TAX LAWS- NETHERLANDS
From 1 January 2001, the Netherlands has a new tax system. This system involves substantial changes to income tax. The new tax system creates a robust taxation system with a broader base and lower rates: a taxation system that addresses future developments.
The objectives of this revision of the taxation system include:
- stimulation of employment opportunity, and strengthening of the
- Nederlands' economic structure and international competitive edge;
- reduction of the burden of taxation on labour;
- promotion of sustainable economic development ('greening');
- creation of a balanced and just burden of taxation;
- broadening and strengthening of the taxation base, through reduced
- and amended deductions;
- promotion of emancipation and economic independence;
simplification of the taxation system.
In order to stimulate the economy and employment opportunity, the basic rates of taxation are lowered.Work is made more attractive by the introduction of an 'employment rebate': those people in paid employment enjoy a tax advantage in the form of a fixed non-taxable deduction.
The reduction in taxation on labour is financed by reductions in expenditure and by increases in indirect taxes, such as vat and environmental levies.
By lowering the taxation on income from employment, together with a shift from direct to indirect taxation, the Netherlands' economic structure and its international competitive edge will be strengthened. Greater emphasis on environmental levies will make a significant contribution towards achieving sustainable economic development.
TAXES ON INCOME AND PROFITS
Income tax is a tax on a natural person's annual income. It is levied at a progressive rate. Personal circumstances are taken into account when making the assessment of the amount of tax to be paid, and certain expenses are tax-deductible. The scheme provides for a personal allowance, the amount of which is dependent on the individual circumstances.There are four tax rates, 32.35%, 37.60%, 42% and 52%. The first two rates include both tax and social security contributions; the last two rates consist solely of tax.
Income tax has two advance levies, which are a payroll tax, and a dividend tax. The payroll tax and the social security contributions are levied jointly on earned income or benefits. The employer or body paying the benefit deducts the tax and contributions directly from the pay or benefit, and pays these to the Tax Department. Many natural persons pay only payroll tax, and are not subject to income tax. For natural persons with a high income or many tax-deductible items, the payroll tax serves as an advance levy, and they are subsequently issued with an income tax return and an assessment.
The other advance levy for income tax is the dividend tax. Under the present Income Tax Act taxation on income from investments is based on the assumption that people will have a taxable return of 4% on their stocks and other shares. Shareholders are not separately liable for income tax on the actual dividend they receive. For non-residents the dividend tax levied on a dividend is in principle a final levy.Tax conventions generally provide for a lower rate than the 25% mentioned above.
Corporation tax is levied on the taxable profit of both private and public companies. Foundations (called 'stichtingen' in Dutch) may also be liable for corporation tax. An important feature of corporation tax is the participation exemption, which ensures that corporation tax is levied only once on the profit obtained within a group. This means that a company receiving dividends does not have to pay corporation tax on these dividends since the tax has already been paid by the company distributing the dividends.
Corporation tax is levied at a rate of 35%. The first nlg 50,000 (eur 22,689) taxable profit is levied at a rate of 30%.
The Inheritance Tax Act has two forms of tax, which are inheritance tax and gift tax. These taxes are, in general, to be paid by the recipient. There are substantial exemptions from both inheritance tax and gift tax. There are no exemptions from inheritance tax payable upon the inheritance or donation of specific assets, for example property. The rates are the same for these taxes, and depend on the value of the assets that have been received and the relationship between the giver and the recipient. There is a minimum and maximum rate.
Tax on games of chance
The tax on games of chance is levied on prizes that exceed nlg 1,000 (eur 454). The rate is 25%. The organization awarding the prize generally pays the tax, and the winner receives a net prize.
TAXES AND DUTIES ON GOODS AND SERVICES
Import duty is levied on imported goods. This usually amounts to a percentage of the value of the goods being imported. Various rates are applicable, which are determined by the eu. The rates are usually lower for minerals or raw materials, and higher for finished products. Import duty is levied on goods that are imported from countries outside the eu. The revenue is destined for the eu.
