The Dutch income tax is divided into 3 boxes. Box 1 is about income from work and contains a progressive tax rate system which implies that you have to pay more taxes in the case of a higher salary. Box 2 is about income from substantial interest in a domestic or foreign company and contains a flat rate of 26.90%. Directly or indirectly owning 5% or more of the shares in a company qualifies as substantial interest. That way dividend, capital gains or profit from owning those shares are being taxed at a flat rate of 26.90% of that profit.
Besides these two boxes there is a third box, box 3. This box is about income from assets: wealth tax. This blog will focus on how box 3 works, and anything you should know as a foreigner doing business or living in the Netherlands.
What is wealth tax?
The wealth tax in box 3 is meant for everybody with a wealth of more than €50.000.- in the Netherlands (since 2021, before it was €30.846.-). This means your private wealth, and does not apply to the wealth of your company. You are obligated to pay the taxes if you are a Dutch resident or if you’re a resident in another country but have wealth (properties for instance) in the Netherlands. The tax is meant mostly for savings and properties and is being calculated by subtracting your debts from your possessions. This means that any second houses you possess, and any shares, bonds or savings are added up and any debts like mortgages or any other loans are subtracted from this.
How do you know if you need to pay taxes in box 3?
If you want to know if you have to pay taxes you first need to have a clear view on what properties, shares and other possessions you have. Besides this you need to have a clear view on your debts as well.
If the total is more than €50.000.- you need to pay taxes in box 3. If you have a tax partner this amount is €100.000.- shared. Do you want to make sure your wealth is below or above this amount, but don’t have a clear view on your possessions and debts? Dutch bv can help you get a clear view and do your taxes correctly. Contact us if you need help!
How much tax do I need to pay in box 3?
Calculating how much tax you need to pay in box 3 can be very complex. This is due to a couple of factors. Firstly, there are 3 ‘discs’ which differ in the percentage of tax that needs to be paid. Which disc you need to pay tax in is dependent on the wealth you possess.
The discs all have a different percentage as tax rate, which is based on fictitious return. The fictitious return is based on the returns which is most common for wealth. It is a combination of investments and savings which is rated on forehand. All investments are taxed at 5.69% and all savings at 0.03%.
- In the first disc it is assumed that 67% of your wealth is savings and 33% investments, resulting in a combined tax rate of 1.9%.
- In the second disc it is assumed that 21% of your wealth is savings and 79% investments, resulting in a combined tax rate of 4.5%.
- In the third disc it is assumed that 100% of your wealth is investments, resulting in a tax rate of 5.69%.
It does not matter if this is your real income, that could be lower or higher. The fictitious income rates apply to everybody.
Calculation
To clear the above mentioned calculations up, we added an example calculation below. In this example the rates for 2021 are being used for a wealth of 1.2 million euros, without a tax partner. The 1.2 million consist of €1.150.000 taxable wealth since the first €50.000 is tax free. Over the combined total you have to pay 31% wealth tax.
| Fictitious rate | Savings | Fictitious rate | Investments |
| 1st disc | 67% | €33.500 | 33% | €16.500 |
| 2nd disc | 21% | €189.000 | 79% | €711.000 |
| 3rd disc | 0% | €0 | 100% | €200.000 |
| Cumulative | €222.500 | Cumulative | €927.000 |
| Tax rate | | 0.03% | | 5.69% |
| Total taxable income | | €67 | | €52.775 |
The total taxable income is €67 from fictitious income from savings and €52.775 fictitious income from investments. It does not matter if this really is the case, since it is based on a fictitious income.
Over this total income you have to pay 31% tax, so the calculation will be:
€67 + €52.775 = €52.842
€52.842 x 31% = €16.380 of tax you need to pay in box 3.
Does everybody have to pay tax in box 3?
As soon as you are a resident of the Netherlands you are qualified to pay taxes in box 3. Besides that, you can qualify to pay taxes by owning properties in the Netherlands. Dependable on how much wealth you’ve got you have to pay taxes in box 3. If your wealth is more than €50.000.- you have to pay taxes. Want to know how much you have to pay in your specific situation? Get in contact with us, we can help you get a clear view on what you need to pay, and help you understand the Dutch tax system. Want to learn more about Dutch bv, and what we do? Look around on our website. Any questions, feel free to call: +31 20-2610723.
FAQs
Box 3 tax Netherlands
The Dutch tax system has three boxes for the income tax return. It is important to know that your capital is taxed in box 3. Here, no tax is levied on actual returns (yet). Until 2021, your assets were completely lumped together, on which a fictitious return was calculated.
