What if you have foreign income and you need to file a Dutch tax return, what will you do? Are you obliged to report this income?
Foreign income and Dutch tax – employment outside the Netherlands
We often see the situation that one partner earns a salary in the Netherlands and the other partner works abroad and then there is confusion what to do with the foreign income in the Dutch income tax return.
First we need to determine where the persons are tax resident. If their home is in the Netherlands, for instance a rented home, then it is very likely they are Dutch tax residents. If they own the home they are living in in the Netherlands, then without any doubt they both are Dutch resident tax payers. That is also the desired situation as you like to deduct 100% of the mortgage costs, not only 50%.
One of the partners is employed outside the Netherlands. That income is taxed abroad, will it be taxed again in the Netherlands? No, it will not be taxed in the Netherlands, but the income is part of the Dutch tax return. As a Dutch tax resident needs to report his or her worldwide income, the foreign income is part of the Dutch tax return. If the foreign income was the only income, then a 100% double taxation relief is applicable. In the even the employee had foreign income and started in the same calendar year Dutch employment, then the double taxation is not a full relief.
Besides income tax a Dutch resident tax payer is subject to social premiums. If the Dutch tax return is completed you can indicate where a person is socially insured. The rule is that an employee is socially insured in the country where the employer is situated. There are numerous exceptions, but this is the main rule. As no social premiums are due in the Netherlands over foreign employment income, no additional Dutch payment is due.
Why is it important to report the income?
Besides the obligation you need to report your worldwide income, even if no additional income tax is due, you need to report the income for possible benefits or deductions. For instance a day care center benefit or health care benefit is calculated over the combined income. Or if you want to deduct health care costs or donations in your income tax return, the threshold is based on the combined income. Hence to avoid negative corrections in the future, best to report the income immediately.
Foreign income and Dutch tax – employment inside the Netherlands
Persons moving to the Netherlands, often because their partner has a Dutch job opportunity, keep their foreign employment while living in the Netherlands. Most jobs can be done online and finding a job in the Netherlands with your foreign expertise is not so easy or your foreign employer likes to continue your employment even if you live and work in the Netherlands.
This is a very much different situation from the situation you actually work abroad while being a Dutch tax resident. Now the work is done in the Netherlands and all tax treaties the Netherlands has clearly state that work done in the Netherlands for a foreign employer is taxed in the Netherlands. This implies the foreign employer needs to set up a Dutch payroll with Dutch tax and Dutch social premiums.
Dutch labour law
More important for your employer is that Dutch labor law applies on work done in the Netherlands. Your employer can insist on continuing the foreign employment contract, but in case of a labor dispute the foreign employment contract terms when contradicting with Dutch rules, are waived. That is never a good situation for the employer.
Orange Tax Services
We can process your Dutch income tax return with your foreign employment income tax is not taxed. We can also process the Dutch income tax return with income you earned in the Netherlands with an organization as Nato or other organization that has negotiated that you pay no Dutch tax over the income earned with that organization.
We have a dedicated team for the situation where you are basically employed by a foreign company working in the Netherlands. We can set up the payroll in a rather efficient manner where we fully provide the service the foreign employer needs to comply with Dutch rules and regulations.