Value added tax
Value added tax (vat) is a general consumer tax included in the price consumers pay for goods and services. Consumers pay this tax indirectly, and companies remit the tax to the Tax Department. All companies pay vat, although there are a few exceptions. The vat paid by one company to another may be reclaimed from the vat to be paid to the Tax and Customs Administration. There are three rates for vat:
- a general rate of 19%;
- a lower rate of 6%, applicable mainly to food and medicines;
- a zero rate, applicable mainly to goods and services in international
trade, so that goods can be exported free from vat.
On private cars and motorcycles
The tax is included in the price a buyer pays when purchasing a new private car or motorcycle. It is usually paid by the manufacturer or importer. The tax rate depends on the net listed value of the private car or motorcycle. On private cars with a diesel-engine a higher tax rate is applied. For imported vehicles the tax percentage is reduced according to their age. The minimum tax rate is 10% of the net listed value of the vehicle, unless it is more than 25 years old.
There are several environmental taxes in the Netherlands. Suppliers or users of mineral oil and other fuels have to pay fuel tax.Taxes have been levied on the withdrawal of groundwater and the disposal of waste since 1 January 1995.A regulatory energy tax came into force on 1 January 1996. A tax on tap water supplies was introduced on 1 January 2000.
OTHER IMPORTANT TAXES AND DUTIES
Social security contributions
In addition to income tax, everyone pays social security contributions on their income. The contributions are deducted or levied at the same time as the payroll tax and income tax. Employers deduct these contributions directly from employees'pay. Self-employed persons must pay income tax and social security contributions themselves. There are also employeeinsurance schemes for persons in paid employment.
Social security schemes are applicable to the entire population. Everyone can make use of the facilities funded by the contributions. Contributions are made to three social security schemes:
- The Widows' and Orphans' Benefits Act (anw): Persons who have been widowed or orphaned receive an anw benefit;
- General Old Age Pensions Act (aow). Everyone who reaches the age of 65 receives an aow pension;
- The Exceptional Medical Expenses Act (awbz). Persons who incur medical expenses not reimbursed by a health insurance fund or a private medical insurance scheme receive an awbz benefit.
Under the waz, (Invalidity Insurance Self Employed Persons Act) which has been in effect since 1998, entrepreneurs unable to work as a result of an illness or handicap are entitled to benefit. Contributions to the waz are collected by the Tax Department. Employers make contributions to the disability benefits schemes for their employees.
Excise duty is levied on certain consumer goods, i.e. petrol and other mineral oils, tobacco products, and alcohol and alcoholic beverages.A special consumer tax is levied on non-alcoholic beverages. Excise duty, like vat, is included in the price consumers pay for these goods. The manufacturers and importers of the goods liable to excise duty remit the tax.
Taxes on legal transactions
Three taxes on legal transactions are levied in the Netherlands: these are transfer tax, insurance tax and capital duty.Transfer tax is levied on the acquisition of property located in the Netherlands. The rate is 6% of the market value of the property. Insurance tax is levied on insurance premiums at a rate of 7%. The following types of insurance are exempted from insurance tax: life insurance, accident insurance, invalidity insurance, disablement insurance, medical insurance, unemployment insurance and transport insurance. Capital duty is levied when capital is contributed to companies located in the Netherlands when the capital is comprised of shares. The rate is 0.55% and the tax due is calculated on the value contributed (assets less liabilities), or on the nominal value of the shares, whichever is higher. In certain circumstances, an exemption is made for mergers or reorganizations.
Motor vehicle tax
With the exception of buses, motor vehicle tax is paid on vehicle ownership. The amount depends on the type and weight (sometimes gross) of the vehicle, and in the case of private cars also on the type of fuel the vehicle uses. Furthermore, the amount for private cars and motorcycles is dependent on the province in which the person/owner is resident or the company/owner is established. Buses are charged a levy on the use of the roads.
Tax on heavy vehicles
The tax on heavy vehicles (also known as the eurovignette) is a tax on vehicles with a gross weight of 12,000 kg or more. It is levied for the use of motorways in the Netherlands. The tax has to be paid before the vehicle uses the motorway. There are rates of tax, which are based on the number of axles of the vehicle. There is one rate for three axles or less, and another for four axles or more. Both rates are further divided into three rates for the engine characteristics: non-euro, euro l, euro ll and cleaner. The tax can be paid daily, weekly, monthly or annually. A similar tax, based on a directive of the European Union and a Treaty, is levied in Belgium, Denmark,Germany, Luxembourg and Sweden.
