4 things you didn’t know about Dutch taxes that could help you pay less

J.C. Suurmond & zn. are Dutch tax consultants with an international perspective and have been providing tax solutions for expats and businesses in the Netherlands since 1986.

With the deadline for your 2016 Dutch tax return approaching fast on May 1, 2017, we would like to give you some insight into how the Dutch tax system works, so it becomes your friend instead of your enemy.

Besides general information about filing your Dutch tax return, here are four things you didn’t know about Dutch taxes that could help you pay less tax.

1. Check your tax refund possibilities for the last five years

In the Netherlands, it is possible to submit tax returns up five years back. So, in 2017 the last possible tax return that can still be submitted is for 2012.

Perhaps you never had a request to submit a tax return and consequently, you never did anything with your taxes. That’s fine, but please check your possibilities before those five years are up. If you are entitled to a tax refund for income from 2012 because you only worked part of the year in the Netherlands for example, then after 2017 there is no way you can claim this refund.

In our practice, we encounter people, remarkably often, who are still just within this deadline or just beyond. So, if you started working in the Netherlands in 2012, we would really like to check your refund possibilities before it is too late!

2. Get married! What are the privileges of fiscal partnership?

When you qualify as partners, you can submit a joint tax return (which still involves two tax returns) and you can favorably allocate deductions to the partner with the highest income. This regards items such as mortgage interest, study costs, alimony payments and more.

Additionally, there is a possible refund for the non-working partner if the other partner pays enough tax, which amounts to approximately 1.000 euros.

But when do you actually qualify as fiscal partners? For several years, it has no longer been possible to choose (optional) fiscal partnership in the tax return. Instead, there are now certain requirements for fiscal partnership. Once these are met you are considered fiscal partners - even if you don’t want to be.

So, you qualify as partners if:
› you are married and/or
› you have a legally-registered partnership and are registered as living at the same address.

When you are married, you are fiscal partners even if you do not live at the same address. In addition, you also qualify as fiscal partners if you are both registered as living at the same address and:
› you have a child together, or
› if one partner has a child that the other partner has recognised, or
› you have a joint pension scheme, or
› you own a house together.

In addition to these circumstances, there are some very specific situations in which fiscal partnership can also apply.

In a migration year, say, the year you moved to the Netherlands, fiscal partnership can only apply if both partners immigrate (register at the municipality) on the same date.

Be aware that the partner criteria for inheritance tax is different to the criteria for income tax! For inheritance tax, you are not a partner unless you are married or your partnership is legally registered. This makes a very substantial difference if your partner inherits your estate.

3. When do you get a tax deduction on real estate?

In the Dutch tax return, real estate is one of the items that is not always taxed in the same "Box" or category.

If you have a property that you live in, this is taxed in Box 1. Under the Box 1 regime, the mortgage interest is deductible; a threshold amount applies based on the value of your house.

If you own a property that you do not live in, for example a holiday home or a property that is rented out, this is taxed in Box 3. In Box 3 the net value (the property value minus the mortgage) is taxed as an asset.

For foreign real estate, you should request "double taxation deduction".

Real estate is also an item that is (almost) always taxed in the country where it is located. So if you own a house in the Netherlands, this remains taxable here even when you move abroad. In that case, there are also possibilities to keep this item taxed in Box 1 rather than Box 3.

4. Tax breaks for starting a business

Many people are self-employed in the Netherlands. Most self-employed people work by way of a sole proprietorship, eenmanszaak in Dutch, or as a vof if they are in a partnership.

In order to encourage entrepreneurship, the government has facilitated both entities with some favourable tax breaks. Two of these tax breaks are on the condition that the entrepreneur spends more than 1.225 hours on business-related activities.

The deduction for self-employed persons provides a tax break of 7.280 euros. The new business deduction amounts to 2.123 euros and may only be used three times in the first five years of the business. These two tax facilities together give a total deduction of over 9.000 euros to starting businesses.

Besides these tax breaks there is also a small business exemption which makes 14 percent of the profit tax free.

These facilities make the sole proprietor business form very attractive. It is important that you are independently self-employed and not dependent on one client (semi-employment). If the Tax Office can substantially prove that you are in an employment situation, then you may lose the benefits.

Lennart Suurmond is a tax advisor at J.C. Suurmond & zn. Need advice on the best way to file your 2016 tax return? Fill out the form below!