Tax Guide for Americans & Expats in the Netherlands
This brief tax guide aims to supplement and enhance your understanding of the Dutch tax system by providing current insights and practical information. We have also stressed the importance of on-time tax planning and treaty provisions available solely to Americans expatriates residing in the Netherlands.
The Kingdom of the Netherlands is a constitutional monarchy organized as a unitary state. The country is one of the founding members of the European Union, and its currency is the Euro (EUR). The IRS average yearly exchange rate of the EUR to the US dollar was 0.937 for 2015. The Tax and Customs Administration (Belastingdienst) is responsible for the assessment and collection of all direct and indirect taxes, custom and excise duties, national insurance contributions, and for certain benefits and allowances.
The citizen service number (burgerservicenummer or BSN) was introduced on 26th of November 2007. The BSN replaced the tax and social security number (sofinummer) which was previously in use. The BSN is issued by the municipal authorities governing the area the expatriate resides in. A newcomer to the Netherlands is required to register with a municipality to obtain a BSN even if planning to live only temporary in the country.
The tax year in the Netherlands follows the calendar year, running from January 1st until December 31st. The annual tax return is due from February 1st until April 1st of the year following the fiscal year. You may request an extension of time to file your tax return by contacting the Belastingdienst directly.
Residency and Tax Liability
Your tax liability in the Netherlands will be limited if you remain non-resident or unlimited if you become a resident. Non-residents with limited tax liability will be subject to tax only on Dutch-source income. Residents with unlimited liability are taxed on worldwide income. Under Dutch law, a natural person is deemed resident if the individual domiciled in the Netherlands regardless of citizenship, nationality or immigration status. The tax authorities decide whether a person domiciles in the Netherlands by reviewing all relevant facts and circumstances. For instance, the duration of stay in the Netherlands, the location of the center of vital interests, the permanent place of abode of the taxpayer's family, the country of employment and other relevant factors will be weighted to determine residency.
Taxpayers who do not domicile in the Netherlands remain non-residents for tax purposes. For 2014 and prior tax years, a non-resident taxpayer could opt in to be treated as a resident for tax purposes. Non-residents who elected resident status were entitled to the same deductions, tax credits and tax-free allowances as residents. Effective 2015, the optional resident status was replaced by a new qualifying non-resident category.
The qualifying non-resident scheme applies to taxpayers who live in an EU country, in Liechtenstein, Norway, Iceland, Switzerland, Bonaire, Sint Eustatius or Saba, and pay tax in the Netherlands on more than 90% of their worldwide income. Qualifying non-residents are entitled to the same deductible items, tax credits, and tax-free allowance as residents of the Netherlands.
Married Taxpayers & Joint Assessment
Taxpayers who are legally married, live in a registered domestic partnership, or live together with a notary contract may qualify as fiscal partners. Taxpayers who are not married but have a child, are registered as partners for pension purposes or jointly own a house in which they live together, qualify as fiscal partners as well. Fiscal partners get higher deductions and tax credits, especially if one of the spouses has low or no income.
Expats who are gainfully employed in the Netherlands may qualify for a special exemption on a portion of their wages known as the 30% ruling (30%-regeling). The 30% ruling eliminates Dutch income tax on 30% of the employment income for a maximum of 8 years. An expatriate is required to show specific expertise in a designated field which is scarce on the Dutch job market and meet certain salary criteria and other conditions to qualify for an exemption. A formal application made by the employer is needed to obtain the 30% wage exemption.
Wealth & Income Taxes
The tax system in the Netherlands is a combination of income and wealth taxes. The wealth tax is a phenomenon that has no analog in the States. Under the wealth tax system, taxpayers are subject to tax on savings and investments under the assumption that free capital generates a steady 4% return on the investment per year. Therefore the actual capital gains, losses, interest or dividends received or realized by the taxpayers are disregarded.Instead, taxpayers are required to pay flat 30% wealth tax on 4% of the value of their savings and investments. Taxpayers with a vacation home must pay wealth taxes on the assessed (WOZ) value of the home even if the property is not rented out to others. Another modification of the wealth tax is the requirement to pay flat 25% tax on substantial interest in a limited liability company. A substantial interest exists if you own directly or by attribution more than 5% of the profits or voting power in the enterprise. Good news for expatriates with the 30% ruling is the option to elect an exemption from wealth tax on savings and most other investments.
On the other hand, the income taxes apply to remuneration from the provision of personal services. The income tax system is straight-forward though the tax rates vary with age. Individuals under the retirement age are subject to tax at graduated tax rates distributed in four separate bands.
|Taxable Income||Income Tax Rate|
|Up to EUR 19,922||8.40 %|
|From EUR 19,922 to EUR 33,715||12.25 %|
|From EUR 33,715 to EUR 66.421||40.40 %|
|Over EUR 66.421||52%|
Income Tax, National Insurance & Tax Credits for Employees
The income from employment in the Netherlands is taxed at source under the pay-as-you-earn system. Wages and various benefits paid to employees or beneficiaries are reduced by a payroll tax which is remitted by the employer to the Tax and Customs Administration. Normally, the payroll tax is an advance deduction intended to cover your prospective income tax liability in full.
At year-end, your employer will issue a wage and tax summary statement (jaaropgave) reporting your gross income (fiscaal loon), tax and national insurance contributions deducted from income (loonheffing) and all applicable tax credits (arbeidskorting).
