Starting in 2023, there will be various changes in wage and income taxes regarding tax rates, credits, and deductions.
Box 1
Significant changes in Box 1: taxable income from work and property.
Base Rate Reduction
The base tax rate will decrease from 37.07% to 36.93%. This base rate applies to income up to €73,031. This threshold results from regular annual indexing and a state reduction of €740. The upper rate remains unchanged at 49.5%.
Non-Payment of Tax Credits (Heffingskortingen)
For low or no income earners, the entitlement to tax credits may exceed the payable tax. In such cases, part of the tax credit is not credited. In 2022, the unpaid portion of general tax credit, employee tax credit, and income-related combination tax credit could still be paid up to 6.67%, under certain conditions. From 2023, tax credits can no longer be paid to taxpayers born on or after January 1, 1963.
Increased and Faster Reduction of Employment Tax Credit (Arbeidskorting)
The employment tax credit increases for employees with an income between €37,697 and €115,301. The credits at the first breakpoint are €884 (up from €470 in 2022), at the second breakpoint €4,605 (up from €3,887 in 2022), and reaching €5,052 (up from €4,260 in 2022) at the third breakpoint. The reduction percentage rises from 5.86% to 6.51%.
Breakpoints for Employment Tax Credit
These breakpoints relate to the statutory minimum wage (wml), which increases by over 8% in 2023. The wml's extra increase does not affect the employment tax credit breakpoints, which shift only due to annual indexing.
Deduction Rates (Aftrekposten)
The deduction rate drops to 36.93% (down from 40%) in 2023. This matches the base rate in the two-bracket system. Therefore, income exceeding the second bracket threshold (€73,031) allows deductions at the lower base rate for expenses falling into the higher tax bracket. This applies to mortgage interest deductions, entrepreneur deductions, and personal deductions.
End of Averaging Agreement (Middelingsregeling)
The averaging system for individuals with highly fluctuating incomes in Box 1 will end on January 1, 2023. The last period for averaging is 2022-2023-2024.
Deferred Taxation on Stock Options
Employees receiving stock options will see the taxation moment shifted to when the shares become tradable, rather than at the time of option exercise. Employees can still choose to pay taxes upon option exercise even if shares are not yet tradable.
Free Space WKR
In 2022, the discretionary scope accounted for 1.7% of the first €400,000 of taxable wage mass (first bracket) and 1.18% of the remaining wage mass (second bracket). For the 2023 calendar year, the percentage for the first bracket increases to 3%. From 2024, the percentage for the first bracket will be 1.92%. The percentage for the second bracket remains unchanged.
Gradual Phasing Out of the Self-Employed Deduction
From January 1, 2023, the self-employed deduction decreases from €6,310 to €5,030. The self-employed deduction will be gradually phased out in the coming years, reducing to €900 by 2027.
Higher Tax-Free Travel Allowance
From January 1, 2023, the maximum tax-free travel allowance increases from €0,19 per kilometer to €0,21 per kilometer. This increase allows employers to reimburse employees for travel expenses at a higher amount tax-free. Employees will thus receive compensation for higher transportation costs. This measure also applies to entrepreneurs and those entitled to income tax-related income. From 2023, the increased amount of €0,21 per kilometer for business travel can also be deducted from profits.
The increase also applies to:
Travel expenses for visiting patients;
Weekend and holiday costs for people with disabilities;
Donation deductions if the volunteer waives travel expenses.
Box 2
Changes related to Box 2: taxable income from significant interest.
End of Efficiency Margin
The efficiency margin in the standard salary scheme ends in 2023. Directors-major shareholders (DGA) must pay themselves a usual salary comparable to similar employment, previously set at 75% of the comparable salary (the 25% efficiency margin). This margin will be eliminated.
End of Special Treatment for Innovative Startups
Since January 1, 2017, the standard salary scheme included an exception for directors-major shareholders (DGA) of innovative startups. Under this scheme, the DGA could set the taxable salary at the minimum wage, leaving more funds in the startup for growth. This program ends on January 1, 2023.
Vehicle Tax = Weight Tax
Regarding vehicle taxes, there is an important addition for emission-free passenger cars. The list price for which the additional benefit for emission-free passenger cars applies (ceiling) decreases from €35,000 to €30,000 in 2023. The normal additional percentage benefit for emission-free passenger cars remains at 6%. The normal additional rate is 22%, so the upper limit for emission-free passenger cars will rise to 16% in 2023. Therefore, the maximum benefit from the addition for emission-free passenger cars above this amount will be €1,800. The normal additional percentage benefit and the upper limit for emission-free passenger cars will continue to decrease until 2026.
These changes reflect the Dutch government's efforts to adjust tax policies for 2023, impacting both individual taxpayers and businesses.