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

• 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