The Netherlands

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This page gives information on how one can reach ERE while working and living in the Netherlands. If you know more information, feel free to edit this page and add that information.

Reaching ERE in the Netherlands

A lot of the mechanisms of ERE are similar in whatever country you live in. Living (way) below your means and saving up and/or investing the rest of the money is the way to go. However, the specific details of ERE can differ per country. Here you'll find specifics for the Netherlands.

Proposed strategy

Costs of living in the Netherlands are high. However, social security is pretty good as well, allowing you to set aside less money for disasters like unemployment (because there are unemployment benefits), health problems (mandatory health care insurance covers all health needs (except the ones considered frivolous by the government, one can discuss about that) - and there is an allowance to help you pay health insurance costs if your income is low) and old age (there is a state allowance for everyone over age 65). Except in very small villages in less densely populated areas, public transport is pretty good and cheaper than owning and driving a car. Also, biking and walking are considered normal ways of transport, are possible (most of the country is flat) and are safe.

So the strategy to reach ERE would be to reduce your costs of living by all legal means possible (spend as little as you can on housing, clothing, transport and food; and spend as little as you legally can on taxes) and to save up as much as possible, first in tax-friendly accounts and then with post-tax money. To avoid the taxes on your assets you could consider to put part of them in environment-friendly investments that, for now, are tax-exempt. When calculating the money you need per year post-ERE, you should also look into possible government allowances that you may become eligible for if your income drops post-ERE (for example for health care, housings costs, child raising costs).

Income tax

If you have a job or have income via your own company, you'll pay income tax. There are a lot of deductions possible, but if you do make a signifant income, you will not be able to avoid it all. For most jobs, the income tax you're supposed to pay will already be withheld from your income before you receive it. At the end of the year, you can file your taxes and may get some of this money returned to you (a tax refund).

The system of income tax 2015

You have to tell the tax collection office (Belastingdienst) how much money you've earned. Then, several deductions are possible, for example for housing costs and education costs. The amount of money you've earned after all the deductions will be subject to taxes and social security payments. If you have a complicated life (a family, kids, health costs, a house, significant savings and/or investments) it could be very worthwhile to hire an accountant to fill in your tax forms for you. The tax system is quite complicated and the accountant may be able to give you more deductions than you knew existed. If you own a company, an accountant is almost obligatory.

Information on individual income tax in the Netherlands from the tax collections office can be found here (external link).

Different levels of income tax are present for different amounts of income. There are tax brackets: everybody pays the same tax rate for the first xxxx euros they earn, and if you earn more than that, you pay another % of tax on the amount you earn over xxxx . This layered structure is called "belastingschijven" in Dutch and is similar to the idea of tax brackets in for example the US income tax system. I think if you can understand it and pronounce it, you have fully integrated in Dutch society...

In 2015, the following taxes will have to be paid by people who did not reach retirement age (people that already reached retirement age pay less) over their income from work:

Income Tax percentage
up to 19,822 euros 36.5%
19,822-57,585 euros 42%
anything above 57,585 euros 52%

Example: if you earned 25,000 euros (after applying all the possible deductions), you'll pay taxes to the amount of 36.5% of 19,822 euros and 42% of the remaining 5,178 euros.

Ways to reduce income tax

There are general deductions that everyone can use. There is a special deduction for people who are indeed working (as opposed by people who get an allowance from the state). Often you have to meet some criteria, but there are deductions for other things as well, such as housing (interest you pay on your mortgage is tax deductible and thus it could be that for example 42% of the annual interest is returned to you), health costs (minimum amount needed, and health insurance costs do not count), costs for raising your kids, costs for using public transport (to go to your work at least one day a week), study costs (for a study useful to get/maintain/improve a job), donations to charities, retirement savings (under very specific conditions).

Tax on your assets or Vermogensbelasting

Assets are all your cash, money in bank accounts, invested money (exception: if you hold more than 5% of the stocks of one company, the rules are different), the value of the properties you own (minus any mortgage you owe on them) except for the house you live in (your primary residence is excluded here, it's partially included with your income tax, go figure). Debts are all your debts (excluding the mortgage on the primary residence) that are supposed to last longer than one year. You have to subtract 2,900 euros from your debts before you can do the final calculation.

