Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

netherlands by cuiliqing


									                                      The Expatriate Financial Guide to the

Dutch Tax Facts

Introduction           In the Netherlands individuals are taxed at a national level. Taxation is administered by the Ministry of

Tax Year               1st January – 31st December.

Assessment Basis       All individuals are required to file a separate income tax return. Spouses and other legally recognised
                       partners are also assessed separately, although they can choose their own allocations from certain
                       income and deductions.

Income Tax             Dutch residents are subject to tax on their worldwide income. Taxable income is split between 3 ‘Boxes’
                       and each Box is assessed separately.

                       There are some personal deductions available depending on personal circumstances, e.g. maintenance
                       payments, study expenses and exceptional expenses. These are deducted from taxable income in Box 1
                       and, if this income is insufficient, incomes from Boxes 2 and 3 may be used. Any remaining balance
                       may be carried forward to the next year.

                       In addition to the personal deductions there is also a levy rebate applied to the income tax due. The
                       levy rebate consists of a general rebate for everyone of €2,007, or €935 for individuals over 65, plus
                       supplementary rebates, the rates of which depend on personal circumstances.

                       Box 1 relates to all income from employment, including benefits in kind, and deemed income from
                       owning a principal residence. It is subject to deductions for mortgage interest and deductions relating
                       to personal circumstances (e.g. maintenance payments, exceptional expenses). Total taxable income is
                       then taxed at progressive rates starting at 2.35% (33.5% including social security contributions) rising
                       to 52% over 4 brackets. The social security contribution is taken on income falling within the first two
                       tax brackets only. Taxpayers aged over 65 are taxed at a maximum 15.6% and 24.1% in the first two
                       tax brackets, as they are not required to pay the full social security contribution.

                       Tax is withheld at source by the employer.

Taxation of            Box 2 relates to income from a ‘substantial holding’ in a company and is only taxed if the individual’s
Investment Income      holding, together with that of their spouse or other close relatives, is at least 5% of the company’s share
                       capital. The rate applicable is a flat rate of 25%. This is applied to the benefits derived from the
                       substantial interest, which include dividends and gains from transferring shares, less allowable losses.
                       Dividends are subject to a 15% withholding tax.

                       Box 3 relates to the value of savings and investments, such as deposits and equities from non-
                       substantial holdings. The amount of ‘income’ assessed for taxation purposes assumes a 4% fixed return
                       on investments on the net value of the assets included in Box 3. Such deemed taxable income is taxed
                       at a flat rate of 30%. The value of the investment is calculated after the deduction of certain debts. For
                       Dutch tax residents, part of the taxable base is exempt and several specific deductions apply.

Premium Taxes          Life insurance is exempt from premium taxes in the Netherlands.

Tax on Property        Property which is not used as a principal residence is taxed under Box 3, irrespective of the actual
Rental Income          income received.

Wealth Taxes           There is no wealth tax in the Netherlands

Capital Gains Tax      Capital gains as such are not taxable, except as recorded in boxes 2 and 3.

Inheritance/Gift Tax   Inheritance and gift taxes are levied on the fair market value of assets transferred by way of gift or
                       inheritance, less an exempt amount which varies depending on the relationship with the donor. The tax
                       rate levied from 10% to 40% also depends on this relationship. The liability to tax generally falls upon
                       the beneficiary unless the tax cannot be recovered from the beneficiary, in which case the tax is payable
                       by the donor.

Property Taxes         There is a municipal tax which is levied on all immovable property based on the value of the property as
                       determined by public valuation. The rate varies depending on the municipality, and the tax is levied on
                       an annual basis.

Stamp Duty/Transfer    The transfer of immovable property or certain rights thereto (e.g. buildings, houses, shares in real
Tax                    estate companies) is subject to a 6% transfer tax payable by the new owner.
Sales Tax                  Sales tax (BTW) of 19% is generally added to the sale price of goods. A reduced rate of 6% applies to
                           some goods, whilst other goods are exempt.

