Moving to a tax free country and still paying Dutch tax, a Dutch couple wondered how that is possible. The tax office was convinced the pension income the Dutch couple received while residing in Saudi Arabia was taxed in the Netherlands. How is that possible?
Moving to a tax free country and still paying Dutch tax
People not living in the Netherlands referring to the Netherlands as tax heaven. Dutch residents wonder very much how this can be stated and are eager to move away from the relatively high Dutch tax rates. Relative, as it is the total package you get in the Netherlands. Freedom, democracy and tax.
Moving to another country does not imply your Dutch tax obligations have stopped
We experience daily the more or less same question about moving to a more tax friendly nation. If you reside in the Netherlands, the tax cheaper alternative does not have all the basics we like so much in the Netherlands. Hence people tend to remain connected to the Netherlands in one way or another.
We then have to share the news that they have remained a Dutch tax resident. This news is seldom received well.
How can you remain a Dutch tax resident when you moved away?
The Netherlands has tax treaties around the world with nearly all nations. In article 4 of every tax treaty is stated where a person is a tax resident. A rather soft article, as when it would be clean clear cut rules, all Dutch would bent in a 360 degrees form to comply in order not to pay tax in the Netherlands.
Bottomline is that your central point of life needs to be in the Netherlands. Your central point of life is you, your work, your partner, your home, friends, your navigation in your automobile that shows a Dutch address when you press home.
Two common occurring aspects:
The partner stays in the Netherlands. Dubai, Saudi Arabia, Ghana, Colombia and or China can offer great jobs. Often the partner, especially with children, will never move away from the Netherlands. The person working abroad has then still a strong connection to the Netherlands, strong enough to remain a Dutch tax resident for the world wide income.
Important to know is that a double taxation relief is only applicable in case of double taxation. If there is not double taxation or it cannot be made plausible, the foreign income is taxed as such in the Netherlands.
The other example is the house owned by the person working abroad. The house is seen by the Dutch tax office as an anchor for tax purposes. You can work abroad, you can separate without divorce from your partner, the house makes you a Dutch tax resident.
A Dutch couple went to Saudi Arabia early 2016. The social institute paid a EUR 9.815 pension benefit to one of the couple. The couple claimed the pension income to be taxed only in Saudi Arabia (no tax system). The Dutch tax office was confident the couple is still paying Dutch tax.
The couple still owned their house in the Netherlands. In Saudi Arabia they rented, were member of some clubs and had made friends. The court ruled based on the memberships and friend in Saudi Arabia that the couple were no longer Dutch tax residents after they left the Netherlands.
Still the Dutch tax office won the case, as there is an exception to the rule that if Dutch Government pension is paid to a country where there exists no tax system, the pension is taxed in the Netherlands.
Tax is exciting
Tax is exciting we think, but not everybody agrees with us. We do not have all the information about the above mentioned couple, but I think they had not rented out the Dutch house they own. I think they even claimed a tax credit for the year 2016 when they migrated. That created this court case. They should have rented out the house, then the disconnection for the tax residence was full. Still the pension was taxed in the Netherlands.
Moving around the world is something you prepare well in advance. The tax consequences are often not prepared at all. The Dutch tax return received at the new address is a surprise and the outcome of the tax return an ugly surprise. Please prepare yourself tax wise as well on your move.