Netherlands - Taxation

Principal taxes raised by the central government are income and profits taxes levied on individuals and companies, a value-added tax (VAT) on goods and services, and a tax on enterprises of public bodies (except agricultural enterprises). There is a wealth tax of 0.7% also levied on nonexempt taxable capital of individuals. Provinces and municipalities are not authorized to impose income taxes, and may impose other taxes only to a limited extent. The most important tax levied by municipalities is a real estate tax paid partly by owners and partly by occupants. Residents are taxed on both their local and foreign incomes, but nonresidents pay taxes only on income earned in the Netherlands.

The tax on the net profits of corporations in 2002 was 29% for annual profits up to €22,689 and 35.4% on the increment of profits above that. Depreciation and other business deductions are permitted. Capital gains were taxed at the same rates, although some kinds capital gains were tax-exempt. Withholding taxes up to a maximum of 15% were applied to dividends, although there is no withholding if the dividends are being paid by a subsidiary to a non-resident parent company, owning more than 25% of the payer. Companies can qualify for tax exemptions and tax reductions under investment incentive regimes. Branches of foreign companies are treated the same as Dutch companies in accordance with the fiscal regime under which they qualify.

Incomes are taxed on a graduated scale, with liberal deductions for dependents; taxes are withheld by the state on the incomes of wage earners. In the tax reforms of 2001 marginal income tax rates were set in a course of increases in the lower rates, and decreases in the higher ones. The progressive schedule consists of four brackets, not counting a tax-exempt base for each individual taxpayer. In 2003, the lowest personal income tax rate, including social security contributions, was 32.9%, up from 13.9% in 1999 (but only 15% for those over 65 years old). The next highest rate, 38.40%, for the next increment of income up to €28,850, also included social insurance contributions and a lower rate(20.5%) for those over 65. The two highest rates—42% on the increment of income between €28,850 and €49,464, and 52% (down from 60% in 1999) on the increment of income above €49,464—included no social security assessments and did not have corresponding reduced rates for seniors. Gift and inheritance taxes range from 5% to 68% depending on the family relationship of the donor or deceased.

The Netherlands' main indirect tax is its VAT introduced 1 January 1969 with a standard rate of 12% and a reduced rate of 4% on basics. Effective 1 January 2001, the standard rate was increased from 17.5% to 19% with a reduced rate of 6%, the latter applied to basic foodstuffs, books, newspapers and periodicals, public ground and sea transport, water supplies, sports centers, and pharmaceuticals. Exempted from VAT are exported goods, medical, cultural, and educational services, and credit and insurance transactions. Excise taxes in 2003 were imposed on beer, wine, alcohol, petroleum products, and tobacco products. An energy tax is imposed on the suppliers and consumers of fuels. There are also taxes on legal transactions and on motor vehicles.