Social Security            The Dutch social security system comprises a large number of schemes. These schemes can be
Contributions              classified into three groups: i) national insurance schemes, ii) employee insurance schemes, and iii) the
                           health care insurance scheme.

                           Under the national insurance tax regulations the contribution rate is 31.15% of taxable income up to
                           €32,127 per annum, which is included in the first two income tax brackets. At present the maximum
                           amount payable is capped at €9,710 per annum. From this amount social security levy rebates may be
                           deducted, varying from €133 to €1,847.

                           Under the employee insurance regulations contributions are levied on employment income up to a
                           maximum of €43,848. The contribution rate depends upon the profession of the employee, but on
                           average the contributions are capped at €1,492 for the employee and €4,608 for the employer.

                           The new health insurance scheme introduced on 1 January 2006 is, in principle, part of the national
                           insurance scheme. Individuals who are covered by the health insurance scheme, except children under
                           the age of 18 who do not have income of their own, have to pay a nominal contribution of approximately
                           €1,100 per year. Those who earn an income are required to pay an additional income related
                           contribution equal to 6.9% of income. This contribution is payable up to an income ceiling of €32,369.
                           The employer is obliged to reimburse fully the income related contributions, but this is then subject to

Taxation of Expatriates Living in the Netherlands
Dutch residents are liable to income tax on their worldwide income. Non-residents are taxed only on income arising from Dutch
sources. Under Dutch tax law the tax residence of individuals depends upon a number of criteria. The most important being:

    where the individual’s family resides
    where a permanent home is maintained
    where employment duties are performed
    where bank accounts and other assets are maintained
    where the individual is registered with the local authorities, and
    the intended length of stay in the Netherlands

In practice an expatriate is generally considered a Dutch resident if:

    as a married person, his family accompanies him to the Netherlands, or
    as a single person, he stays in the Netherlands for more than one year

A special tax regime exists for expatriates. It is known as the ‘30% ruling’ which permits a tax free allowance of 30% of salary for
expatriates. The 30% ruling is generally available for employees assigned to the Netherlands, or recruited abroad for the purpose
of employment in the Netherlands. The employee must be employed by a Netherlands-resident employer or a foreign employer
who is a wage tax withholding agent in the Netherlands. The key condition for qualification is that the employee must have
specialised skills or knowledge not readily available on the Dutch labour market ('the specialist test').

The expatriate and their employer should file the application for the 30% ruling within four months of arriving in the Netherlands.
Once approved, this allowance applies for up to ten years, with an interim test to determine whether the expatriate still meets the

The 30% tax free allowance is considered a reimbursement for the extra costs associated with moving and living in a new country.
If the actual costs related to moving and living in a new country are higher than the 30% tax free allowance, the employer may
reimburse these actual costs free of tax. These actual, so-called extraterritorial, costs may not be reimbursed free of tax on top of
the 30% tax free allowance. However, the school fees paid for children to attend an international school may be reimbursed free of
tax in addition to the 30% tax free allowance. Under the terms and conditions of the 30% ruling, expatriates, who in principle
qualify as resident taxpayers, may opt to be treated as a partial non-resident taxpayer in the Netherlands. As a partial non-
resident taxpayer they will be treated as a resident taxpayer with respect to their Box 1 income, but as a non-resident taxpayer
with respect to their Box 2 and Box 3 incomes. The continuation of the 30% ruling is in doubt, although no significant reform has
been proposed to date.
Taxation of ‘Non-Residents’ Living in the Netherlands
Non-residents are subject to tax on their Dutch-based income and assets and, like residents, are taxed under the Box system.

The Dutch tax authorities have broadened their right to levy tax on employment income under Box 1. In practice, this implies that
a non-resident who is employed by a Dutch employer and who performs some of their duties in the Netherlands and some outside
is deemed to have carried out all those duties in the Netherlands. As a consequence, the non-resident is liable to pay Dutch income
tax on their total employment income. Subject to double taxation treaties between the Netherlands and other countries, the
deemed country of employment provisions do not apply to the income earned from employment abroad if this income is subject to
taxation in the foreign country in question.

