A new tax year, new tax rates. That is basically every years story, but this time it is more a change to simplification, or are the new tax rates inocme tax a tax raise unnoticed?
Tax rates income tax over the years
Most expat that arrive in the Netherlands are shocked by the 52% max income tax rate. These expats also wonder why we are not shocked by this rate. Well, that is caused by the history of events. In the early days such as 1980 the max income tax rate was 72%. In that perspective the 52% is not so bad.
Imagine earning EUR 100.000 in the maximum income tax bracket and only getting in your bank account EUR 28.000. That is not exciting. That said, the number of deduction we had at that time was numerous. So numerous, the paper income tax return had 21 explanatory notes all to get down the income tax percentage.
In 1990 the 72% top rate went down to 60% income tax and in 2001 the maximum income tax rate went to 52%. With this knowledge it might make you understand a little why the Dutch do not complain too much about the 52% tax rate. As the income tax rate went down, also the number of deduction possibilities went down to a handful.
The Dutch Government is aware of the fact that even 52% tax is not motivating to make the extra effort above the EUR 68.000 income. Hence this year the maximum rate was reduced to 51,75% (whopping).
New tax rates income tax 2020
In the year 2020 the tax rates are reduced to two brackets, 37,35% over the first EUR 68.507 you earn and 49,50% over the income exceeding the EUR 68.507.
New tax rates income tax 2020 – Is this a tax advantage?
Until this year we had three tax brackets, 36,65% over income from zero to EUR 20.384, then 38,10% over income from EUR 20.385 to EUR 68.507 and then 51,75% over the income exceeding EUR 68.507.
Whether this is advantage or disadvantage, for that you need to know the average Dutch income (modal) is EUR 36.500. For this majority of the Dutch tax residents a slight hardly noticeable change will take place. The same applies to the top tax bracket Dutch tax residents. The difference between 51,75% and 49,50% you do not really notice.
What is the purpose of less tax brackets?
The purpose is to get to a flat tax rate and for high income earns this will be the flat tax plus rate. A simplification. That is the aim of the Government, make the system more simple. So far they have never succeeded, hence we are looking forward to the system being active.
Orange Tax Services – Tax is exciting!
We think tax is exciting and I think you might agree when the system is made less complex. Less tax brackets is less complex. Less complex is not the same as less tax, as one way or the other, you need to contribute to the Dutch tax office.