What is the 30% ruling in the Netherlands Box 3? ›
The 30% ruling and Box 3 of your tax return: Under the 30% ruling, you can opt for the 'partial non-residency status'. You are then considered to be a non-resident taxpayer in Box 2 and Box 3, even though you are living in the Netherlands.
How is a Dutch BV taxed? ›
You have to file a corporate tax return for your BV once a year. The BV will also have to file VAT returns (aangifte omzetbelasting), usually every quarter. If the BV has an annual turnover of up to €20,000, you can make use of the small businesses scheme (KOR).
What is the corporate tax rate for Netherlands BV? ›
Standard corporate income tax (CIT) rate
The standard CIT rate is 25.8%. There are two taxable income brackets. A lower rate of 19% (15% in 2022) applies to the first income bracket of EUR 200,000 (EUR 395,000 in 2022). The standard rate applies to the excess of the taxable income.
Is box 3 your gross income? ›
Box 3 - Social Security Wage
The amount of earnings your employer paid you subject to Social Security tax. The number in this box does not consider pretax deduction items that reduce overall taxable income, which means Box 3 could be higher than the amount shown in Box 1.
What is box 3 interest income? ›
Box 3 reports interest earned on U.S. savings bonds or Treasury notes, bills or bonds. Some of this may be tax-exempt. Box 4 reports any federal tax withheld on your interest income by the payer.
How does box 3 tax work in Netherlands? ›
Savings and investments (box 3)
You pay tax on income from your wealth, including savings, shares and a second home. It is calculated as the value of all assets (such as savings and shares) minus any debts. Part of your wealth is not taxable: the capital yield tax allowance.
What is box 3 Netherlands? ›
Income from assets, savings and investments. The box 3 tax rate is assessed against a hypothetical yield. You are not taxed for capital gains or actual rental income.
What is the difference between box 1 and 3 on taxes? ›
Box 1 (Wages, Tips and Other Compensation) represents the amount of compensation taxable for federal income tax purposes while box 3 (Social Security Wages) represents the portion taxable for social security purposes and box 5 (Medicare Wages) represents the portion taxable for Medicare tax purposes.
What type of entity is a Dutch BV? ›
The BV (besloten vennootschap), a closed corporation or private company with limited liability, is the most common form of incorporated business in the Netherlands.
Private Limited Company (bv or besloten vennootschap)
The Dutch BV is one of the most selected legal entities for foreign entrepreneurs. This legal entity is called a BV (Besloten Vennootschap) and it's the equivalent of the U.K. PLC, or the German Gmbh, the Delaware LLC, and many other similar entities worldwide.
Do US citizens pay taxes in the Netherlands? ›
The Netherlands has a comprehensive system for taxing various types of income, ensuring that all residents and non-residents earning income within the country are subject to taxation.
Is Netherlands a high tax country? ›
The OECD average tax wedge in 2022 was 34.6% (2021, 34.6%). In 2022, the Netherlands had the 22nd highest tax wedge among the 38 OECD member countries, occupying the same position in 2021.
What is the highest tax rate in the Netherlands? ›
2022 national income tax rates
| Taxable income band EUR | Tax rates for box 1 income |
|---|
| 1 to 35,472 | 9.42% |
| 35,473 to 69,398 | 37.07% |
| 69,399+ | 49.5% |
The 30% ruling is a Dutch tax advantage for highly skilled employees hired abroad to work in the Netherlands. If you can meet the various conditions, your employer can pay up to 30% of your salary as a tax-free allowance for up to 60 months (or five years): 30% of your wage is tax-exempt for the first 20 months.
What is box 3 on tax return? ›
Box 1 (Wages, Tips and Other Compensation) represents the amount of compensation taxable for federal income tax purposes while box 3 (Social Security Wages) represents the portion taxable for social security purposes and box 5 (Medicare Wages) represents the portion taxable for Medicare tax purposes.
What is box 1 2 3 tax in the Netherlands? ›
Personal allowances are first deducted from your income in box 1 (work and home ownership). If they exceed your taxable income in box 1, the rest is deducted from the tax you pay in box 3 (savings and investments). Any remaining personal allowances are then deducted from your income in box 2 (substantial interests).
What are the tax boxes in the Netherlands? ›
Box 1 shows the amount of tax you owe on income from employment (including a home that you live in and own). Box 2 shows the amount of tax you owe on income from business ownership. Box 3 shows how much tax you owe on your assets (such as cash, bank deposits, real estate and investments).
What is the wealth distribution in the Netherlands? ›
► At the same time, inequality is high in the Netherlands when measured in terms of household wealth (property value, savings, private pensions): the top 1% of the distribution owns around 24% of all net wealth and the top 10% owns 60% of all net wealth, while the bottom three quintiles own almost no wealth.