The employee's portion of National Insurance Contributions is also deducted at source by the employer. Most of the national insurance schemes are administered by the Social Insurance Bank (Sociale Verzekeringsbank, or SVB). The following four national insurance schemes apply:
- statutory old-age pension insurance (AOW) at 17.9% of taxable income in the first and second brackets
- surviving children/dependents insurance (Anw) at 0.6% of taxable income in the first and second brackets
- long-term care insurance (Wlz) at 9.65% of taxable income in the first and second brackets
- general child benefit insurance (AKW) which is not a compulsory scheme
Employees also pay mandatory contributions that insure against the financial consequences of illness, occupational disability, and unemployment. Some examples are sickness insurance (ZW), unemployment insurance (WW/AWF) and disability insurance (WAO/WIA).
The tax credits are reductions of your income tax and national insurance contributions because of low income or special conditions. The personal tax credit for 2016 tax year is fixed at EUR 2,224 for taxable income of up to EUR 19,922. The personal tax credit phases out when income increases and zeroes out at taxable income over EUR 66,417. Other tax credits may also apply depending on your personal circumstances. Some examples are a work bonus, employed person tax credit, single-parent tax credit, disability or early retirement credit, or a credit for a spouse with no income. The tax credits are automatically calculated by the employer.
Tax Deductions & Allowances
The Dutch tax system established several deductions from income. The most common are tax-free contributions to various private and company pension plans, mortgage interest deduction, donations to charities and a deduction for public transport commuting expenses. Certain other special deductions are also available, such as alimony paid to an ex-spouse and deductions for certain educational expenses. Premiums paid to a Dutch annuity insurance plan (lijfrente) could be also tax deductible.
Professional childcare expenses are no longer deductible. However, if you paid childcare expenses you may file a claim for a childcare allowance (kinderopvangtoeslag). The childcare allowance is a contribution towards the cost of childcare. If you have children under age of 18 a child budget (kindgebonden budget) allowance could be also available. The healthcare allowance (zorgtoeslag) is a contribution towards the costs of Dutch healthcare insurance. Finally, taxpayers who rent a home in the Netherlands may qualify for a rent allowance (huurtoeslag).The eligibility and amount of the allowances depend on income.
Freelancers (zelfstandige zonder personae or ZZP) are individuals who engage in independent activities, such as regularly selling goods or services to the general public with the expectation to make a profit. Occasional sales or sporadic activities, such as a garage sale or volunteering are not self-employment.
Most freelancing activities are not regulated and require no license. However, a formal self-employment registration with the Dutch Chamber of Commerce (Kamer van Koophandel or KvK) is required. The sole-proprietorship (Eenmanszaak) is the most common form of legal structure for freelancers.
The net self-employment income is subject to income tax at the same graduated tax rates that apply to employees. Self-employed professionals also pay national insurance contributions, but the insurance for illness, unemployment or disability is voluntary. On top, self-employed taxpayers have access to a wider range of business expenses that reduce self-employment income.
There are various tax forms depending on your tax residency and income. The most common forms are enumerated below.
- P form is filed by employees who have resided in the Netherlands for the entire year.
- M form applies to taxpayers who have resided in the Netherlands for only part of the year.
- W form is filed by taxpayers with self-employment income.
- C form is filed by taxpayers who are residing outside the country, but earn Dutch income or maintain real property or other investments in the Netherlands.
Tax return forms P, C and W could be filed electronically through the Tax Administration's online portal. Form M must be filed on paper with your local tax office. The electronic filing is free and ensures faster processing of the return. To file a return electronically one needs a username and password issued by the Tax Administration or a DigiD. The DigiD is a digital signature that is used for various purposes, including for filing of tax returns and online communication with the tax administration. You may apply for a DigiD online by providing your BSN, date of birth, postal code and street address information. After a successful application, an activation code will be mailed to your home address on record with the tax authorities. This second layer of security ensures the integrity of your personal information.
A downside of the online portal is the language barrier as all forms and instructions are only available in Dutch. Moreover, many taxpayers prefer to engage a local accountant to prepare and file tax returns or to streamline the communication with the tax administration. We collaborate with GVN International Tax Service to ensure expatriates residing in the Netherlands receive expert advisory on Dutch tax matters.
Tax Assessment & Refunds
The Tax and Customs Administration will send you a provisional assessment in about 6 to 12 weeks after your tax return is filed. The provisional assessment is simply a preliminary estimation of your tax refund or balance due. Once the tax authorities verify your tax return data, you will receive a final assessment along with payment instructions or refund details.
If you resided within the Netherlands for only part of the year, the processing of the paper form M may take 24 weeks or even longer. However, because the tax is deducted at progressive tax rates over an estimated annual tax liability, a substantial tax refund might be waiting for you. It is also advisable to file a change of address form with the tax administration if you move outside the country prior to the tax return's due date.
The statute of limitations for refunds is 5 calendar years. Therefore, a refund for 2015 tax year will be available if a tax return is filed by December 31st, 2020. Finally, if you disagree with the final tax assessment you may file an appeal with the tax administration.
Tax Planning for Americans in the Netherlands
American citizens and residents living in the Netherlands are still required to file US income tax return on an annual basis. Moreover, the provisions of the savings clause in Article 24 of the tax treaty between the USA and Netherlands reserve the right of the United States to tax its citizens and residents on an unrestricted basis. However, the savings clause does not apply to pensions, annuities and other benefits conferred under Article 19 which opens a door for an effective retirement planning. Moreover, the high Dutch income tax rates ensure Americans who qualify for the Foreign Earned Income Exclusions and the Foreign Tax Credit have no additional US income tax liability.
The Social Security (Totalization) Agreement with the Netherlands resolves dual social security coverage. The Totalization Agreement exempts US citizen employees assigned temporarily to the Netherlands from the Dutch national insurance scheme. Exemption from U.S. self-employment tax is also available for American freelancers in the Netherlands. We employ many additional tax planning techniques to significantly reduce or even eliminate your U.S. income tax exposure.