How much tax do I actually pay for every euro earned?
The tax season has started again. That means that I’m collecting all my annual income statement and have to file my income tax return. Of course, for me as a DGI, the dividend tax that I have paid in the past year is important. Because in The Netherlands you can deduct this from your income tax.
On the salary that your boss is giving you (gross income), you still have to pay taxes on it. The income tax is being hold in by your employer in The Netherlands. Fortunately, you are also entitled to some deductions in The Netherlands, which in turn reduces the tax burden.
But how much tax do I have to pay for every euro I earn with my salary? Mmm, how could I determine or calculate that properly? While searching the internet, I ended up at the OECD.
Organisation for Economic Co-operation and Development. OECD is an international organisation that works to build better policies for better lives. Our goal is to shape policies that foster prosperity, equality, opportunity and well-being for all. We draw on almost 60 years of experience and insights to better prepare the world of tomorrow.
The OECD publishes an annual Revenue Statistics report. In the report of 2019 they found that the tax-to-GDP ratio in the Netherlands increased by 0.1 percentage point from 38.7% in 2017 to 38.8% in 2018. The corresponding figure for the OECD average was a slight increase of 0.1 percentage point from 34.2% to 34.3% over the same period. The tax-to-GDP ratio in the Netherlands has increased from 36.9% in 2000 to 38.8% in 2018. Over the same period, the OECD average in 2018 was slightly above that in 2000 (34.3% compared with 33.8%).
In this publication, taxes are defined as compulsory, unrequited payments to general government. They are unrequited in that the benefits provided by governments to taxpayers are not normally allocated in proportion to their payments. Taxes are classified by their base: income, profits and capital gains; payroll; property; goods and services; and other taxes. Compulsory social security contributions (SSCs) paid to general government are also treated as taxes. Revenues are analysed by level of government: federal or central; state; local; and social security funds.
Source: OECD (2019)
So, of every euro earned, 38.8 cents are taxed in The Netherland. Not so bad, if I compare this with other European countries. And for my friends in the US, I see a way lower tax burden!
For more information about how much you pay for every euro, just visit the their website and look at your countries interactive chart.
If you look at the graph above, you can see that the tax burden in France is the highest with 46.1 cents per euro and in Mexico the lowest. In Mexico you only pay 16.1 cents per euro in taxes. Especially in European countries you have to pay above average taxes. The top ten consists entirely of European countries. The Netherlands is number ten in the overview of the OECD with a tax burden of 38.8 cents
Taxes in The Netherlands
A higher gross income may result in higher taxation. This because the taxation is in fact built up progressively. Whoever earns more pays more tax. You are entitled to tax credits, which can also depend on the level of income. For Dutch people who are not yet entitled to a pension, two tax brackets apply. In the highest tax bracket (with an income from 68,507 euros) the income tax is 49.5 percent.
The actual tax burden is higher
After you have settled with the government, your net salary is freely disposable. In reality, the taxation is much higher. When you buy goods or services, you also pay VAT again. So, you also pay taxes again when you spend money. You even pay taxes on savings, insofar as your assets exceed 30,000 euros per year. Upon your death, your belongings will go to your partner and the children according to the legal inheritance law. They may also owe inheritance tax on this. You therefore pay a lot to the government in several ways.
With all these taxes our government pay a lot. I live in a great country with very good infrastructure, school system and health system. This is worth far more for me. So, if I weigh everything against each other, I am happy that I live here and can pay all these taxes.