The Tax System of the Netherlands
Private individuals and entrepreneurs are subject to taxation in the Netherlands. Private individuals and entrepreneurs are subject to income tax, while corporate entities are subject to corporate tax. Other important taxes include payroll tax or income tax, dividend tax, and value-added tax (VAT).
Taxes in the Netherlands for foreigners generally remain the same as for Dutch citizens. With a profit of less than €38,441 per year, one is obliged to pay 35.82% tax on the total income; for income up to €76,817, the rate is 37.48%, and if the salary or dividends exceed €76,817 per year, the rate is 49.5%. Additionally, taxpayers must pay mandatory social security contributions amounting to 27.65% of the income, applied to incomes up to €33,715.
More details about taxation can be found on the page Tax Law.
The Taxpayer: Resident and Non-resident
First, it is important to determine whether a natural or legal person is a resident of the Netherlands. A resident taxpayer is taxed on their worldwide income, whereas a non-resident is taxed only on income earned within the Netherlands.
A crucial factor for individuals and corporations is the determination of the place of residence/establishment. For corporations, the effective location of management can be decisive.
All enterprises subject to Dutch law or having their actual place of management in the Netherlands are taxed by the Netherlands on their worldwide income. Worldwide income includes income from outside the Netherlands. If an international tax treaty applies, double taxation may be avoided.
Non-resident Taxpayers
Non-resident enterprises pay corporate tax in the Netherlands on:
- taxable profit from a Dutch business enterprise;
- taxable profit from a substantial interest in companies located in the Netherlands;
- under certain conditions, taxable profit of an enterprise located in Aruba, Curaçao, Sint Maarten, or having a permanent establishment in Bonaire, Sint Eustatius, and Saba.
Private Individuals: Structure of Taxable Income
Dutch tax law divides taxable income into three categories, known as “boxes.” Each box has its own tax rate:
- Box 1: Income from work, entrepreneurship, and primary residence;
- Box 2: Income from a substantial interest;
- Box 3: Income from savings and investments.
Box 1 is taxed at a progressive rate, starting at 8.4% and reaching 49.5% (for income exceeding €73,031). In addition, social security contributions are levied. The national collection of social security contributions is integrated into the tax system, known as the Dutch tax system. However, social security contributions are based on different laws and policies, which in various cases do not completely align with payroll tax or personal income tax.
The amount of social security contributions depends on the personal circumstances of the taxpayer and the amount of income (social security contributions are levied on incomes up to €37,393). The premiums (28.15%) are integrated into the first two brackets of Box 1 of the Dutch tax system.
In Box 2, a flat tax rate of 25% applies to income from a substantial interest. Income from a substantial interest includes dividends and capital gains.
For savings and investments, a flat tax of 30% applies (Box 3). Income from savings and investments assumes a fictitious yield of 4% on the value of the savings, regardless of the actual return. Therefore, actual capital gains or losses from savings and investments (not related to a substantial interest) do not affect taxable income. A Tax Lawyer provides professional legal assistance in this matter.
Business Taxes in the Netherlands (Income from Commercial Activities)
The taxation of persons conducting commercial and economic activities in the Netherlands involves several types of taxes. Business taxes in the Netherlands include corporate tax, dividend tax, as well as mandatory employer social security contributions. Employers pay payroll tax and social security guarantees for their employees. Companies pay corporate tax on their profits. Dividend tax is withheld from profits distributed as dividends to shareholders. There are also several environmental taxes (not discussed in this article). To avoid double taxation of companies, various countries conclude international treaties with each other.
Public and private companies with a registered office in the Netherlands are taxed on their worldwide economic and trading activities. In certain circumstances, associations and foundations are subject to corporate tax and, consequently, must also file a corporate tax return.
Some legal entities, for example, those qualifying as fiscal investment institutions, are exempt from corporate tax.
CIT (Corporate Income Tax in the Netherlands)
The profit of public and private companies is subject to corporate tax. Special tax rules in the Netherlands apply to fiscal unities (tax groups) and companies owning more than 5% of another company (participation exemption).
Corporate Tax Rate
The corporate tax rate in the Netherlands depends on the taxable amount. The taxable amount is the sum of the taxable profit for the year minus losses (carry-back of losses to the past period / carry-forward of losses to future profits up to nine years). If the taxable amount does not exceed €200,000 per year, the tax rate is 20% – 25% of this amount. For example, if the taxable amount is €250,000, the corporate tax will be €52,500 (20% of €200,000 and 25% of €50,000).
A reduced rate of 5% applies to commercial and economic activity falling under the so-called Innovation Box. The Innovation Box provides tax incentives to encourage innovative research. Any profit derived from such activities is taxed at this special tariff.
Taxable Amount
The taxable amount is derived from the payer’s income minus expenses. Generally, business expenses are deductible, but certain types of expenses are not or only partially deductible. The principles for determining income and loss offset are regulated by Dutch tax law and do not always strictly correspond to generally accepted accounting principles (GAAP).
Tax Groups with Subsidiaries (Fiscal Unity)
In principle, every company is individually subject to corporate tax. However, if a parent company owns one or more subsidiaries in the Netherlands, the Tax Authority may designate such a group as a single taxpayer: a fiscal unity. The consolidated profit of the tax group makes it possible to offset losses incurred by one company against profits earned by other companies in the group. The formation of a fiscal unity is possible under certain conditions. The main condition is that the “parent company” owns at least 95% of the shares in the subsidiary.
