The difference between tax penalties and tax interest
After submitting your tax return, you’ll receive an assessment from the Dutch Tax and Customs Administration. In addition to the amount of taxes stated on the assessment, you may notice that additional costs are charged: the so-called tax interest. This may come across as a penalty, but it’s not. In this blog we’ll explain the difference between a tax penalty and interest on tax, and how to prevent either of them.
What is tax interest?
The interest on tax is a compensation calculated by the Dutch Tax and Customs Administration on the tax to be paid. This tax is treated as a debt, since you have access to a certain amount of money that, technically, already belongs to the Dutch Tax and Customs Administration. However, because the Dutch Tax and Customs Administration doesn’t yet have access to this amount, it charges tax interest as a compensation.
- For income tax, the interest is calculated from 1 July following the year to which the tax return relates. If you submit your income tax return before 1 May, no interest will be charged. You also have the possibility to request a provisional assessment.
- In regard to corporate income tax, interest is calculated from 1 January following the previous financial year. However, if you submit a tax return adjustment or correction before 1 April, you’ll avoid having to pay the interest on tax.
Applying for an extension for filing your income tax return will not prevent you from having to pay tax interest. But you can avoid a possible tax penalty by applying for an extension.
When will you receive a tax penalty?
There are several situations in which the Dutch Tax and Customs Administration can impose a tax penalty:
- You did not file a tax return (or didn’t submit it on time).
- You did not pay your assessment (or didn’t pay it on time).
- Your tax return was incorrect or incomplete.
The default penalty for not filing an income tax return (on time) is an administrative fine of €385. This fine can increase if you continue to fail filing your tax returns. The default penalty for not paying your income tax return (on time) is calculated using the amount due, and can amount to €5,514. In the event of an incorrect or incomplete tax return, the Dutch Tax and Customs Administration will investigate whether this was done with intent. An additional penalty may be imposed if this turns out to be the case.
What other additional costs can the Dutch Tax and Customs Administration impose?
In addition to interest on tax, there’s also the tax on late payment. Like the tax penalty, this will be imposed if you don’t pay your assessment on time, even if you’ve been granted a deferment of payment. In both cases, you may also be faced with collection costs or costs for a warrant of execution.
All in all, it’s possible to have multiple penalties or interest fees added to one assessment. In order to prevent this, it’s important to make sure that your returns are both submitted and paid on time. If, for whatever reason, this is not possible, please do not let the letters from the Dutch Tax and Customs Administration pile up, but report to your tax agent or accountant on time!