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Doing business in the Netherlands 29support himself and his dependents (e.g. medicalexpenses, school fees and specific livingexpenses for children).The tax rate in Box 1 is progressive and can accumulateto a maximum of 52%.Profit from business activitiesA natural person who derives income from businessactivities qualifies for tax allowances for entrepreneursunder certain circumstances. The tax allowancesfor entrepreneurs include self-employed allowance,research and development allowance, taxdeductible retirement allowance (FOR Allowance),discontinuation allowance and SME allowance. Inaddition, a starting entrepreneur is also entitled toa start-up allowance.The SME Allowance (MKB-vrijstelling) means thatentrepreneurs will be entitled to an additionalexemption of 14% (2014) of the profits followingdeduction of the above entrepreneur’s allowance(tax allowances).Box 2: Taxable income from substantial interestSubstantial interest applies where the taxpayer, withor without his partner, is a direct or indirect holder ofa minimum of 5% of the issued capital in a companyof which the capital is distributed in shares.The income from substantial interest is the sum of theregular benefits and/or sales benefits reduced bydeductible costs. Regular benefits include dividendpayments and payments on profit-sharing certificates.Sales benefits include the gains or losses on the saleof shares. Examples of deductible costs include thefollowing: consultancy fees and the interest on loanstaken out to finance the purchase of the shares.A non-resident taxpayer is subject to tax for incomefrom substantial interests if the interest is held in acompany residing in the Netherlands. If this companywas resident in the Netherlands for a minimum offive years in the past ten years, the company isregarded to be resident in the Netherlands.The tax rate in Box 2 is 25%. For 2014 only the first €250,000 of taxable Box 2 income rate is subject to arate of 22% and the remaining at the standard rateof 25%.Box 3: Taxable income from savings and investmentsBox 3 charges tax on the taxpayer’s assets. Thisassumes a fixed return on investment of 4% of theyield base. The yield base is the difference betweenthe assets and the liabilities. The yield base is determinedon 1 January of the calendar year. The referencedate of 1 January also applies if a taxpayer doesnot yet owe any inland tax on 1 January or if the inlandtax obligation ends during the calendar year for reasonsother than death.The assets in box 3 include: Savings, a second house orholiday house, properties that are leased to third parties,shares that do not fall under the substantialinterest regime and capital payments paid out on lifeinsurance.Liabilities in box 3 include: Consumer loans andmortgage bonds taken out to finance a second house.Per person, the first € 2,900 (2014) of the averagedebt is not deductible from the assets.Untaxed assetsAll taxpayers are entitled to untaxed assets in Box3 of € 21,139 (2014). The amount is intended to reducethe yield base. Taxpayers of 65 and older areentitled to an extra increase up to a maximum of €27,984 (2014) under certain conditions. A fixed returnof 4% is then calculated on the amount remainingafter deduction of the exemption. The tax rate isthen paid on this return. The tax rate in Box 3 is 30%.Tax allowancesOnce the due tax has been calculated for each box,certain tax allowances are deducted from thoseamounts. All domestic taxpayers are entitled to ageneral tax allowance of € 2,103 (2014). As of 2014the general tax allowance is reduced by 2% of thetaxable income from work and home exceeding €19,645, but with a maximum of € 737. Depending onthe personal situation of the taxpayer and the actualamount of the annual income, the taxpayer mayalso be entitled to specific tax deductions.Advance tax paymentsTax is withheld in advance over the course of the taxyear for income deriving from work activities andfrom dividends. Both wage withholding and dividendtax are advance tax payments on income. The withheldamount may be deducted from the income taxdue.