Taxation of expatriates in the Netherlands People Advisory Services (PAS) Ernst & Young Tax Advisers LLP

Transcription

1 Taxation of expatriates in the Netherlands 2018 People Advisory Services (PAS) Ernst & Young Tax Advisers LLP

2 2 Taxation of expatriates in the Netherlands 2018

3 Contents 1 Introduction 5 2 Residency status 6 3 Foreign employees temporarily working in the Netherlands the 30% facility 8 4 Resident taxpayers without the 30% facility 14 5 Non-resident taxpayers without the 30% facility 18 6 Income tax filing 20 7 Dutch social security contributions and foreign pension schemes 21 8 Driving in the Netherlands and customs duties 22 9 Inheritance tax and gift tax 26 Appendices A Tax rates and social security contributions B Tax Treaties 30 Taxation of expatriates in the Netherlands

4 4 Taxation of expatriates in the Netherlands 2018

5 1. Introduction This booklet addresses a number of tax questions that are commonly asked by expatriates living in, or contemplating on moving to, the Netherlands. It could help you identify factors that may be relevant to your own tax requirements. This booklet is for informational purposes only and cannot be used as a tax advice in specific situations. Changes in rules may have been applied since the publication of this booklet. What can EY People Advisory Services in the Netherlands do for you? Help employers and employees to be tax compliant in all their jurisdictions. Apply for the 30% facility as well as carry out the annual salary. Prepare Dutch income tax returns as well as US tax returns (in our Amsterdam office). Manage the tax filing process of client s expatriate population. Help employers to calculate accurately the payments made under their global mobility programs. Offer expert guidance on immigration issues and policies. Help employers align their international assignment program with their business objectives. Assist with the development, review and implementation of global mobility policies, such as permanent transfers, long term, short term, commuters and business travelers policies. Take over the in-house international assignment administration. Manage international pay roll administration. Limit social security risks. Advise on pension plans in an international environment. Provide planning for international employees. Taxation of expatriates in the Netherlands

6 2. Residency Status The taxation of foreign nationals who work in the Netherlands is dependent upon whether they are residents or non-residents of the Netherlands. Residents of the Netherlands are taxed on their worldwide income, while non-residents are taxed only on income from specific Dutch sources. Residence Whether a person is a tax resident of the Netherlands is determined by weighing all facts and circumstances. Over the years the Dutch Tax courts have developed certain criteria to aid in determining residency status. The question has to be answered whether a person has a permanent bond of personal nature with the Netherlands. The main criteria are physical presence, family residence, the location of the individual s permanent home, the duration of the individual s activities in the Netherlands, and the relationship of the individual to the Netherlands. The nationality of the individual is of minor importance in determining residency. Other factors to be taken into consideration are the registration in the population registry 1, the place where the bank accounts are held (economic relations), the intentions of the person in question with respect to continued employment and to permanent residence, etcetera, etcetera. An individual can be regarded as a resident of the Netherlands, even while living in a foreign country. An individual with a double residence may obviate double worldwide taxation through the existence of tax treaties. The Netherlands has an extensive Treaty network (see Appendix B) so that the consequences of dual residence will be reduced in most cases. Relief may also be given under the Dutch Unilateral Decree for the Avoidance of Double Taxation, if no Treaty is applicable. 1. Even though a registration in the population registry alone does not constitute tax residence, the tax authorities consider it an important signal as such. 6 Taxation of expatriates in the Netherlands 2018

7 Under certain conditions, some foreign taxpayers non-residents with Dutch sourced income can be treated as a Dutch resident for tax purposes. An important benefit of this is the mortgage interest deduction in relation to a primary residence (abroad). The main rule is that only those foreign taxpayers who are resident in the EU, European Economic Area (EEA), Switzerland or the Dutch Caribbean Islands (BES islands) are able to enjoy benefits that are typically only granted to residents of the Netherlands (like for example tax credits as well as deductions of mortage interest and alimony payments) provided that 90% or more of their income is subject to payroll or income tax in the Netherlands. For this purpose, an income declaration from the tax authorities in the residency state of the individual should be obtained. If this income criterion is not met, then this favourable tax treatment will only be possible for this group if the Netherlands is required to do so under either European law or a relevant Tax Treaty. Residence and the 30% facility The 30% facility provides the resident taxpayer the option to be taxed as a partial non-resident taxpayer. The next paragraph is about the 30% facility and the partial non-resident taxpayer status, while the consequences of the resident taxpayer and the non-resident taxpayer status without the 30% facility are described in paragraphs 4 and 5. Taxation of expatriates in the Netherlands

