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Setting up a Business or Branch Office in the Netherlands?
The Dutch government has set a goal: in 2023 taxable deductions should be capped at 37.05%. In 2020 tax deductible items are capped at 46% and this shall be decreased to 43% in 2021. In order to get to the targeted percentage of 37.05%, the limitation of deductible items in the Dutch personal income tax return shall continue.
The limitation of the deduction is related to the reduction of the tax rates in box 1 (taxable income from employment and main residence). This reduction started last year and will continue in 2021. For example, the rate of the first bracket will drop from 37.35% to 37.1%. The limitation of the deductions is also related to the increase of the tax credits such as the employment levy rebate (i.e. tax rebates, which means that you will have to pay less tax).
The deduction limitation initially started with the mortgage interest. Also for other costs, such as maintenance obligations, expenses for specific care costs, weekend expenses for disabled people, training expenses, deductible gifts, the remaining personal deduction from previous years and losses on investments in venture capital, the deduction limitation will be further reduced in the coming years.
Deductions for entrepreneurs are also further reduced. This concerns the self-employed tax deduction, the starter’s tax deduction, the starter’s tax deduction in the event of incapacity for work, the deduction for research and development work, the co-worker’s tax deduction, the liquidation deduction and the SME profit exemption.
Deduction fiscal old-age reserve not reduced
The deduction percentage of the fiscal old-age reserve is not reduced. This is due to the fact that at the time the reserve is cancelled, tax will also have to be paid at the normal rate.