Simple Tax Guide for Americans in the Netherlands
At TFX we’ve been preparing U.S. taxes for Americans living in the Netherlands since 1995. Our clients come mainly from Amsterdam as well as other smaller cities such as the Hague, Utrecht and Rotterdam.
US Expat Taxes - The Netherlands
Whether it was the bold architecture of the country or great cuisine (they say you should open up with a joke :), or some other reason, choosing to live in the the Netherlands requires understanding the Dutch tax system. No matter where you live, as a US expat you are required to submit your expat tax return. But how are your taxes affected if you are living within the Netherlands?
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year regardless of where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD 101,300 (this amount is for 2016 taxes) in earned income from foreign sources.
- A tax credit allowing tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Dutch Resident?
Residency status is dependent on where an expat’s family home is, their intent to stay longer term at the time of arrival, where their permanent home is located, if they have registered with a Netherlands municipality, and any economic or social ties they have to the Netherlands.
Tax Rates for the Netherlands
The Netherlands uses a “box” method that categorizes different income types into different categories, or “boxes”, that are taxed using different rates for each box.
Box 1 contains pension payments, social benefits, wages, income attributable to other activities, wages in non-cash form (such as company cars), property that is owner occupied, bonuses, and other periodic benefits. Income in box 1 gets taxed at progressive rates.
|5.10%||On||EUR 0 - EUR 19,645|
|10.85%||EUR 19,646 - EUR 33,363|
|42.0%||EUR 33,364 - EUR 56,531|
|52.0%||Over EUR 56,531|
Box 2 contains income generated from certificates of profit sharing, or shares that a taxpayer has over 5% interest (substantial interest). Income in this box is subject to a tax rate set at 25 percent.
Box 3 contains income from investments and savings, which includes real estate and investment portfolios. There is not a tax by the name of “capital gains”, but capital gains in the country are taxed in this box. Box 3 income is subject to a tax of 30%.
Regions and states in the country do not impose any taxes.
The 30% Ruling
There is a Dutch policy for workers from foreign countries who are working for a Dutch company for up to 10 years (120 months). Employees in this category can exempt 30% of income from taxes. The policy is intended to help cover extra costs of living there for foreigners with an ability or knowledge that cannot easily be found within the Netherlands.
Netherlands - US Tax Treaty
There is a tax treaty between the United States and the Netherlands, which helps define how citizens of one country who are living in the other country are taxed. The residency status of the taxpayer is usually what determines which country receives the taxes. The tax treaty also helps eliminate double taxation of dual citizens, and clarifies tax issues that might otherwise be unclear.
When Are Dutch Taxes Due?
The Netherlands has a tax year which runs from the 1st of January to the 31st of December. Tax returns must be filed by the 1st of April in the next year with the office of the Dutch Finance Ministry. In general, a taxpayer must file a tax return in the Netherlands if they are liable for payment of income taxes in the country. Payment of those taxes is due 2 months following the final date of assessment.
Extensions of this due date are available for as long as 12 months if the taxpayer is registered for tax return preparation with one of the tax agents.
Dutch Social Security
All Dutch residents must contribute to the country’s social security scheme.
A totalization agreement is in place between the Netherlands and the United States, which gives some guidance about which country the social security taxes must be submitted to. Generally, if a taxpayer is sent to the Netherlands to work by a US company for under 5 years, they pay taxes into the United States Social Security system. If a taxpayer is hired within the Netherlands, is recruited to work by a company in the Netherlands, or is planning to work within the Netherlands longer than 5 years, they pay into the Dutch system.
Does the Netherlands Tax Foreign Income?
All Dutch tax residents must pay Dutch taxes on their income worldwide. The tax treaty contains exemptions for certain worldwide income types, however.
The Netherlands does tax other kinds of income besides salaries.
Any compensation in non-cash form is taxable (such as company cars and housing allowances).
Assets that are transferred upon death are taxable when the deceased is a Dutch resident when they died. The tax is progressive, and the rate depends on what the relationship is between the heir(s) and the deceased.
There is a value-added tax of 21%. This tax rate is lower (6%) for some items like books and food. Some services and certain goods are exempt from the VAT.
Questions About Dutch Taxes?
With so many types of taxes that foreign nationals are subject to when living or working within the Netherlands, you must understand and apply all available deductions, credits, and exclusions to your taxes. The tax rates in the Netherlands are high, so having a full understanding of Dutch taxes will keep you compliant with Dutch law, and minimize your taxes.