8 3. Foreign employees temporarily working in the Netherlands the 30% facility Expatriates sent to work in the Netherlands or individuals hired from abroad by a Dutch employer (and wage tax agent), may qualify for a special tax ruling: the 30% facility. The 30% facility provides special tax benefits to employees with specific expertise who are recruited from abroad and can be applied for a period of maximum eight years. In general, the 30% facility provides four benefits: The employer may pay the employee a tax free allowance for extraterritorial costs up to 30% of current employment income; The employer may pay the employee a tax free allowance to cover the cost for certain international schools; If the employee becomes a tax resident of the Netherlands, he may, upon request, be considered as a non-resident taxpayer of the Netherlands for certain items of income ( partial non-resident taxpayer status ); The employee can exchange the foreign driver s license for a Dutch driver s license. Important note: On 10 October 2017, the Dutch government published its plans for the next 4 years. One of the proposed changes is that the maximum duration of the 30% facility will be (further) reduced from 8 years to 5 years. Ath this moment, it is not known if the (proposed) reduction will apply retroactively or that transitional rules will be implemented. The Coalition Agreement is subject to approval from the Dutch Parliament. 3.1 Four benefits A tax free allowance of 30% on current employment income One of the benefits of the 30% facility is that the employer may pay the employee a tax free allowance of up to 30% of his current employment income. The 30% facility cannot be applied to income from previous employment such as a severance payment and pension payments. Please be aware that the 30% facility cannot be applied to all subsequent payments see Certain categories of business expenses can be reimbursed tax free on top of the 30% tax free allowance. Extraterritorial costs (which the 30% facility is deemed to cover) such as double housing and home leave cannot be reimbursed tax free in addition to the 30% allowance. If the total amount of the extraterritorial costs exceeds the fixed 30% tax free allowance, it is possible not to choose for the 30% facility and to reimburse the higher actual extraterritorial costs free of tax. The payroll administration has to contain documents (invoices) of the actual extraterritorial costs that were reimbursed or paid for. The split of the contractual salary between a non-taxable part of 30% and a taxable part of 70% in principle does not affect the basis for pension rights under a qualifying pension plan. 8 Taxation of expatriates in the Netherlands 2018

9 3.1.2 Fees for international schools School fees for children attending a qualifying international school (or an international stream of a national school) providing primary and secondary education can be reimbursed as a tax-free allowance on top of the 30% tax free allowance. Whether a school is considered a qualifying school is primarily determined by the Dutch tax authorities. If the school fees are paid by the employee himself for which he receives no allowance, these fees are not tax deductible for the employee Partial non-resident taxpayer status An employee who is a tax resident of the Netherlands and qualifies for the 30% facility can opt to be regarded as a non-resident taxpayer for certain items of income and yet continue to be entitled to the same personal tax deductions (alimony etc.) and personal tax credits as tax residents of the Netherlands. Dutch income tax is levied on three categories ( boxes ) of income. Box I taxes business profits, (self) employment income and income from a primary residence. Box II exists of profits from a substantial shareholding (at least 5% of a certain class of shares of a company resident in or outside the Netherlands) and box III exists of income from savings and investments. Partial non-resident taxpayers do pay taxes in box I (as a resident of the Netherlands), but are tax exempted in box II and box III, substantial shareholdings and real estate in the Netherlands excluded (i.e. they qualify as nonresidents of the Netherlands for box II and box III). This option of the partial non-resident taxpayer status can be chosen on a yearly basis via the personal income tax return of the year concerned. Also the tax partner of the employee can benefit from this choice if a corresponding choice is made in the partner s Dutch income tax return, including in the year of immigration/emigration provided the immigration/emigration date of both partners is the same Changing driver s license Persons who benefit from the 30% facility and have a valid foreign driving license, can directly apply for a Dutch driving license at the local Dutch municipality without taking a driving test. For more information, we refer to chapter 8. Taxation of expatriates in the Netherlands

10 3.2 Conditions The following conditions apply for the 30% facility: The employee must be recruited from abroad or assigned to the Netherlands; The employment income of the employee has to be subject to Dutch wage tax withholding; The employee must have specific expert knowledge which is scarce on the Dutch labor market. See 3.2.1; In more than 16 months of the 24 months prior to the Dutch employment, the foreign employee must have resided in an area more than 150 kilometres from the Dutch border (crow flies). See 3.2.2; In (an addendum to) the employment contract, employer and employee have to agree that a tax free allowance up to 30% is included in the compensation package. See Scarce specific expertise To benefit from the 30% facility, the employer has to demonstrate that the employee has specific expert knowledge and that such an employee is not available or is difficult to find on the Dutch labor market. The requirement that the employee from abroad has specific expertise will be solely met with a minimum salary. In 2018 an employee will meet this condition if he or she has an annual taxable salary of more than 37,296 (excluding the 30% allowance). Additional conditions may apply to certain jobs where the average salary is significantly higher than the minimum salary, e.g. soccer players. An exception is made for certain groups of employees, such as employees under the age of 30 holding a master s degree, where a lower salary level of more than 28,350 (2018) applies. No salary level will apply for certain groups of academics and medical trainees at designated academic institutions. The salary levels will be indexed annually. Example Gross salary and allowances for ET costs, total 50,000 Pension contribution (employee part) ( 3,000) Taxable employment income 47,000 Tax free ET costs allowance, 20,64% ( 9,703) Taxable salary 37,297 Foreign salary may be included when checking whether the requirement of more than 37,296 is met. This is especially relevant for part-time employments. If the work in the Netherlands begins during the course of the year, the salary may be scaled up on a pro rata basis over the whole year. Salary reductions due to parental or maternity leave no other form of unpaid leave fall outside the scope of this salary standard. If an employee meets the salary level, this person will be deemed to have specific expertise. In addition, the employee must continue to meet the condition that his specific expertise is either scarce or not available in the Netherlands. The following factors will be taken into account in this scarcity criterion: The attainment level of the employee s education; The employee s relevant work experience in relation to the position; The remuneration standard of the position in question in the Netherlands relative to the remuneration level in the employee s own country. It is not a requirement that maximum use is made of the 30% tax free allowance. The employee from abroad with a gross remuneration package of less than 53,280 ( 37,296/0.70) may still make use of the facility. However, the tax free allowance must then be less than the maximum of 30%, as the taxable salary should be more than 37, Taxation of expatriates in the Netherlands 2018

