The Netherlands is famous among expats for its extremely high standard of living and one of the best places to raise kids. There are several types of taxes levied on American expats in the Netherlands: income tax, wage tax, social security contributions, dividend tax, gift and inheritance tax, real estate occupancy tax and real estate transfer tax. Moreover, US citizens and green card holders have to comply with US tax requirements because their worldwide income is subject to US tax whether they live in Amsterdam or New York. Expatriate tax filing becomes more complex since expats Netherlands are required to file expat tax returns in the Netherlands and the USA.
Do you offer US expat tax services for American expats Netherlands? What are foreign income tax rates in the Netherlands? How can American expats Netherlands minimize the effect of double taxation?
These expatriate tax questions are quite common among our clients in the Netherlands.
Expatriate Tax Rules and Help for expats Netherlands
First, U.S. citizens and green card holders can utilize three IRC provisions to avoid double taxation when they file US expatriate tax returns.
- Foreign earned income exclusion. American expats Netherlands can exclude up to $101,300 in a tax year 2016 on US expatriate tax returns if they meet one of the tests.
- Foreign housing exclusion. Additionally, expats Netherlands might deduct foreign housing expenses like rent, utilites etc.
- Foreign tax credit. Additionally, American expats Netherlands can minimize a tax due on US expatriate tax returns by applying a foreign tax credit for foreign income taxes paid in the Netherlands.
Second, expats Netherlands might face additional FBAR requirements if they have foreign financial accounts with an aggregate value over $10,000 at any time during the year.
Tax system in The Netherlands – FAQ
I am an American expat residing in the Netherlands. Is my worldwide income taxed in the Netherlands?
American expats Netherlands are taxed on their worldwide income if they are considered residents in the Netherlands. Non-residents are subject to Dutch income tax only on income derived from Dutch sources like real estate or services actually performed in the Netherlands. Paying foreign income taxes in the Netherlands affects US tax liability on expatriate tax returns.
Who is considered a tax resident in the Netherlands?
An expatriate is considered a resident in one of the following scenarios:
· Taxpayer is a single person and s/he stays in the Netherlands for more than one year.
· Taxpayer is a married person and his family accompanies him to the Netherlands.
Also, an expatriate can be taxed in accordance with a special Dutch tax regime that is called the 30% ruling.
What is the tax year in the Netherlands?
The Netherlands has a calendar tax year. This is similar to the timeline for American tax returns.
What is an income tax rate in the Netherlands?
Income tax rate has a progressive scale with a maximum rate of 52% on income over EUR56,491. Social security tax rate is 31.15%.
Which income is considered a taxable income in the Netherlands?
Generally, expats Netherlands are required to pay taxes on the following types of income: employment income, gains from self-employment and other professional activities, benefits relating to income provisions as well home ownership of the principal residence. In 2011 the Netherlands adopted a new wage tax legislation that is known as the work cost regulation (“werkkostenregeling”). Per this regulation the employer has a budget of 1.4% of the total fiscal wages of its employees to reimburse expenses tax free to its employees. Also, there are other expenses that can be reimbursed tax-free: study expenses, business related moving expenses or for temporary stay, extraterritorial costs as well as travel expenses at the rate of EUR 0.19 per kilometer. Further guidance is required before filing expatriate tax returns.
Can expats Netherlands file a tax return with a spouse?
Spouses must file separate tax returns. In case of joint income and deductions, spouses or legally registered partners can decide how a certain part of income will be taxed.
Is it a requirement to file a tax return in the Netherlands and pay overseas taxes every year?
A tax return must be filed by April 1.
Does The Netherlands have a tax treaty or social security agreement with the USA?
The USA and the Netherlands signed a double tax treaty agreement in 1992 with two amendments in 1993 and 2004. The Netherlands signed a totalizaiton (social security agreement) with the USA in 1990. As a result of it, Americans working in the Netherlands get social security retirement credits for working in the Netherlands and making contributions to the Dutch social security system. Moreover, the Netherlands plans to sign a FATCA agreement with the USA that will come into effect in 2014.
These are some of the basic tax issues that American expats Netherlands must consider before moving to the Netherlands or filing expat tax returns on overseas taxes. Expats Netherlands with additional questions about US expatriate tax filing, FBARs, FATCA or any other overseas tax issue, should seek help of an expat tax CPA. To learn more about international tax services provided by Artio Partners, please contact us. We will be pleased to assist you.