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How is income taxed in the Netherlands? Can you explain the box system?

Three types of income: the box system

For income tax purposes, there are three types of taxable income, classified into three so-called boxes:

  • Box 1: taxable income from employment and home ownership;
  • Box 2: taxable income from a substantial interest
  • Box 3: taxable income from savings and investments.

The following overview shows the income, deductible expenditure and tax rates pertaining to each box.

Box 1: Taxable income from employment and home ownership

  • Wages (including company car), pension payments, social benefits
  • Income from other activities
  • Profits from business activities
  • Owner-occupied property
  • Negative expenditure on income insurance
  • Negative personal allowance
  • Periodic benefits

Deductible expenditure:

  • Employee's allowance (expenses of commuting by public transport)
  • Deduction of mortgage interest and other deductible expenditure
  • Expenditure on income insurance: annuities and other premiums
  • Offsettable losses from employment and home ownership from another year

Tax rate: Progressive, with a maximum rate of 52%

Box 2: Taxable income from a substantial interest

  • Income from shares and profit-sharing certificates that are part of a substantial interest
  • Income from the disposal of these shares and profit-sharing certificates

Deductible expenditure:

  • Deductible expenses
  • Offsettable losses from a substantial interest

Tax rate: 25%

Box 3: Taxable income from savings and investments

Notional yield (4%) on capital (assets minus liabilities): the income from savings and investments

Deductible expenditure:

  • None

Tax rate: 30%
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