11 3.2.2 Living more than 150 km out of the Dutch national border Cross-border workers are excluded from the 30% facility. The 150 km is determined as the crow flies. This means that, for instance, Belgium is completely covered by this cross border area. The foreign employee must have lived outside a radius of 150 km from the Dutch national border for more than two thirds of the two year period prior to the employment in the Netherlands. If this is the case it may be assumed that the employee will incur extraterritorial costs and then the 30% facility remains open. The 150 km distance from the border does not apply to those holding a doctorate (PhD) and start their Dutch employment within one year after their graduation. In that case the employee with the PhD title must have lived outside a radius of 150 km from the Dutch national border for more than two thirds of the two year period prior to the start of his PhD. The 150 kilometres test could negatively affect those employees who have an initial assignment to the Netherlands benefiting from the 30% facility, relocated overseas for a short period and then returned to the Netherlands at a later date. However, the 150 kilometres test does not apply to employees who return to the Netherlands in such circumstances, provided that the previous assignment did not start more than eight years before the employment for which he returned to the Netherlands % tax facility included in the employment contract According to the conditions of the 30% facility it is not sufficient to only administratively split the agreed gross salary in a non-taxable part of 30% for reimbursing extraterritorial costs and a taxable part of 70%. The split between the taxable and the non-taxable part should also be included in the employment agreement itself or in an addendum to it. 3.3 Duration The 30% facility can be applied for a period of maximum eight years. 2 This period starts on the first working day in the Netherlands. The duration of the facility is reduced if an employee has worked or stayed in the Netherlands for a period of time in the past. Periods of work or stay in the Netherlands even those which began more than 25 years ago and ended less than 25 years ago will be deducted from the maximum duration period. No deduction takes place if the visits to the Netherlands for business purposes are less than 20 working days per calendar year. The same applies for visits for private purposes (holidays, visit family) less than six weeks per calendar year. A one-time visit for holidays, family visits or other personal circumstances for a period of three consecutive months will also be ignored. Periods of tax liability in the Netherlands without physically being present here will also be deducted. An example is a director of a Dutch company who lives abroad. The maximum application period can also be reduced if the request for the 30% facility is filed after four months following the start of the employment in the Netherlands. 2. Please see our comment on page 3 regarding the proposed change to reduce the maximum duration from 8 years to 5 years. Taxation of expatriates in the Netherlands

12 3.4 Attention points Subsequent payments The duration of the 30% facility ends on the final day of the payroll period following the payroll period in which the Dutch employment ends. This means that the 30% facility cannot be applied to current employment income that becomes taxable following the termination of the employment in the Netherlands, unless it has been paid in the following payroll period. For example, if the employment contract ends on 30 April 2018, all salary payments from current employment until 31 May 2018 benefit from the 30% facility, subsequent payments paid as of 1 June 2018 do not Checking against criteria In principal a continual assessment of the criteria (i.e. salary level and scarcity of expertise) is required and the facility will end immediately if these criteria are no longer met. The current view is, that in practice this means that the salary level has to be checked at the end of each calendar year. If the employee s taxable salary in that year does not exceed the required level (more than 37,296/ 28,350) the 30% facility will stop with retrospective effect to 1 January of that year. 3.5 Application procedure In order to make use of the 30% facility, a joint request of the employer and employee should be filed with the Dutch tax authorities. Together with the application form certain documents will have to be sent to the Dutch tax authorities such as a copy of the employment contract and a proof of residency in the 24 months prior to the start date. The application for the 30% facility has to be filed with the Dutch tax authorities within four months after the start of the employment in the Netherlands to have retroactive effect as from the start of the employment. Furthermore, if an employee changes employer, the 30% facility can be transferred to the next employer. To achieve this, a new application has to be filed. This is only possible if the new employment is agreed upon within three months after the end of the previous employment Non-resident taxpayers with the 30%-facility These employees are taxable in their home country on their worldwide income. It depends on the tax regulations of their home country whether the Dutch 30%-facilty still provides for the same benefits as the home country may not recognize this facility. 12 Taxation of expatriates in the Netherlands 2018

