Taxation of income from employment in the Netherlands

In this Chapter, the following topics will be discussed:

The rules for taxation of income from employment

In the Netherlands, the type of tax which is most important for individuals who are employed, is the Income tax (in Dutch: 'inkomstenbelasting').

The actual income tax liability for individuals who work in employment, or earn income from previous employment (pension, government allowance, annuity, etc.) will in many cases be limited or may even be nil, because the law prescribes that the employer (or pension fund/insurance company) has the obligation to withhold tax from the salary/pension/annuity of the taxpayer and pay it to the tax office ('wage tax' or in Dutch 'loonbelasting').

The wage tax withheld from the income can be offset against the final income tax due as a tax pre-payment when filing the annual income tax return. 

The rules on the levy of wage tax are similar to the rules for the levy of income tax, so under normal circumstances (only income from one employer, no special tax deductions or allowances and employment during the entire year), the wage tax already withheld from the salary will cover the income tax liability of the taxpayer. In situations where this is not the case, the taxpayer must either pay income tax or he/she can claim an income tax refund on the basis of the annual income tax return to be filed.

It is noted that income tax is only payable/refundable after an assessment has been imposed. We refer to the section Tax assessments, tax payments and tax refunds.

What qualifies as income from employment?

Income from current and former employment includes:

• wages in the sense of the Wage Tax Act, generally subject to the withholding of wage tax;
• pensions and government allowances;
• qualifying compensations for the loss of wages;
• qualifying compensations for the ceasing of labor, unless these compensations are taxed as other income;
• a foreign state pension unless the pension rights have been allocated to be taxed in the country of origin;
• pension from an international organization (except from the European Union) unless the pension rights have been allocated to be taxed in the country of origin.

The term wages is defined in the Wage Tax Act. This definition almost entirely coincides with the definition of wages for the levy of income tax, so that in most cases it is a closed system.

Generally Dutch wage tax should be withheld on all income from employment,. In case of income from employment on which Wage tax is withheld, the withholding agent (party who has withheld and paid the wage tax) has the legal obligation to provide the individual with a salary slip (or in Dutch: "loonstrook") and at the end of the year with an annual income statement (or in Dutch: 'jaaropgave'). A salary slip should at least be provided when the first payment of wage occurs (at the beginning of the employment) and if a change in the payment of wage has occurred compared to the previous payment of wage..

The Wage Tax Act defines wages as all income derived from current and previous employment (and certain annuities and allowances). A 'substance over form' approach must be applied for the interpretation of the term employment, so that it may not always be clear whether or not a certain contractual relationship (with or without a written agreement) qualifies as such.

The tax deduction of expenses

The employer is allowed to grant a package of tax free cost reimbursements with the exception of the deduction for certain travel expenses relating to commuting.

The Dutch legislator leaves the scope of tax free cost reimbursements at the discretion of the employee and employer.

The tax free cost reimbursements are not dealt with in the Income Tax Act, but in the Wage Tax Act. The Wage Tax Act provides for rules governing the withholding of wage tax from employee salaries and contains strict limitations for granting tax free cost reimbursements.

What we can do for you?

We are professional tax lawyers and we can advise you on your personal tax position and handle the preparation and filing of your annual Dutch personal income tax return and other tax compliance matters.

We have very competitive rates for individuals and we can prepare and file your personal income tax return (and take care of other personal income tax compliance) on the basis of fixed prices which are agreed upon with you in advance.

The price for a specific tax return is dependent on your personal circumstances and the service which you wish to receive from us.

Please feel free to use our ONLINE FEE CALCULATOR for determining the fixed fee which you would have to pay us for the preparation of your personal income tax return.