherlands who is in paid employment is subject to wage tax. The employer or entity that pays the wages withholds the wage withholding tax and pays it periodically to the tax administration. The wage withholding tax consists of one amount made up of wage tax and social security contributions. Social security contributions must be paid for the old age pension (aow), surviving relatives benefit (Anw) and exceptional medical expenses (awbz). Individuals working in the Netherlands generally have social security coverage and must therefore pay social security contributions. An exception to this may, for example, apply in the event of (temporary) secondment.

The party withholding deductions is known as the withholder; this is the party that files the tax return. The party whose wages or allowances deductions are withheld is known as the (deemed) employee.
The wage withholding tax is an advance tax payment for the income tax. This means that a person does not have to pay a single large payment for income tax and social security contributions once a year. The wage withholding tax is withheld when an individual receives his wage payment.