13 Taxation of expatriates in the Netherlands

14 4. Resident taxpayers without the 30% facility Employees who are residents of the Netherlands and who can not choose for the partial non-resident taxpayer status because they do not qualify for the 30% facility, are taxed as resident taxpayers and therefore taxable in the Netherlands on their worldwide income. The following paragraphs explain the Dutch tax system for resident taxpayers. Three boxes of income Dutch income tax is levied on three categories ( boxes ) of income. Each box has its own rules for the calculation of taxable income, has its own tax rates, exemptions etcetera. Box I This box exists of business profits, (self) employment income and income from a primary residence. Employment income consists of wages, salaries, pensions, employee stock options, bonuses, allowances (home leave, cost-of-living). Housing allowances are taxable in certain situations. Some allowances for expenses can be paid as a tax free allowance but limits and/or restrictions could be applicable. Income and gains received by private equity managers and other individuals on investments where they are deemed to have a so-called lucrative interest will be subject to the progressive income tax rates in box I up to a maximum of 51,95% in a similar way to entrepreneur income (30% facility is not applicable). The owner of a primary residence is taxed for its deemed rental value which is determined based on the so-called real estate valuation act. For dwellings with a value over 75,000 the percentage for the calculation of the deemed rental value amounts to 0.70%. The deemed rental value for dwellings in excess of 1,060,000 amounts to 7,420 increased by 2.35% of the deemed rental value that exceeds 1,060,000. Mortgage interest paid on a loan for the acquisition, maintenance or improvement of the primary residence is tax deductible. Note that restrictions apply relating to the deduction of mortgage interest. Furthermore, the acquisition of a primary residence can in general not be fully financed by a mortgage if a capital gain on the previous primary residence is realized. Income from a second home or rental income is in principle taxable in box III. Tax on income in box I is levied at progressive tax rates, the maximum tax rate being 51,95% which applies to an income over 68,507 (see appendix A). Wage tax is levied throughout the year (pay-as-you-earn) on employment income where there is a Dutch wage tax withholding agent available. The wage tax paid serves as an advance payment of the final income tax payable. 14 Taxation of expatriates in the Netherlands 2018

15 Tax on income in box I is levied at progressive tax rates, the maximum tax rate being 51,95% which applies to an income over 68,507 (see appendix A). Wage tax is levied throughout the year (pay-as-you-earn) on employment income where there is a Dutch wage tax withholding agent available. The wage tax paid serves as an advance payment of the final income tax payable. Deductions Following is a non-extensive list of tax deductions: Premiums for certain life insurance annuities. Alimony payments to one s former spouse. Study costs that exceed a certain threshold and up to a certain maximum. Specific medical expenses not covered by insurance for severely disabled persons. Certain gifts and donations. Certain foreign social security premiums and certain foreign pension premiums. Box II This box exists of profits from a substantial shareholding (at least 5% of a certain class of shares of a company resident in or outside the Netherlands). Both capital gains and dividends are taxed. Tax is levied at a fixed rate of 25%. Box III This third box exists of income from savings and investments. The value at the beginning of the calendar year of a taxpayer s savings and investments such as shares and bank accounts, is deemed to generate a fixed income. In case of emigration or immigration during the course of the year, the value at the beginning of the year is recalculated on a pro rata basis. The deemed income in box III is taxed at a fixed rate of 30%. Taxation of expatriates in the Netherlands

16 Savings and investments Deemed income Tax rate Effective tax rate Up to 70, % 30% 0.605% 70, , % 30% 1.298% More than 978, % 30% 1.614% Specific exemptions apply for certain assets such as personal goods, art and certain life insurance policies. A general exemption of 30,000 applies per resident taxpayer. Any dividend withholding tax serves as an advance payment of the final income tax payable. Taxation of partners A partner is the spouse or registered partner of a taxpayer, provided they are not permanently separated and are both resident tax payers of the Netherlands. Unmarried adults who are registered at the same address with the municipal authorities are considered partners for tax purposes if one or more of the following conditions are met: They have a partnership contract; They have a child together; One of the partners has a child and the other partner has acknowledged this child; They have applied as partners for a pension scheme; They are both owners of the dwelling which is their primary residence. The partnership for tax purposes offers the following benefits: The option of allocating the yield assessment base for box III and the joint elements of income of both partners at their discretion. Joint elements of income include taxable income of the primary residence, deductible gifts etc. The ability to increase the personal tax credits of an income earning partner with the personal tax credits of a partner without or with low income. Foreign tax relief Resident individuals are entitled to relief from double taxation either on the basis of a Treaty or on the basis of the Unilateral Decree for Prevention of Double Taxation. The Netherlands normally applies under its treaties the exemption method and the credit method to reduce double taxation. The exemption (with progression) method is normally applicable to employment income. Exemptions exist for directors fees. Tax treaties also provide relief for dividends, interest and royalties through the tax credit method. In general, foreign tax can be deducted from Dutch tax on this income. Limits could apply for crediting foreign taxes. The Netherlands credits also within certain limits, taxes on dividends, interests and royalties from non Tax Treaty, developing countries. Exit tax upon emigration If an individual emigrates from the Netherlands to another country, an exit tax could be imposed. Only in certain situations the tax is actually collected. In general the aim of this exit tax is to prevent certain tax abuse. Items potentially subject to the exit tax include: Pensions and life annuities if premiums were deducted in the period of Dutch tax liability. Capital yield insurance with regard to the mortgage on the primary residence. Substantial shareholding (5% or more) in a Dutch company. 16 Taxation of expatriates in the Netherlands 2018