A non-resident taxpayer is only entitled to a limited number of Dutch tax deductions.          However, a non-resident taxpayer is in
principle not entitled to any of the tax related levy rebates granted to resident taxpayers.

Some non-resident individuals can elect to be treated as residents for tax purposes. This does mean they will be taxed on their
worldwide income, but they will also be entitled to the full tax deductions and rebates. This option is only available to EU residents
and residents of those countries whose tax treaties with the Netherlands include information exchange provisions.

If they are employed in the Netherlands and subject to wage withholding tax, non-residents are generally covered by, and hence
make contributions to, the Dutch social security system. If a non-resident is not subject to social security contributions then the
tax on the first two brackets of Box 1 income is levied at lower rates owing to the exclusion of social security contributions.

The EC Regulation on the social security position of migrant workers (Regulation 1408/71), together with individual social security
agreements in place between the Netherlands and other countries, may entitle an employee to exemption from Dutch social
security contributions, provided that the employee remains subject to social security in their home country.

In principle, unless tax treaty protection is in place, non-residents with a ‘substantial holding’ (a holding of more than 5%) in a
Dutch company are subject to a dividend withholding tax of 25% under the Box 2 rules. Where there is a tax treaty in place, a 15%
dividend withholding tax is normally due.

Under Box 3, if an individual is a non-resident in the Netherlands, the taxable income from savings and investments will include
only a limited number of assets:

    immovable property situated in the Netherlands
    rights to immovable property situated in the Netherlands
    rights to shares in the profit of a business in the Netherlands

The rates in Box 3 are the same for both residents and non-residents, with the exception that non-residents do not benefit from a
tax free allowance.

Non-residents are liable to inheritance, gift and transfer tax on property that is acquired from residents of, or is located in the
Netherlands. From 2010, gifts or inheritances consisting of Netherlands-based property owned by non-residents is no longer
subject to Netherlands inheritance tax. For inheritance and gift tax the rates depend on the amount of the taxable gift or
inheritance and the family relationship between the persons involved. Transfer tax is applied in the same way as it applies to

Expatriate Financial Planning
The approach to an expatriate’s financial planning will be determined by whether the individual becomes resident in the
Netherlands or can qualify as a non-resident for tax purposes.

As a whole, the Dutch tax regime is less onerous for expatriates who are not resident in the Netherlands, compared to the regime
for individuals who are resident, as generally only Dutch-sourced income and gains are subject to Dutch tax. This is particularly
the case for resident expatriates who are able to benefit from the ‘30% ruling’. Residents who can qualify for the 30% ruling
should ensure their assets and investments qualify as Box 3 income in order to be exempt from Dutch tax. The 30% ruling will
not apply to Box 1 income, other than income from current employment.

If you are an expatriate currently living in the Netherlands, you should review your finances with a suitably qualified financial
adviser and/or tax adviser who is either authorised directly by the Dutch regulator, or is based in another EU market and is
recognised by the Dutch regulator following prior notification by the adviser under the Insurance Mediation Directive. If you
are planning a move to the Netherlands, you should review your finances with a suitably qualified and experienced financial
adviser who is familiar with Dutch tax matters before making the move.
Expatriate Financial Planning – Cross-border Bond Benefits
 Whilst the specific benefits of cross-border life products will depend upon an individual’s circumstances, they do offer a number of
 potential benefits to expatriates based in the Netherlands:

   Tax-efficient                      An expatriate who becomes resident in the Netherlands will become liable to tax on their
   Investments                        worldwide income and investment gains and, as such, may wish to consider cross-border
                                      investments to manage their tax liability and/or control when tax charges are made. Life
                                      insurance structures are taxed more favourably than local UCITS mutual fund structures,
                                      although they are tax neutral when compared with the local ‘FBI’ SICAV structure.
                                      Investments in a cross-border life product grow virtually free of tax throughout the time the
                                      product is held, suffering only a small amount of irrecoverable withholding tax on investment
                                      funds located in certain countries.
                                      Cross-border bonds allow policyholders, in general, to manage when they take benefits and
                                      potentially to defer the benefits to a period that may be more advantageous from a taxation

