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Fiscal residency and how not to do it

The most important aspect of your fiscal position is to determine where you have your fiscal residency. A lot of misinterpreted situations we find in this field among our new clients.

Where are you a fiscal resident?

The tax residency is determined based on facts and circumstances. Where you have your central point in live is where you are a tax resident. Your central point of live is where you actually live, where is your partner, your work, your friend, where your mail arrives. This is not a limited list of facts, only the most common once used.

If you are single and you live and work in the Netherlands, there is not much to investigate, you are a Dutch resident tax payer. Some people have the opinion that by not registering in the Netherlands and maintaining a registration abroad, makes them a non resident tax payer in the Netherlands. This is not correct. The registrars are a tool the tax office can use, but the actual facts and circumstances determine your fiscal residency.

It can become more complex when you do live and work in the Netherlands, but your partner is living abroad. Then you could argue your central point of live is abroad. This is definitely the case when you have children with this partner and you frequently, once per month or quarter, visit your family abroad. Then you are a non resident tax payer in the Netherlands and a resident tax payer abroad. Sounds complex, but that is not the case. The other way around becomes more complex, but not too complex.

Fiscal residency orangetax

Move your tax residency

If you would like to change your tax residency because you are actually moving your central point of live, then this is done with the help of city hall. If you arrive or when you leave you report in person at city hall and you announce either you arrived or that you are going to leave. This is communicated to the Dutch tax office, that is it. If move emigrate it is important you provide city hall with a solid forwarding address, as most likely you will need to receive correspondence from the Dutch tax office. Most of the time that is a refund possibility, sometimes an assessment to be paid situation.

How not to do it?

A Dutch tax resident had the opportunity in 2010 to get a position in Taiwan. He had not tax partner nor children. That is a single person and I boldly stated above that singles have no choice, here is the exception.

During the 2,5 years he worked in Taiwan he returned to the Netherlands only for Christmas time, he kept on a fully decorated house in Eindhoven that was not put up for sale nor rented out. He had not deregistered himself from city hall.

The Dutch tax office charged him with income tax and he claimed to have left the Netherlands, living in Taiwan and he cannot be subject to taxation in the Netherlands. The court decided that he had in fact not left the Netherlands. He had never had the intention to settle in Taiwan, he kept his house in the Netherlands, actively used his Dutch bank account. Moreover, the Dutch employer was also the organization that had employed him in Taiwan. Moreover, his Dutch health care insurance was being continued.

Hence he was liable for the 2010 income tax return based on being a resident tax payer.

The lesson to be learned is that if you would like to leave the Netherlands, actually leave. Especially for current Dutch resident tax payers that would like to work for instance in low or no tax taxed countries like the Emirates, Dubai etc. If the Dutch tax office has the opinion you still live in the Netherlands and you earned a tax free income in Dubai. This income is taxed in the Netherlands. A double taxation relief cannot be granted, as no tax was levied in the first place. Working in Emirates, Dubai and similar countries at a 52% tax rate is not making a difference.

Orange Tax Services

Our core business is basically determining where a person is a tax resident. We often receive the request from abroad to help with incorporating a BV company. Our first question is then where the managing director will be living. Most of the time the answer is abroad. Then it has no use incorporating a BV company, because that is subject to tax in the country where the managing director is living.

Determining the fiscal residence should not be underestimated. And once determined that is the base of any fiscal initiative taken. Also in case you do not have a Dutch resident managing director and you nevertheless would like to incorporate a Dutch BV company, we can assist, but more is involved.

Does this post make you want to get in touch? Go for it!

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