17 Personal tax credits and credits for national insurance contributions The applicable Dutch tax rates depend on the box in which the income is taxed as indicated above. The tax calculated based on these rates can be reduced with personal tax credits. General tax credit This tax credit, with a maximum of 2,265, applies for every individual. The general tax credit is reduced step by step as from an income of 20,142, resulting in a general credit of 0 for income exceeding 68,507. Employment tax credit The maximum of the employment credit is 3,249 and reduced step by step as from an income of 33,112, resulting in an employment credit of 0 for employment income exceeding 123,362. Individuals should be tax resident for the entire year to be able to benefit from the entire part of these credits that relate to income/wage tax. Individuals who are tax resident for only a part of the calendar year, are entitled to a pro rata tax credit. Furthermore, the part of the tax credits that relates to national insurance contributions is only granted to employees who are covered by Dutch national insurance. This credit will also be granted on a pro rata basis if an employee is not covered by the Dutch social security schemes for a full calendar year. Partners of taxpayers who have little or no income could also be entitled to these personal tax credits. The amount received by the partner is limited to the amount of tax and national insurance contributions payable by the other partner. Taxation of expatriates in the Netherlands

18 5. Non-resident taxpayers without the 30% facility Non-residents are taxed only on income from specific Dutch sources. The following paragraphs explain the Dutch tax system for non-resident taxpayers. 18 Taxation of expatriates in the Netherlands 2018

19 Three boxes of income The income of non-residents is also taxed in the three boxes as described before. Box I Employment income includes: Income from employment performed in the Netherlands. Directors fees and fees received by a member of the supervisory board from a company resident in the Netherlands. Income from employment services performed outside the Netherlands for a withholding agent for Dutch wage tax purpose could be subject to tax in the Netherlands if the income is not taxed in another country and a Tax Treaty does not forbid the Netherlands to tax this income. This only applies if the employee also works in the Netherlands occasionally. Tax on income in box I is levied at progressive tax rates, the maximum tax rate being 51,95% which applies to an income over 68,507. Wage tax is levied throughout the year (pay-asyou-earn) on employment income where there is a Dutch wage tax withholding agent available. The wage tax paid serves as an advance payment of the final income tax payable. Box II Includes dividends and gains from a substantial shareholding (5% or more) of a company resident in the Netherlands. Tax is levied at a fixed rate of 25%. Deductions for non resident taxpayers There is only a limited number of deductions available for non resident taxpayers, like for example certain foreign social security premiums and certain foreign pension premiums. Personal tax credits Non-resident taxpayers are in general not entitled to personal tax credits. They are, however, entitled to the employment tax credit. If a non resident taxpayer is subject to Dutch social security, a personal general tax credit (national insurance part) will be available. Resident taxpayer status The main rule is that only those foreign taxpayers who are resident in the EU, European Economic Area (EEA), Switzerland or the Dutch Caribbean Islands (BES islands) enjoy the benefit that are typically only granted to residents of the Netherlands (like for example tax credits as well as deductions of mortage interest and alimony payments) provided that 90% or more of their income is subject to payroll or income tax in the Netherlands. For this purpose, an income declaration from the resident state need to be obtained to measure the 90%-criterion. If this income criterion is not met, then the non resident taxpayer will only be entitled to these benefits if the Netherlands is required to do so under either European law or a relevant Tax Treaty. The countries that belong to the European Economic Area (EEA) are Liechtenstein, Iceland and Norway. The BES islands include Bonaire, St. Eustatius and Saba. Box III Includes the net value of Dutch immovable property and is generally subject to 0.605%, 1.298% or 1.614% income tax. (see chapter 4). Non-resident taxpayers cannot credit the Dutch dividend withholding tax of 15% with the amount of final income tax payable. Taxation of expatriates in the Netherlands