Corporation tax is levied on companies established in the Netherlands (resident taxpayers) and on certain companies not established in the Netherlands which receive income in the Netherlands (non-resident taxpayers). In this context, the term 'company' includes companies with a capital consisting of shares, cooperatives, and other legal entities conducting business. The main types of companies referred to in the Corporation Tax Act are the public company (nv) and the private company with limited liability (bv). Whether a company is deemed to be established in the Netherlands depends on the individual circumstances. Relevant factors include the location of the effective management, the location of the head office, and the location of the shareholders' general meeting. Under the Corporation Tax Act, all companies incorporated under Dutch law are regarded as being established in the Netherlands.
TAX BASE AND RATES
Corporation tax is levied on the taxable amount, which is the taxable profit made by the company in a particular year less deductible losses. The taxable profits are the profits less tax-deductible donations. In principle, the profits should be calculated in accordance with the provisions laid down in the Income Tax Act to determine the business profits of natural persons. In certain cases, additional stipulations made in the Corporation Tax Act are also applicable. The taxable profit has to be computed in guilders or euros. However, under certain conditions, taxpayers will be allowed to compute their taxable profit in another currency (the 'functional currency') for a period of at least 10 years.
Corporation tax is levied at a rate of 30% for taxable profits up to nlg 50,000 (eur 22,689) and 35% if and to the extent taxable profits are
above that levelt.
Taxpayers: residents and non-residents Under the present Income Tax Act residents are liable for income tax on their world-wide income. Non-residents residing in an eu Member State or in a country with which the Netherlands has concluded a double taxation convention providing for the exchange of information may opt for enforcement of the sections of the Income Tax Act for residents.Non-residents are taxed only on the income from a limited number of sources in the Netherlands. The Netherlands has concluded many double taxation conventions to prevent the double taxation of world-wide income. If no convention is applicable, tax relief may be obtained on the basis of the Unilateral Decree for the prevention of double taxation. (If certain requirements are met, foreign employees temporarily posted to the Netherlands may request the application of a special tax arrangement known as the 30% rule, see 4.4)
The legal definition stipulates that someone's place of residence is determined 'according to circumstances'. Several factors are of relevance when deciding whether someone maintains personal and economic ties with the Netherlands. These include a family home, employment, or registration in a municipal register. Nationality is not a determining factor, but it may be relevant in some cases. The law also provides for a number of special cases.
The crews of ships and aircraft with a home harbour or airport in the Netherlands are deemed to be residents of the Netherlands unless they have established residence abroad. Dutch diplomats and other civil servants serving abroad remain residents of the Netherlands. Foreign diplomats and the staff of certain international institutions are exempt from Dutch income tax.
People pay tax individually as far as possible. Therefore partners pay tax on their own income and can only use their own deductible items. However, some income and deductible items are joint. Joint income and deductible items can be divided randomly between both partners as long as 100% of the income and deductible items is declared. The choice applies, among other things, to the notional rental value for owner-occupiers and the deductible items from the owner-occupied dwelling, childcare expenses and items that come under the personal deduction.
If partners are married or have registered their partnership at the Records Office, they are automatically each other's partners (unless they are permanently separated). Partners living together have to meet certain conditions in order to be considered fiscally as part
TAX RATES AND TAX CREDITS
The amount of tax owed is calculated by applying the tax rates to the taxable income. The result is reduced by one or more tax credits. Everyone has the right to a general credit on the tax owed: the general tax credit. Additional credits over and above are available. Which additional credits apply depends on someone's personal circumstances. The general credit is nlg 3,473 (eur 1,576). For individuals with income from current employment the credit is increased by a maximum of nlg 2,027 (eur 920). For taxpayers with children under 27 living at home the credit is nlg 2,779 (eur 1,261). For single parents in paid employment with children under 12 living at home said amount is increased by a maximum of nlg 2,779 (eur 1,261). For people aged 65 and over, the credit is increased by nlg 520 (eur 236) unless their income in boxes 1, 2 and 3 exceeds nlg 61,052