Taxes in the Netherlands - Part 3

In the previous article of this series we discussed the filing of the income tax return, self-employed professionals, and buying a house in the Netherlands. In this article we will elaborate on the following subjects:
› Consequences for late filing, or failure to file income tax returns
› Transition from employment to self-employment
› Tips and tricks for the income tax return 2011

Consequences for late filing or failure to file income tax returns

The Dutch income tax return 2011 must be filed with the Dutch tax authorities before April 1 of 2012. If you submit your tax return late (or not at all) you may receive a substantial fine, the default penalty. Since January 1st, 2009, the fining policy of the Dutch tax authorities has been severely tightened, and the penalty increased.

Frequency of breaches

The frequency of breaches also affects the severity of the penalty:
› For the first (single) late submission of the income tax return, the default penalty amounts to 226 euros.
› For the second late submission of the income tax return the default penalty amounts to 984 euros.
› With a systematic late submission of income tax returns, the default penalty amounts to 4.920 euros.

If the deadline for filing the income tax return has lapsed and you have failed to comply, the Dutch tax authorities will send you a reminder. In this reminder you receive a window of 10 working days in which to submit the return. If you again fail to comply within the timeframe, the fine will start to accumulate within seven days.

The Dutch tax authorities also impose default penalties for making false declarations and for not applying the necessary correction. In both cases the fine is 1.200 euros.

Payment default

If you have completed the tax return on time but are late with payment you may be fined for payment default. Again, the frequency of failure and the amount in question determines the leniency - or lack thereof - from the tax authorities and the ultimate penalty amount:
› If it is the first infringement, you will receive a default notice and no penalty.
› If you pay within the courtesy period and you had received a default notice in the previous tax period, you will receive a payment default penalty of at least 2 percent of the amount which was paid late. This has a minimum of 50 and a maximum of 4.920 euros.
› If you make a partial or full payment outside the transitional periods, then a fine will be imposed regardless.

Employment or Self-employment

Moving from employment to self-employment is a step with serious consequences. The transition from financial security to self-sufficiency and a level of uncertainty is a risky undertaking, and the relative tradeoffs should be considered thoroughly before jumping in the deep end.

If you aspire to become a director of a multinational firm, then becoming an entrepreneur will not be the most obvious move unless you have the drive and ambition to build up a company on your own. Self-employment has advantages and disadvantages.

Main advantages of self-employment:

› You are your own boss.
› You can work wherever and whenever you want, and you make the decisions.
› You are working for your own profit, doing something you like, and that you are good at.
› You have a broad orientation. You have to be a jack-of all-trades which keeps the job interesting.

Main disadvantages of self-employment:

› You have to do everything, or at least oversee everything. From purchases to invoicing, from administration to tax. If you are a specialist by nature, this can be an annoying distraction for you.
› Long hours almost without exception.
› The longer you are self-employed, the harder it becomes to ever again work for a boss, once you have tasted the freedom of working for yourself.

The transition from an employee to an entrepreneur is an exciting change. It can be stressful, but it is a learning experience, even if you decide to return to employment in the future. Cash flow is important to bridge the startup period, so account for this by having at least six months worth of reserves and make sure your financial situation is healthy at the outset. Maybe you could work part time while starting your business? Or perhaps your current employer has an assignment for you?

Tips & Tricks

This year the Dutch tax authorities are intent on seeing that the 2011 tax return is filed on time. If you didn't file your tax return on time you can request an extension for filing.

The monthly payroll administration does not generally take the various tax deductions into account. Also, if you have multiple jobs in one year, your annual income may be higher than your employer(s) know.

There may have also may been various factors during the year which can affect your financial picture. You may have paid too much tax, but it can also be that you have paid insufficient tax. Doing your income tax return is the time when you get to see the bigger picture of your financial situation.

There are several ways to recover overpaid tax. There are other deductions which may be applied which reduce the amount of tax due for the year, such as mortgage interests or certain medical expenses.

Young people or students, and also foreign workers generally pay more tax than they are required to. This is because they have only worked for a few months, while the tax rate is calculated on the assumption that they have worked the whole year.


Nico Koppel is an Expat Service Provider, who specialises in tax advice & accountancy. For more information, please comment below or visit Koppel Tax Consultants.