Living in the Netherlands - Taxes and Charges on Labour

Wages and salaries tax is levied on the pay of the employee. The employer deducts tax at source and remits it together with the social security contributions to the Tax and Customs Inspectorate. This levy at source is an advance levy for income tax. Income tax is levied on sources of income in accordance with a 'box system'. Not everyone is liable to pay income tax. This is because no assessment for income tax is imposed if the difference between the income tax owed and the advance levies (such as wages and salaries tax and dividend tax) does not exceed €217. Wages and salaries tax may therefore be both an advance levy and a final levy.

Income tax is levied on the sources of income in accordance with a 'box system'. There are three boxes:

• Box I: income from employment and home ownership;
• Box II: income from a 'substantial interest' (i.e. in a business);
• Box III: income from savings and investments.

Each box has its own way of levying tax. The income from the various boxes is not interchangeable. It is therefore not possible to offset negative income from one box against positive income from another box.

The tax rate for income from employment and home ownership is progressive and is charged over four 'brackets'. Each bracket has a fixed tax rate. As a result, the higher the income the more tax is paid.

Source: European Union
© European Communities, 1995-2006
Reproduction is authorised.

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