20 6. Income tax filing Filing of Tax Returns and Payment of Tax Liability The Dutch tax year extends from 1 January through 31 December. The normal filing date for tax returns is 1 May following the year of assessment but one may apply for an extension. Income tax on salaries and wages is collected by means of withholding payments. This system assigns the responsibility for the collection of tax to the withholding agent who is responsible for making regular remittances to the Collector of Taxes. When expatriate employees are transferred to the Netherlands and their employer carries on business through a branch operation or they become an employee of the Dutch company, either the branch or the Dutch company will be the withholding agent for wage tax purposes. If there is no withholding agent, taxes will be collected from the individual under the direct collection or income tax assessment procedures. Assessment procedures Payments or refunds of any tax are normally handled within three months from the date of issue of a tax assessment. Advanced preliminary assessments will generally be issued at the beginning of each calendar year. The amounts of the assessments will be based on the most recent assessments or reductions known to the tax authorities. Typicall this will apply to mortage interest deductions where the individual will receive a monthly refund during the pending tax year. Imposition and collection of interest A legal interest arrangement is in effect for income taxes and national insurance premiums which are paid or refunded outside the tax year concerned. Interest is charged on income tax and national insurance premiums payable and a reimbursement of interest is given on a refund of income tax and national insurance premiums. 20 Taxation of expatriates in the Netherlands 2018

21 7. Dutch social security contributions and foreign pension schemes 7.1 Dutch social security contributions In principle, foreign nationals working in the Netherlands are subject to the social security schemes of the Netherlands. An extensive system of social security exists to which both employees and employers contribute. The Dutch social security acts can be classified in two categories (see Appendix A): Acts providing benefits to all Dutch residents. National insurance contributions are due by the employee only on taxable income less than 33,994 at a rate of 27.65%. The maximum annual contribution is 9,399. This contribution is decreased with (the social security part of) the general credit and employment credit. Boths credits are income-related and also depend on the age of the individual: General (social security) credit: maximum 1.713, reduced step by step to 0 as from an income of more than 68,507; Employment (social security) credit: maximum 2.458, reduced step by step to 0 as from an income of more than Acts providing special benefits for wage earners. Employee insurance contributions are paid by the employer only with respect to income from current employment up to 54,614. Health insurance coverage is not included in the above amounts. It could be mandatory to have a valid Dutch health insurance contract in case Dutch social security is applicable. 7.2 International social security Under various social security treaties concluded by the Netherlands (e.g. with Australia, Canada, China, India and the United States), as well as applicable EU regulations, foreign employees assigned to the Netherlands may remain covered in their country of origin, generally up to five years. Special registration rules may apply if a foreign health insurance policy is applicable and one is exempted from mandatory coverage in the Netherlands. 7.3 Foreign pension schemes Approval foreign pension plans Expatriates in the Netherlands often want to continue their foreign pension scheme during the period they work in the Netherlands. The main rule is that the employee contributions to the foreign pension scheme are not tax deductible in the Netherlands and the employer contributions are taxable. However, a corresponding approval can be requested at the Dutch tax authorities. When the corresponding approval is granted by the Dutch tax authorities, the employee contributions to the pension scheme will be tax deductible and the employer contributions will not be taxable, in general in the same way as in the country of origin. To receive a corresponding approval, several conditions need to be met. The approval procedure makes a distinction between EU and non-eu pension schemes. The corresponding approval can be received for the period of employment in the Netherlands, but typically no longer than five years (may be ten years in relation to certain countries). Precautionary tax assessment Please note that the Dutch tax authorities will impose a precautionary tax assessment on the pension entitlements when an individual emigrates and ceases to be tax resident in the Netherlands. The payment of this tax is on request suspended for a period of ten years. If certain forbidden transactions take place (e.g. receiving the pension in a lump sum payment, etc.) during the ten-year period, the precautionary tax assessment will be collected. Otherwise, the tax assessment will lapse at the end of this time. Please note that the Dutch precautionary tax assessment has the potential to conflict with some tax treaties. In these situations an appeal could be filed. Taxation of expatriates in the Netherlands

22 8. Driving in the Netherlands and Customs Duties 8.1 Driving in the Netherlands Everyone who is a legal resident of the Netherlands and wants to drive a motor vehicle must hold a valid Dutch driving license and be at least 18 years old. Certain exceptions exist, which we have described below. Exceptions When you are a holder of a valid driving license, issued by a country in the European Union, Iceland, Liechtenstein, Norway (EU/EEA) or Switzerland and you become a Dutch resident, it is permitted to drive with this foreign license for a certain period. If your driving licence has been issued before 19 January 2013 you can keep driving with this foreign licence in the Netherlands for a period of 10 consecutive years after the date of issue, provided the driving license is still valid. If the driving licence has been issued after 19 January 2013, you are allowed to drive with the foreign driving licence for a period of 15 consecutive years. If your foreign driving license is already more than 9 years old, you may continue to drive with it in the Netherlands for two years calculated from the date of registering with the Dutch municipality, provided the driving license is still valid. If you have a valid driving license that was issued in a country other than the aforementioned, or in the Caribbean part of the Kingdom of the Netherlands (Aruba, Bonaire, Curacao, St. Maarten, St. Eustatius and Saba), you may use this license for 185 days after becoming resident of the Netherlands. During this period, you must obtain a Dutch driving license. Residents with the age of 17 can also obtain their Dutch driver s licence. However, until the age of 18 they can only drive when accompanied by a coach. This is a temporary experiment called 2toDrive, which will last for six years. After this period the experiment will be evaluated. If it turns out that the experiment has had a positive effect on traffic safety, the measure will become permanent. How to obtain a Dutch driving license In certain cases, the driving license that you obtained outside the Netherlands can be exchanged for a Dutch driving license. However, this is only possible if you are a Dutch resident, your foreign driving license is still valid and you have a valid Dutch residence status/permit. With regard to driving lincences issued outside the European Union, two additional requirements need to be fulfilled before exchange is possible: the driver s license must have been issued in a year in which you were resident in the country of issue for at least 185 days and you have to meet the age-limit set by Dutch law regarding the different categories. There is an exeption regarding the validity of the foreign driving licence: it is possible to exchange an expired European driving licence. However, in order to exchange it you need a statement from the issuing authority in which they declare they do not object to exchanging this expired driving licence for a Dutch driving licence. 22 Taxation of expatriates in the Netherlands 2018