Holdings and the Participation Exemption in the Netherlands
Furthermore, the favorable and extensive network of Dutch tax treaties and the so-called participation exemption offer a favorable fiscal climate for (intermediate) holding companies.
Under the participation exemption, dividends in the Netherlands, as well as any capital gains, are exempt from corporate income tax. This means that profit is not taxed twice within the same group of companies. The exemption applies only to shareholders who hold at least a 5% interest in the subsidiary. This rule applies to both resident and non-resident companies. This is a key feature of the Dutch tax regime. The participation exemption does not apply to holdings in an investment vehicle that benefit from a reduced corporate tax rate.
Advance Pricing Agreements (APAs) and Advance Tax Rulings (ATRs)
The Netherlands uses Advance Pricing Agreements (APAs) and Advance Tax Rulings (ATRs). APAs and ATRs are binding on the Tax Authority regarding the application of tax law for international holdings and companies.
APAs and ATRs guarantee foreign investors that national and international fiscal rules will be applied to them appropriately in the Netherlands. This allows for the avoidance of differing interpretations.
Collection of Taxes
Dividend taxation in the Netherlands involves a withholding tax of 15% on payments to shareholders of companies with a registered office in the Netherlands. This rate may be reduced via certain tax treaties. In case the recipient of the dividends is eligible to use the participation exemption (see above), the distributor of dividends does not have to withhold dividend tax. The Netherlands does not levy withholding tax on interest and royalties.
Value Added Tax (VAT)
Corporations are obliged to pay VAT on all goods and services. There are special cases, such as medical services, where exemptions apply. Depending on the nature of the goods or services, the rate is 21% or 9% (text mentions 6%, noting current low rate is 9%). Companies have the right to offset charged VAT by deducting input VAT. The requirements for filing and paying VAT returns in the Netherlands are highly detailed, and penalties apply for violations.
Tax Treaties
The government primarily strives to avoid double taxation for international companies. As a country with a traditional trade orientation, the Netherlands has an extensive and favorable network of fiscal treaties with a wide range of countries.
A tax treaty is an agreement between two countries regarding which of them has the right to levy tax. One country levies the tax, while the other ensures a rate reduction or exemption. If a company receives income in the former Netherlands Antilles and Aruba, a special tax regime applicable within the Kingdom is used between the Netherlands and the (former) Netherlands Antilles and Aruba (Tax Arrangement for the Kingdom). The Tax Arrangement for the Kingdom is not a tax treaty, although such an application may have parallels with a treaty.
Since 2010, a separate arrangement applies to Bonaire, Sint Eustatius, and Saba.
Other Tax Regulations
Some other taxes are also important in the Netherlands, such as inheritance and gift tax, transfer tax, insurance tax, and gambling tax. Furthermore, local municipalities levy a local tax on the use and ownership of real estate. A Lawyer in Holland can help navigate the various aspects of the legislative framework and taxation of the country.
Frequently Asked Questions about Taxes in Holland for Foreigners
Can dividend taxation in the Netherlands be optimized through international agreements?
Yes, Dutch tax law allows the application of international treaties to reduce the fiscal burden. Thanks to such agreements, it is possible to reduce or avoid double taxation on dividends. This is particularly beneficial for companies with an international presence. Payments to shareholders are usually subject to a 15% withholding tax at the source. However, with an appropriate agreement, the rate can be reduced or eliminated if the resident company meets the conditions for the participation exemption.
What taxes are individuals obliged to pay in Holland?
For individuals, a standard tax system applies, under which they pay between 9% and 49.5% tax (on dividends, investments, or wages), mandatory Value Added Tax (VAT) of 21% (except for certain products taxed at 9%), as well as taxes on real estate, gifts, and inheritance.
How are taxes calculated for legal entities?
An owner of a private enterprise that generates less than €200,000 in annual profit is obliged to pay corporate taxes in Holland at a rate of 20% of the total income. If the annual profit exceeds this amount, the tax rate increases to 25%. Holding companies may qualify for favorable tax conditions (participation exemption), resulting in a lower effective tax burden. Reduced tax is also provided for foreign entrepreneurs who offer good ideas for startups in the engineering and IT sectors (Innovation Box).
How do entrepreneurs conducting business both within and outside the Netherlands pay tax?
Companies whose owners are foreign citizens are obliged to pay tax (20%-25%) to the Dutch state budget only on the profit they have generated from conducting business within the territory of Holland. Income obtained from selling goods or providing services in other countries is generally not taxed in the Netherlands, subject to treaties.
What is the real estate tax for foreigners?
When purchasing real estate in the Netherlands, one is obliged to pay a mandatory transfer tax (variable rates, e.g., 10.4% for investors in 2025). Also, the owner of residential or commercial premises is obliged to pay an annual tax of 0.1% to 0.3% of the assessed property value (WOZ), depending on the municipality. Real estate that is gifted or inherited is also subject to tax.
What are the tax rates in the Netherlands in 2025?
The income tax rate varies from 37.07% to 49.50% depending on the income level. VAT is 21%, with reduced rates of 9% for certain categories of goods and services.
What is the Dutch tax system?
The Dutch tax system is based on a progressive income tax scale and includes mandatory pension and social security contributions.
What is the dividend tax in Holland?
The dividend tax in Holland is 15%. This rate can be reduced by international agreements or eliminated entirely when the participation exemption applies.
