Moving to a tax free country and still paying Dutch tax

Entrepreneurs deduction (zelfstandigen aftrek)

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.

Moving to a tax free country and still paying Dutch tax

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.

Court case

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.

Double taxation relief

income tax

Double taxation relief sounds like a relief of double tax, but is it? This article is about income tax. Not a well chosen name.

Double taxation relief

Double taxation implies two countries like to tax one and the same income source. Being taxed twice is undesirable, hence double taxation rules have been invented.

Tax treaties

The first step is to look in the tax treaties which country can tax what. The Netherlands has with the majority of the countries in the world a double taxation treaty. In the treaty determines which country may tax what. And exactly the word May is the problem.

Property. Property is clear, the country where the property is a burden on the soil can tax the income. But is it clear? The word used again is May. The problem is that the Netherlands do not tax capital gains. If you sell your Dutch property with a profit, we do not tax the property. We see happening more often that the United Kingdom, Australia, Italy, Austria all claim to tax this gain, as the Netherlands did not. Based on the word May.

Double taxation relief

Double taxation relief calculation

The double taxation relief calculation is rubbish. The double taxation relief is about double tax, not social premiums. The tax rates of 2020 are 37,35% over the first EUR 68.508. And 49,50% over the excess.

The first 37,35% tax bracket is including social premiums. From zero to EUR 20.711 the rate is 27,65% social premiums and 9,7% tax. Combined 37,35%.

The foreign income is taxed in the top of the tax brackets. The double taxation relief is taken out of the average of the tax rates. The income is taxed at 49,5%. The double taxation relief is based on an average of 9,7% tax plus 37,35% tax and 49,5% tax. The tax relief can never match the tax due.

We think a lousy relief.

What is income ?

Dutch tax residents from abroad contact us as they are concerned. Concerned about foreign income being taxed in the Netherlands. Foreign income such as:

– rental income from foreign property or
– interest income or
– capital gains from investments.

The Dutch tax system thinks rental income is not an income, interest income is not an income and capital gains is not an income. The Dutch wealth tax calculation is interesting and complex to explain. A calculation based on assumptions. Actual income is disregarded.

A tax advisor paradise.

Tax-is-exciting

We think tax-is-exciting, taxed twice is not. Our core business is assisting non native Dutch with their tax affairs. Determining where  a person is a tax resident, which tax treaty applies, what is income and how to correctly process this in the income tax return is what we do.

We charge for a personal income tax return EUR 390 incl VAT including tax partner. For an entrepreneur we charge EUR 550 ex VAT including tax partner. Feel free to contact us.

Foreign income and Dutch tax

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.

Foreign income and Dutch tax
Foreign income and Dutch tax

Social premiums

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.