Income Tax in the Netherlands

One of the significant adjustments in Box 1 is the alteration in the tax brackets and rates. Taxpayers earning income from employment, home ownership, and other sources will be confronted with an adjustment in how their income is taxed. 

The government has aimed to create a fairer system by adjusting the brackets to better align with the current economic landscape. Therefore in 2024, the combined rate in the 1st bracket is 36,97% (was 36,03% in 2023) for income up to € 75.518 (€ 73.031 in 2023). The rate in the 2nd tax bracket in 2024 is 49.50%, which is the same as in 2023 and applies to income above the € 75.518 (€ 73.031 in 2023). 

In 2023, taxpayers with income from substantial shareholdings (>5%) in Box 2 were subject to a flat tax rate of 26,9%. However, the landscape has evolved in 2024, introducing a different approach with two tax brackets – 24,5% and 33%. For individuals with Box 2 income up to € 67.000, a reduced tax rate of 24,5% applies. However, for those surpassing this threshold, the tax rate increases to 33%. This means that higher-income individuals with substantial dividend payments will experience a heavier tax burden compared to the previous uniform rate of 26,9%. A closer look reveals that the adjustment brings both challenges and opportunities. For fiscal partners, a dividend distribution of up to € 134.000 can benefit from the lower tax rate of 24,5%, provided they evenly distribute the income. This provision presents an opportunity for strategic income distribution planning among fiscal partners. 

The Box 3 tax rate will increase from 32% in 2023 to 36% as of January 1st, 2024. The tax-free income in Box 3 will not be indexed per January 1st, 2024. This will remain € 57.000 and € 114.000 for fiscal partners. 
 

Scaling back the 30% ruling

Last year it was announced that, as from January 1^st of 2024, the salary to which the 30% ruling can be applied will be capped at the so-called Balkenende-norm (named after a former prime minister): this is the maximum salary for public servants. The Balkenende norm salary is indexed each year and will amount to € 233.000 gross in 2024. A transitional arrangement applies for employees who had an active 30% ruling in December 2022: the cap will only apply to them as from January 1^st of 2026. 

As said, additional amendments were announced on October 27^th. and will also enter into force as per January 1^st of 2024. 

Firstly, the 30% ruling will get a graduated scheme: A 30% tax-free allowance applies in the first 20 months, a 20% tax-free allowance for the next 20 months and a 10% tax-free allowance for the last 20 months of the five year term. A transitional arrangement applies to employees to whose salary the 30% ruling is applied in December 2023; these employees will not be confronted with these adjustments during the term of their ruling. 

Secondly, the amendment will terminate the aforementioned partial foreign taxpayer scheme for 30% ruling holders as of 2025. This means that the exemption on foreign-based Box 2 income (tax on income from more than 5% shareholding) and Box 3 income (tax on the deemed income of worldwide assets) will end. Here too a transitional arrangement applies to employees to whose salary the 30% ruling is applied in December 2023: they will only be confronted with this change as per 2027. 

It's important to know that - if an employee that has the 30% ruling changes employers during the term of the ruling – he/she can still use the abovementioned transitional arrangement if he/she enters into a new qualifying employment with a Dutch employer within 3 months.

In box 1, you pay tax on your taxable income from work and home ownership.
Income from work includes:

• salary, tips or business profits;
• benefit, pension, annuities and maintenance payments;
• income from abroad;
• income earned as a freelancer, childminder, artist or professional athlete.

Income in box 1 is taxed at a progressive rate with four tax brackets. Once you have reached the state pension age, a special rate applies. The government intends to reduce these four tax brackets down to two in 2021.

In box 2, you pay tax on any substantial interests. You have a substantial interest if you, or you and a tax partner together, own at least 5% of the shares, options or profit-sharing certificates in a company. You pay 25% tax on income from substantial interests.