23 The driving license issued in the following countries can be exchanged: Andorra* Greece Norway Aruba Hungary Poland Austria Iceland Portugal (Azores and Madeira) Belgium Ireland Québec (province of Canada)* BES-Islands Isla of Man Romania Bulgaria Israel* Singapore* Croatia Italy Sint Maarten Curacao Japan* Slovak Republic Cyprus Jersey (State of) Slovenia Czech Republic Latvia South-Korea* Denmark Liechtenstein Spain (Canary Islands) Estonia Lithuania Sweden Finland Luxembourg Switzerland France Malta Taiwan* Germany Monaco United Kingdom *Please note that for the following countries your (valid) foreign driving license can only be exchanged for a Dutch driving license in case your foreign driving license is valid in a specific category: Taiwan: Category B/passenger car Dutch driving license category B. Israel: Category B/passenger car Dutch driving license category B. Japan: Category IB/passenger car and motorcycle (> 400 cm3) license category A and B. Dutch driving Singapore: Class 2/motorcycle (> 400 cm3) and class 3/passenger car driving license category A and B. Dutch Andorra: passenger car Dutch driving license category B. South Korea: second class ordinary license Dutch driving license category B. Québec (Canada): class 5 Dutch driving license category B. It is not possible to exchange an international driving license for a Dutch driving license, since this is a mere legalized translation of a national driving licence. Only the original driving license issued by the proper authorities of the country of origin can be exchanged. Every driving license will be checked for validity and authenticity. This means that you may have to prove its authenticity by asking the embassy or the consulate of the country where the license was issued for a confirmation for the Dutch authorities. You may also be requested to have your driving license translated by an attested translator. Taxation of expatriates in the Netherlands

24 30% facility and driving license procedure In case you benefit from the 30% facility and you have a valid foreign driving license, you and your family can directly apply for a Dutch driving license at your local Dutch municipality without taking a driving test. The country of origin is irrelevant. To exchange your foreign driving license for a Dutch driving license, you have to go to the local Dutch municipality. You have to pay a fee (the amount varies) for the driving license and you are also required to submit the following: A copy of the statement issued by the international Tax Office in Heerlen proving that you or another member of your family is entitled to benefit from the 30% facility; Your original, valid foreign driving license, issued in a country where you have been a resident for longer than a period of 185 days (you have to hand in your license); An extract from the municipal register, proving that you are registered and stating your address in the Netherlands; A Certificate of Capability, this is a questionnaire available at the local government office. In order to get a Dutch driving license, you have to fill in a personal declaration which is required by the Central Office for Motor Vehicle Driver Testing (the so called CBR.) This declaration will be reviewed by a medical team and they will decide if you will get the driving license; Two identical, recent passport photographs (taken from the front); In case the language used on your driving licence consists solely out of characters which are unknown in Dutch language, for example Chinese characters or Cyrillic writing, you are sometimes required to have your driving license translated by an attested translator. Make sure the abovementioned also applies at your local municipality office because there are authorities that deviate with their requirements. You always have to hand in your foreign driving license at the local municipality office. When you have an interest in keeping your foreign driving license you may try to reclaim the license from the authorities where the foreign driving license was issued. The Dutch municipality will return the foreign driving license to the country where it was issued. Exam to re-take the driving test If you do not meet the above mentioned conditions, you have to take the regular theory and practical test. This is also the case when your driving licence has been issued by a country not mentioned in the table above. The exam is taken by the Central Office for Motor Vehicle Driver Testing, the so-called CBR. Need more information? For any additional information you can visit or contact the RDW, telephone ( 0,10 p.m.) or from outside the Netherlands Customs duties The import of goods into the European Union/Netherlands generally leads to the levying of custom duties and VAT. In respect of the importation of motor vehicles, in principle, a registration tax (BPM) is due. However, under certain conditions a relocation exemption is applicable, in case persons transfer their permanent place of residence to the Netherlands. The relocation exemption is applicable if the following conditions are met³: The applicant has had his place of residence outside the Netherlands for at least 12 months prior to the moment of transferring his permanent place of residence to the Netherlands. The applicant uses the goods for personal/private purposes only (not for business purposes). In respect to motor vehicles, The applicant must have owned and used the imported motor vehicle for at least 6 months prior to the date of importation, and The motor vehicle will not be transferred to, or put at the disposal of third parties for at least 12 months after the exemption has been granted. Third parties include all persons that do not belong to the (direct) family of the applicant. 3 Normally the mover takes care of these issues. 24 Taxation of expatriates in the Netherlands 2018