   Investment Choice                  Cross-border bonds generally feature a wide range of offshore funds specifically tailored to fit
                                      with expatriate clients’ preferences and attitude to risk. They also offer access to international
                                      and specialist fund managers which may not be available in domestic fund and insurance

   Non-Netherlands                    Expatriates who are non-resident in Netherlands for tax purposes may be advised to use cross-
   Situs Assets                       border investments, including cross-border life products, rather than domestic Dutch
                                      investments, to keep their assets outside of the Netherlands and avoid creating Dutch-sourced
                                      investment income and liability to inheritance tax on locally held assets.
                                      While non-residents with real property in Netherlands are no longer liable to inheritance tax on
                                      these assets, Dutch tax residents are liable to inheritance tax on worldwide assets. Tax resident
                                      expatriates may wish to consider estate planning options, such as a cross-border bond held in
                                      an appropriate trust or foundation, to mitigate these liabilities.

   Estate Planning                    Expatriates, such as UK domiciled individuals looking to mitigate UK inheritance tax, may wish
                                      to consider estate planning options such as a cross-border bond held in an appropriate trust. If
                                      the policy is written under the laws of another EU country, you can normally nominate
                                      beneficiaries to receive the policy benefits.

   Designed for                       Most companies offering cross-border life products are subsidiaries of global financial services
   Expatriates                        companies specialising in dealing with expatriates on a multi-lingual, multi-currency basis.
                                      Cross-border products can offer significant benefits over and above what might be available in
                                      the local domestic markets, particularly in relation to product features, investment flexibility
                                      and investment choice.
                                      The cross-border life companies are regulated in first class jurisdictions which benefit from
                                      strong regulatory controls.
                                      A cross-border product has the flexibility to adapt to changes in individual circumstances,
                                      including changes in residency status.

Expatriates resident in an EU Member State investing in a cross-border bond will generally find it beneficial to obtain a tax
compliant policy issued by a life insurance company operating under EU Freedom of Services or Freedom of Establishment rules
rather than a non-tax compliant policy or a ‘foreign’ policy issued by a life insurance company located in a third country.

Expatriates resident in an EU Member State taking out a cross-border bond while outside this country, for example in the UK before
becoming an expatriate or on a subsequent visit to the UK, are not restricted to the bonds of EU-based life companies. Such bonds,
for example from an Isle of Man or Guernsey life company, can be held while resident in EU Member States and enjoy tax control
and mitigation benefits. On partial or full surrender, the proceeds will be paid gross and it is the responsibility of the policyholder to
declare the policy gain or income to the tax authority in their country of residence. Please note that tax treatment varies by country
and policyholders should seek advice from an adviser familiar with tax rules in their country of residence.
Your independent financial adviser can help you ensure that you maximise the financial benefits of your expatriate
status and help you to assess if offshore life products are right for your individual circumstances.

Further information about offshore life products and their use in financial planning can
be found on AILO’s website at

This document has been prepared on behalf of the members of the Association of International Life Offices (“AILO”) and relies on
information and technical analysis provided by third party professionally qualified tax advisers. Whilst AILO has used its best
endeavours in selecting its advisers to ensure the accuracy of the information contained in this document, AILO and its advisors cannot
be held responsible for any errors and omissions.

This document has been prepared for general information purposes only. The information contained in this document is a summary of
the law relating to taxation that is generally applicable in the Netherlands and is intended for guidance only. The information contained
in this document reflects the law as at January 2011. Tax legislation is complex and subject to frequent change. This document cannot
be relied upon as a specific analysis of the current law as it applies to each individual. Individuals should seek detailed tax advice from a
suitably qualified and regulated professional adviser in their country of origin as well as eventual residence before making any decision
in relation to their tax planning.

The information contained in this document does not and is not intended to amount to investment advice and anyone reading it should
consult their professional adviser before making an investment into any investment product of a type mentioned in this document.

January 2011

To top