How does the Dutch Box 1, Box 2, Box 3 tax system work?

The Netherlands taxes income across three separate boxes, each with its own rules and rates. Every Dutch resident must work out which box applies to each type of income and report them separately on their tax return (aangifte inkomstenbelasting).

Box 1 covers income from work and home ownership. This includes wages, self-employment income, freelance earnings, unemployment benefits, pensions, and the notional rental value of owner-occupied housing (eigenwoningforfait). Box 1 uses a two-bracket progressive system: 36.97% on income up to €75,518, and 49.5% on income above that (2024 rates). The mortgage interest deduction is also processed in Box 1.

Box 2 applies to income from a substantial interest in a company, meaning you hold at least 5% of the shares. Dividends and capital gains from such stakes are taxed at 24.5% on the first €67,000 and 33% above that (2024). If you and a tax partner together hold 5%+, both thresholds apply.

Box 3 is the wealth tax box, covering savings, investments, and other assets not in Box 1 or 2. Rather than taxing actual returns, the Netherlands imputes a fictitious return and taxes that. There is no separate capital gains tax in the Netherlands; gains on shares and funds are folded into Box 3.