Your taxable asset is calculated as assets as mentioned above minus debts as mentioned above.

If this amount is higher than 21,330 euros for one person (in 2015) tax needs to be paid on the assets. If one is part of a couple (married or registered as living together) the limit is 42,660 euros for the couple (so both person's assets and debts are taken into account). The tax on assets over the limit of 21,330 (or 42,660 for a couple) is 1.2% of the amount above the limit.

Example: if you have 50k in assets, 40k in debts and your wife has 40k in assets and no debts, you have 50k together and will need to pay 1.2% over 7,340 euros (the amount of assets above the limit of 42,660 that you have as a couple).

When you have reached the legal retirement age and don't receive a high income due to e.g. pensions, this amount may be higher due to the so-called 'ouderentoeslag'.

Note: there's currently, August and September 2015, a lot of discussion about this tax. It is likely that the laws will change on this and that the tax rate will be lowered on at least the first 100k to 200k of assets. Whether and how exactly the rules are going to change is still unclear.

Ways to reduce tax on your assets

As in the above example, being a couple can/could help you reduce the amount of tax paid on assets; if one person does have more than 21k in assets, but the other doesn't or has more debts, the amount of tax needed to pay will be less. There is also an exception for some environment-friendly investments (recognized as such by the tax agency), and finally there are some exceptions for when you have invested a large sum of money in a new company and it went bankrupt ("durfkapitaal"). For all these exceptions, there are specific rules, so look them up before you invest or do your taxes.

Home tax and municipal taxes

The house you live in generates two taxes:

  • you are considered to have a virtual income from the house you live in, because you could also become a landlord/lady and rent it to someone. This virtual income is added to your real income and used to calculate your taxable income. The amount is 0.55% of the value of your house. (The value is calculated by the government and you can protest it if you think the real value is lower). So for example, if you own a 200,000 euro home, you are considered to have 0.55% x 200,000 is 1100 euros of income a year because of it. Depending on your total taxable income, this may be taxed at 33, 42 or 52%.
  • you pay municipal taxes. You pay for owning a home, you pay separately for living in that home, you pay a waste collection levy, you pay for the right to use the sewage, for water management (important in the Netherlands!), and for owning dogs. The way these taxes are calculated does differ per city and per province.

Ways to reduce these taxes

Some of the taxes depend on the value of your house. So buying, or renting a smaller, cheaper home will decrease these taxes. Moving to a city with cheaper municipal taxes may also be a way to reduce the amount you pay per year.

When you have a low or no mortgage on your house, you will get a discount on the amount of virtual income the tax agency uses to calculate tax. You will retrieve a discount to the amount of virtual income - (paid interest + other deductible housing costs), thus making the virtual income never higher than the amount of interrest paid. Here's an example: - You will have to pay taxes over €1,200 of virtual income - You have a very low mortgage and only paid €500 in interest this year - You will get a discount of €1,200 - €500, thus €700 on the virtual income - You will be taxed your effective tax rate (e.g. 42%) over €500

Consumption tax

The consumption tax is called BTW in the Netherlands. As a consumer, you pay it when you buy a product in a store (or online). In the Netherlands, stores have to advertise their prices including the consumption tax (called 'incl BTW'). Only stores/sellers targeted towards companies can also advertise prices excluding the BTW, but then they also have to mention that.

The regular tax is 21% and it's on everything, except:

A tax of "only" 6% is asked for:

  • food and drinks (except alcoholic drinks - 21% on them)
  • agriculture products
  • medication
  • books, magazines, newspapers
  • cabs, personal transport
  • a few other exceptions (hairdressers, repair of clothing, rent of holiday houses, cleaning houses, fixing up houses)

Excise taxes

There are special taxes (called excise taxes, dutch: accijns) for car gas, nicotine products and some alcoholic products.

Avoiding consumption taxes

It is a national pastime in the Netherlands to try and buy stuff for personal use via a company you own. Companies do not pay the consumption tax (or at least: they pay it, but the money is returned to them by the Dutch tax agency). Rules are of course pretty strict, and if you are caught ("Well sir, could you explain to me why your dog walking company needed a playstation 3?") you are in trouble. Some people providing services to you (housing repair etc) will ask you whether you want to pay "zwart" (without taxes) or "wit" (officially, with taxes). Again, if caught this has repercussions.

