#expattax

Tax rates changes from 2024

Last week, the House of Representatives (HR) proposed amendments to the Dutch government's plan to revise the country's tax laws for 2024. The following are the main proposals, which will still be considered by the Senate and by the Cabinet again (if after November 22, 2023, then by the newly elected Cabinet).

Box 1: Earned income and income from owner-occupied dwellings

Generally, Box 1 includes income from:
  • present and past employment;
  • business activities;
  • other activities;
  • the provision of assets to the company with substantial participation, (i.e. in which the taxpayer owns a share or an option of 5%+ (Substantial Participation);
  • an owned dwelling in which the taxpayer or relatives thereof reside (Owner-occupied Dwelling).

HR voted against the rate increase in the first and the second bracket of Box 1 from 36,93% to 36,97%. At the same time, the Cabinet has offered to increase the (aggregate) income threshold for the application of the abovementioned rate from € 73 031 to € 75 624.

Box 1 consists of three brackets, the first two of which apply the same aggregate tax rate, however, they differ in that the tax rate of the first bracket is divided into two tariffs (one for the income tax and one for the social security contributions) whereas the tax rate of the second income bracket is fully allocated to the income tax (same as the tax rate of the third bracket).

Box 1
Tax credits
Employees and individual entrepreneurs in the Netherlands are entitled to the three basic tax credits (Tax credit (heffingskorting) is a discount deductible directly from the tax liability (from the “tax to pay”) in Box 1:

▪️ General credit (algemene heffingskorting);

▪️ Employment credit (arbeidskorting);

▪️ Credit for earning parents with a child younger than 12 years old (inkomensafhankelijke combinatiekorting).

Box 1
*«The earning parents credit» related to children to be born after Dec. 31, 2026 will be cancelled. This measure is adopted in view of the plan to make kindergarten (almost) free from 2027.
Tax deductions
For individual entrepreneurs who work at least 1225 hours in a year for their business, the following additional tax deductions (Tax deduction (aftrek) is a discount deductible from the tax base (which is generally less beneficial than a tax credit) may be applied (ondernemersaftrek):

▪️ individual entrepreneur’s (sole proprietorship’s) deduction (zelfstandigenaftrek);

▪️ an additional deduction for "starters" which may be applied no more than 3 times in the first 5 years of doing the business (startersaftrek);

▪️ a cooperation deduction for the partner working for the sole proprietorship of his or her spouse not less than 525 hours per year and receiving less than € 5000 annually for such work (meewerkaftrek);

▪️ a small and medium enterprise profit exemption rule, applied to the individual entrepreneur’s tax base after deduction of both the sole proprietorship’s deduction and the starters’ deduction (MKB-winstvrijstelling).


Box 1

Box 2: Income from Substantial Participation

Box 2 includes income from the company in which the taxpayer has a Substantial Participation. Generally, this includes:
  • dividends (including “hidden”, e.g. in the case of specific profit share loans);
  • return of the share capital to the shareholder;
  • actual or deemed disposal of shares.
Substantial Participation disposal is deemed to take place in case of:
▪️ disposal at a below market price;
▪️ inheritance;
▪️ change of the owner’s tax residence;
▪️ termination of Substantial Participation;
▪️ distributions from the liquidated company;
▪️ grant of a share call-option.
Importantly, on September 21st, 2023 the House of Representatives invited the Cabinet to consider introducing a 15% withholding tax on redemption of shares in a Substantial Participation company and its capital decrease.

Box 2
Box 3: Income from savings and investments
Generally, Box 3 includes (valued as of January 1st of the reporting year):
  • balances of personal bank-, broker- and crypto accounts;
    cash;
  • loans given out;
  • dividends (interest/capital gains) from companies without Substantial Participation;
  • cash;
  • income from (im)movable property and proprietary rights (e.g., royalty), as well as the value of such property/rights (unless they fall into Box 1 as related to the active earned income or as an owner-occupied dwelling).

The Box 3 taxable base is determined as follows:

  • 1
    Net asset value.
    First, the total value of assets (in euros) included in Box 3 on the reporting date is determined, minus the value of debts, in their turn reduced by a fixed amount (€ 3400 for individuals and € 6800 for fiscal partners (2023); fixed amounts for 2024 are not yet known).
  • 2
    Net imputed asset yield.
    a) The imputed yield (in euros) of each asset in Box 3 is calculated.

    b) The imputed yield (in euros) of debts included in Box 3, reduced by a fixed amount (€ 3400 for individuals and € 6800 for fiscal partners in 2023; fixed amounts for 2024 are not yet known), is subtracted from the yield “a” above.
  • 3
    Combined yield.
    The combined yield rate (%) is determined by dividing the net imputed asset yield rate (%) by the net asset value (in euros) and by multiplying the result by 100.
  • 4
    Taxable asset value.
    The taxable asset value is defined as the net asset value, reduced by the amount of the fixed exemption (€ 57 000 for individuals and € 114 000 for fiscal partners (2023),(2024).
  • 5
    Taxable base.
    The taxable base for Box 3 is determined by multiplying the taxable asset value by the combined yield rate.
  • 6
    Tax amount.
    Finally, the tax rate for Box 3 is applied to the taxable base.
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