Expat Tax In The Netherlands – Ultimate Tips You Need To Know
Expat Living In The Netherlands
The Netherlands is a small country in Western Europe known for its flat land barely above sea level. This “Low Country” is known for the largest sea port in Europe (Rotterdam), The Hague, world-recognized as the “International City of Peace and Justice”, windmills, and tulips. While Amsterdam is the capital of this country, The Hague is the seat of its constitutional monarchy and parliamentary democracy. Expats seek out this country because of its reputation for social tolerance and liberal governmental policies. Despite its geographic size, The Netherlands is a member of many internationally recognized economic and political groups, one of the founders of the Eurozone, a member of NATO, the G-10, and part of the economic union known as Benelux (Belgium, Netherlands, and Luxembourg).
There have been recent changes in the Netherlands Foreign Workers Act of 1994 effective April 1, 2014 that cover work permits and the imposition of fines. Expats who work in The Netherlands should research the impact these revisions have on this legislation.
Below is our top 10 list of cities in The Netherlands for expats (in no particular order):
- The Hague
The Netherlands, a very service-oriented economy, has many international government and business headquarters and is a hub for hospitality and tourism in Europe. The country, with its temperate climate of mild winters and summers, boasts many forms of transportation making it a key travel terminus on the European continent. Its local culture welcomes people of diverse background. The Euro and the US Dollar are the standard currency of this country.
Guide To US Expat Tax In The Netherlands
The Tax Samaritan country guide to US expat tax in The Netherlands is intended to provide a general review of expat tax in The Netherlands and how that will impact your U.S. expatriate tax return as a U.S. Expat In The Netherlands.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from The Netherlands and the U.S. For example, certain benefits may be tax free or excluded from taxable income in The Netherlands, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to US expat tax in The Netherlands and this brief article will address a few of those considerations.
The Netherlands Expat Income Taxes
Who Is Liable For Income Taxes In The Netherlands
Residency, the key factor in determining taxation in The Netherlands, is based on circumstance and personal ties rather than number of days physically present in the country. A person who resides in this country is taxed on their worldwide income. In comparison, non-residents are only taxed on their Netherlands-source income. There are special situations where a resident may choose to be a “partial” non-resident and, alternatively, non-residents can voluntarily elect to be classified as a resident. Employment income is typically not taxable if an employment period lasts fewer than 60 days.
Tax Year In The Netherlands And Tax Filing And Payment Rules
Taxes are collected on three different kinds of income: employment income, shareholding distributions (profits), and “savings and investments”. The main income category, employment income or “Box 1” income includes wages, director fees, income from personal services, etc., and is taxed at a progressive rate up to a maximum of 52% of income over specific thresholds.
There are special situations involving for example, foreign pensions, where employer but not employee contributions are also a form of taxable income. Net income from real property, like a primary residence, is also Box 1 income and subject to a “real estate valuation tax”. Box 2 income is derived from shareholdings (including capital gains from the disposition of business assets and dividends) taxed at a flat rate.
Other forms of capital gains are not taxable. Non-residents are subject to taxation on companies resident in the country. Box 3 income is primarily from savings and other similar forms of investment. There are special reporting arrangements with other members of the European Union regarding a resident’s bank accounts outside The Netherlands.
While there is no net worth taxes, The Netherlands levies taxes on an inheritance and gifts ranging from 10-40% of value depending on donor-donee circumstances. Nationals who immigrate to other countries are considered residents of the Netherlands and subject to income tax rules for 10 years.
Expat Tax Withholding In The Netherlands
The Netherlands has a variety of tax changes and exemptions that have changed terms of employment in recent years. In general, benefits to employees have or will soon be considered taxable income. Both residents and non-resident expats are best served if they consult with a practiced tax specialist. Expats also need to be aware that there are “precautionary tax assessments” on for example pension entitlements when a taxpayer leaves the country. Despite tax code changes, there still are personal tax credits and deductible expenses relating to primary residence, insurance premiums, and even a moving allowance.
There is also a special 30% facility, or tax-free allowance, on employment income depending in part employment terms and length of residency. Consideration is also provided to foreign nationals in the form of a tax-free reimbursement for education costs of dependents attending an international school.
Social programs called the National Insurance Acts and Employee Insurance Acts provide benefits to all residents. Individual health insurance is also mandatory. Contributions are payable based on taxable income. Since expats are subject to these social programs, double social security contributions are likely. The Netherlands has entered into a Totalization Agreement with the US discussed below.
The United States has a Netherlands tax treaty. Consequently, tax returns of US expats, especially in The Netherlands, require analysis by an international tax specialist like Tax Samaritan.
What You Need To Know About US Expat Tax In The Netherlands
When dealing with US expat tax in The Netherlands, there are a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions will reduce your U.S. taxes to zero.
Some of these preferential tax treatments or benefits for US expat tax in The Netherlands include:
- If you are a U.S. citizen or a resident alien of the United States and you live in The Netherlands, your US expat tax in The Netherlands is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in The Netherlands. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
- When it comes to your US expat tax in The Netherlands, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and The Netherlands. A U.S. taxpayer working overseas in The Netherlands may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a return for US expat tax in The Netherlands does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.
When faced with US expat tax in The Netherlands there are many tax items to consider, but the above are by far the most common preferential tax benefits. With top-notch experienced and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that you are paying the minimal amount of U.S. taxes that you are legally obligated for.
The Netherlands Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in The Netherlands is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at ING bank (acquired by Postbank), Rabobank Internation, ABN Amro (acquired by Fortis Bank), Garanti Bank International NV, F. van Lanschot Bankiers, SNS.bank, ASN Bank or at another bank in The Netherlands or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
U.S. – The Netherlands Social Security Totalization Agreement
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, there is a Netherlands Totalization Agreement with the United States thus there is no opportunity to avoid double taxation of social security income for US expat tax in The Netherlands.
U.S.- The Netherlands Tax Treaty And Tax Relief For US Expat Tax In The Netherlands
The United States currently has a separate Netherlands tax treaty. The US Internal Revenue Code offers tax credits against any The Netherlands income tax. See our Tax Samaritan Takeaways below for other valuable references.
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Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our US expat tax in The Netherlands. We are not only tax preparation and representation experts, but strive to become valued business partners to American expatriates in The Netherlands. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
Click the button below to request a Tax Preparation Quote today to get started with the preparation of your return for US expat tax in The Netherlands or to request a free 30-minute tax consultation.
Tax Samaritan Takeaways
Please click on the hyperlinks below for additional takeaways for your expat tax in The Netherlands:
Tax Samaritan Expat Tax Services
2014 IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad
The Netherlands Embassy in Washington, DC
Ministry of Foreign Affairs, The Netherlands
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US expat tax in The Netherlands and throughout the world. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about US expat tax in The Netherlands. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with US expat tax in The Netherlands. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional US expat tax in The Netherlands advice based on your individual needs.
All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.