More legal ways to avoid consumption taxes could be by buying less, buying second-hand (most of the times you do not need to pay BTW then), or exchanging goods or services without payments in money.

Retirement and pension

Official retirement age is increasing in the Netherlands. It was 65 years of age. It is currently, mid-2015, 65 years and three months. This will go up over the next years in steps of three months or four months, until an official retirement age of 67 years of age is reached by 2022. Then, official retirement age may go up even further, depending on life expectancy of the population.

State pension

Anyone who has lived in the Netherlands for over a year in between the ages 17 and 67 will get a state pension after official retirement age, which is called the AOW (algemene ouderdoms wet). For each year between the ages 17 and 67 that you have (legally) lived in the Netherlands, you receive 2% of the full state pension. The full state pension is currently about 1060 euros per month for a single person or 730 per person for a married couple or a couple living together - this is before taxes (but income taxes are lower for people aged 65 and over).

It is expected that the age at which the pension starts will rise to age 67 and possibly higher. It is also expected that the amounts mentioned will not rise with inflation in the next couple of decades, so that the inflation-corrected amount in the next decades will be less than the current amounts.

Retirement fund coupled to your salary

When you work for a company in the Netherlands, you are most often automatically participating in a retirement fund that is organized by the sector you work in. You cannot refuse to participate, and the amount you need to put in will be automatically deducted from your salary. This is (luckily) pre-tax money. Often the company/your boss will also pay an extra amount to the retirement fund.

For most jobs you cannot choose which retirement fund you want to participate in; and the retirement fund makes all the decisions of what investments they'll make with your money. They promise a fixed (inflation-corrected) monthly income after official retirement age. (You can sometimes arrange for distributions before official retirement age, but that will lower the amount of money you'll get per year for the rest of your life).

For some jobs, you cannot choose the retirement fund or how much you put in (a defined contribution plan), but you can choose between a limited number of investment options. They will invest your money according to your wishes and give you the amount you put in plus possible gains at age 67 and then you'll have to decide how to use that money.

Extra options to set aside money for your pension (tax-free)

There are a lot of extra options to set money aside for when you retire. Banks and investment brokers offer saving products or investment products, insurance companies offer insurance products. However, they are only tax-free up to a limit. If you work for a company and contribute to the company's retirement fund, then very likely the tax-free options are very limited for you because you already contribute a lot tax-free via that retirement fund.

However, if you have your own company, or you have some income from side jobs, it may be possible to save extra money for your retirement tax-free. You can calculate whether you have "jaarruimte" or "reserveringsruimte" at the website of the Belastingdienst.

I would strongly suggest consulting your accountant and/or financial advisers to know how much you'll be able to contribute to your retirements tax-free, and also to get an idea of which option (savings, investments, insurances) is best for you.

Health care

As a citizen in the Netherlands, you are obliged to be insured for a basic package of health costs - the only exception being if your religion prohibits this (very very rare here). The basic package include GP visits, most medications and all necessary hospital visits or stays. The current prize for this basic package is about 95-100 euros per month. In 2015, the first 375 euros you spend on health care will also need to be paid by you (eigen risico). People with very low income receive financial assistance for paying for their health insurance (called "zorgtoeslag"), which can be up to 78 euros per month for an individual. People often actually pay more for their insurance, because there's an income-dependent health insurance tax taken from your paycheck or allowance each month.

The contents of the basic package are determined by the government and change each year. The price of the basic package is determined independently by each of the several insurance companies who offer this basic package. Sometimes the company you work for has managed to get a deduction for its employees with a certain insurance company, or insurance companies offer deductions for people who also buy other insurances with them.

The big advantage of being forced to have health care, in my opinion, is that expensive health issues are paid for by the insurance companies and you do not need to budget for the "what if I get a heart disease or what if I get cancer" disasters. As long as it is in the basic package, it is paid for.

Insurance companies offer several extended packages with extra options attached to them. They cost more, but could be beneficial if you need glasses, have had a lot of muscle/joint problems, psychological problems or want to have and raise a family. This does definitely depend on the specific options, the costs, and your specific situation.

Living in the Netherlands while retired

Health care