25 Taxation of expatriates in the Netherlands

26 9. Inheritance tax and gift tax Inheritance tax and Gift tax are applicable to residents of the Netherlands but each tax is levied from the person who acquires by way of bequest or gift. The following paragraphs explain the Dutch tax system for inheritances and gifts. In international cases it is important to establish the applicable (matrimonial and inheritance) law before tax law can be applied on the basis of the applicable law. Inheritance tax Inheritance tax is levied on all assets (located worldwide) of a deceased who was a resident or was deemed to be a resident of the Netherlands at the time of his death. Whether that person was a resident of the Netherlands at the time of his death is based on all facts and circumstances (place of work, location of a dwelling house and the center of somebody s family and social life/friends). A Dutch citizen is deemed to be a resident of the Netherlands during a period of 10 years after having emigrated from the Netherlands. In general, the sum subject to inheritance tax is the fair market value of the bequest at the time of death. All enforceable debts are in principle tax deductible. Gift tax Gift tax is due on the value of all gifts made by a person who was a resident or was deemed to be a resident of the Netherlands at the time of the gift. Also for the determination whether the donor was a resident of the Netherlands at the time of the gift, all facts and circumstances regarding the donor are taken into consideration. With regard to persons who do not have the Dutch nationality, a one year fiction period applies after departure, during which they are deemed to be residents of the Netherlands. For Dutch citizens the above mentioned 10 year rule applies. Definition gift The concept of a gift is defined as follows. Every act that results in an enrichment of the donee and in an impoverishment of the donor and which was caused by the intention of the donor and donee to enrich the donee. This definition not only covers the contract which is explicitly called donation in the Dutch Civil Code but also covers transactions which are not donation contracts, for instance a sale of property under market value. Gifts acquired from the same donor within a calendar year are treated as one gift. 26 Taxation of expatriates in the Netherlands 2018

27 Partners for gift tax Spouses and registered partners are deemed to be one and the same person for tax purposes. This fiction also applies under certain conditions when the donor and the donee are not married but are living together. 9.1 Exemption Inheritance tax exemptions The most important exemptions for inheritance tax are (rates 2018): Acquisition by the surviving spouse: a maximum exemption of 643,194; Acquisition by the children: a maximum exemption of 20,371 (for disabled children, the maximum exemption is 61,106); Exemption for parents is 48,242; Property acquired by an acknowledged charity is generally exempted; In all other cases the exemption is 2,147. Gift tax exemptions The most important exemptions for gift tax are: Gifts from parents to their children: 5,363; A general one-off gift of 25,731 is exempt from parents to their child whose age is between 18 and 40. This amount may be increased to an amount of 53,602 in case the gift is used for the payment of the education of the child which costs are significantly higher than usual; Other gifts up to an amount of 2,147. An exemption for a gift of up to 100,800 may be available in 2018 if used for the acquisition of a primary residence (under certain conditions). Taxation of expatriates in the Netherlands

28 9.2 Rates The rates for inheritance tax and gift tax are the same. The rates 2018 are split up into three categories: Tax coding I: children spouse/ registered partner/partners for gift tax Value taxable gift Tax rate Between 0 and 123,248 10% 123,248 and more 20% Tax coding IA: grandchildren and great grandchildren Value taxable gift Tax rate Between 0 and 123,248 18% 123,248 and more 36% Tax coding II: other Value taxable gift Tax rate 9.3 Filing obligation and payment Between 0 and 123,248 30% 123,248 and more 40% An inheritance or a gift must be declared by the person who acquires property by way of bequest or gift. For inheritance tax, a tax return needs to be filed eight months after the time of death of the deceased. For gift tax the tax return needs to be filed within two months after the calendar year in which the gift was made. The revenue will impose a tax assessment stating the tax due after the tax return has been filed. 9.4 Estate Tax Treaties The Netherlands has concluded Estate Tax Treaties with the following countries: Austria, Finland, Israel, Aruba, Curaçao, Sint Maarten, United Kingdom, United States of America, Switzerland and Sweden. All Treaties cover inheritance tax with respect to bequests. Only Treaties with Aruba, Curaçao, Sint Maarten, United Kingdom and Austria also cover gift tax. Where no Tax Treaty applies, Dutch unilateral law for the avoidance of double taxation applies. Double taxation, however, cannot always be avoided completely. 28 Taxation of expatriates in the Netherlands 2018