The foreign pension payment you received while being a Dutch tax resident.This is taxed in the Netherlands. How is this possible?
Foreign pension payment taxed in the Netherlands
The pension thought is often that you deduct the contributions during your working life at the high tax rate. Then when your old age has started, you receive the pension contributions at a lower tax rate. The lower old age tax rate. But then you life in the Netherlands. Our tax rates are often not experienced as being low.
Foreign pension and taxation
The Netherlands has tax treaties with many countries around the world. Not every tax treaty is the same on the pension article. Often it is stated that a pension is taxed in the country where the person receiving the pension is a tax resident.
For state pension there can be an exception. A state pension is started for you while you were a civil servant. The tax treaty could determine that such a pension is only taxed in the state where the pension was created.
Per situation per country the tax treaty needs to be looked up. Please expect the pension to be taxed in the country where you are living the day the benefit is paid to you.
Repayment of pension investment
There could be a situation in which you were able to claim back the premium you paid for the pension. Is this then a taxable pension benefit or a tax free reimbursement of paid in capital? That depends on the timing. If repaid before the pension date, it is often regarded a tax free reimbursement. The discussion is then what is the pension date.
If you can touch randomly the contributions you made. This is not a pension. This is a capital insurance. You might be excited not needing to pay Box 1 Dutch tax over possible benefit. That said, you should have paid over the years you were in the Netherlands already Box 3 wealth tax.
Repayment pension – court case
The Belgium employer of a Dutch tax resident arranged a pension for this employee in Belgium. The pension insurance informed the employee that the pension date was May 1, 2015. This implies the pension contributions started that day.
The Belgium pension insurance offered the employee a choice. Either he received a lump sum amount of EUR 74.266 or this amount is paid over a period of time. The employee choose for the lump sum. This was paid to him on May 5, 2015. He claimed this amount to be a tax free.
The Dutch tax office disagreed. They went to court where the employee stated that based on the pension article in the Dutch Belgium tax treaty, article 18 sub 3, this amount was tax free. This article 18 sub 3 states that the amount is tax free if paid out before the starting date of the pension.
The court ruled that the pension start date was May 1. The lump sum amount was paid out May 5. Therefore the article 18 sub 3 Dutch Belgium tax treaty condition was not met. The Dutch tax office was correct in taxing the lump sum amount.
Tax is exciting
We think tax is exciting. We notice pensionados moving to the Netherlands. For us that is a strange movement, as we only know pensionados to move to a more tropical climate. Both weather and tax wise. The pensionados are often attracted by the Dutch way of life. If we kindly tip the subject of Dutch tax, often they prepared themselves thoroughly. Then we are not the massager of the less exciting news of the Dutch tax rates.