Question re: 30 percent ruling

I came to the Netherlands about three years ago as a post-doc. working in a governmental research institute. Our business office advised me to apply for the 30 percent rule and I obtained it. I'll soon be working for a Dutch bank still here in the Netherlands and I'm wondering whether I'm still eligible for the 30 percent ruling, or, if after a few years working here this "exceptional" status comes to an end. Also, doesn't the eligibility depend at all on the employer?

Frank de Bats replies:

It is possible to claim the 30 percent rule for a successive employment in The Netherlands, up to a total working period or stay period of at maximum 10 years. Upon such a successive application, you must fulfil all conditions again (i.e. you must dispose of specialist skills that are scarce on the Dutch labour market), except for the condition that you must be recruited from abroad; this provided your period between jobs is no longer than three months. The 30 percent ruling must be applied for by both employee and employer. Please keep in mind that a “30 percent clause” must be included in your employment agreement, effectively replacing 30 percent of taxable salary (as well as the basis for social security benefits and pension rights) by a tax free cost reimbursement.

Regards,
Frank de Bats
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Question re:  30 percent ruling 
 
I have been in the Netherlands for seven years and have had the benefit of the 30 percent rule, and my company has paid my childrens' international school fees.  As I understand the position, after 10 years I will no longer be entitled to the 30 percent rule and subject to the same tax rules as a normal Dutch resident. As a result, any school fees paid and foreign investments [under box 3] will be taxable.  Is there anything that I can do to reduce the impact of losing the 30 percent rule?

Frank de Bats replies:

I am afraid there is hardly anything you can do to reduce the impact of losing the 30 percent ruling. Please note that in short, it involves the following:

• Taxability of the tax free reimbursement that forms 3o percent of your original salary;
• Reimbursement of International School Fees suddenly taxable;
• You will have to begin to file for box 2 (income from closely held shares; rarely) and box 3 (income from savings and investments).

Therefore, if you wish to reduce the overall tax burden, you will have to switch on creative and sophisticated tax planning. If factual circumstances can be changed, such as place of residence, places of work and likewise, such a tax planning may result into a tax shelter, sometimes across borders. Kindly le me know if you are up to that.

Kind regards,
Frank de Bats
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Question re:  Offshore savings plan

I just moved to Hong Kong and planned to live there for a couple of years. I am planning to take out an offshore saving plan for 20 years. I was told that an offshore saving plan doesn’t have any withholding tax base on the law of Isle of Man Island, and even though I move back to the Netherlands say after four years, as long as I leave the money offshore, then I don’t need to declare, is that true? Is there any tax benefit if I take out this kind of offshore saving plan?

Frank de Bats replies:

Thank you for an interesting question. Please distinguish between tax systems based on a British tradition and tax systems based on classical traditions. Countries with tax law based on the British system: tax income basically only when brought into the country, in other words when it is remitted. Hong Kong is an extreme example of such a system: only income from sources within the territory is taxable, anything that originates from beyond is not, safe exceptions. Many Commonwealth countries have some sort of remittance base taxation.
 
Dutch tax law however is based on the classical tradition that every inhabitant should be taxed over his worldwide income, regardless of its origin. If this leads to double taxation, as other states may tax the same type of income as well, tax treaties should assign the right to tax that type of income to one of both states.
 
Therefore, the answer to your question would be: not true/possibly true. I will explain in two steps:

• If you move to The Netherlands, you become subject to tax over your worldwide income. Assuming your offshore fund is not some sort of insurance product, The Netherlands does not separately tax interest income nor capital gains, but instead taxes a fictitious return on investment of 4 percent over the average value of the investment at a flat rate of 30 percent (effective tax 1,2 percent over net wealth: “box 3 taxation”). This is however not the whole story.
• If you qualify for the so-called 30 percent -regulation when taking up employment in The Netherlands, you obtain not only an important tax reduction over your employment income, but also an exemption (safe exceptions) from the above box 3 taxation. Therefore, the 30 percent -regulation may be the piece of legislation enabling you to keep your Manx offshore saving plan free from taxation while a Dutch resident.

Regards,
Frank de Bats

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Question re:  Tax on fulltime trading gains

I trade the CME S&P500 futures through the Internet from my home as an independent. All the gains made are capital gains, this is my only source of income. Should these gains be reported under Box 3 if living in the N?

Frank de Bats replies:

I presume you qualify as a Dutch resident for tax purposes.
 
According to Dutch tax law, such “day trading” activities disqualify for box 3 and are subject to box 1 taxation if those activities exceed what can be considered normal active asset management, such as splitting real estate, refurbishment of real estate commercial trading or exploitation of insider knowledge etc. Progressively taxed income normally starts where you can influence results or are reasonably able to foresee positive results or exploit specialist knowledge (such as private activities next to or as a spin-off of professional activities). The tax law on this subject hardly provides more detail. Therefore, mere private stock or commodities trading, even if speculative or if highly frequent, would qualify for box 3.
 
Please note that the above is a tentative reaction to the information provided and not a tax advice, which should be based on a more detailed analysis of all relevant circumstances.
 
Regards,
Frank de Bats

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Question re:  Omitting to cancel registration in Netherlands

I lived in the Netherlands between the summer of 2004 and 2005.
My landlord didn't 'unregister' me when I got back to my home country, so the
belastingdienst has charged me for all this period. Now I got them to understand I didn't live in Amsterdam anymore but still they charged me for delayed payment of the first half of 2005. What happens if I refuse to pay? Will I have problems visiting the Netherlands or will it be a problem if I come back to the Netherlands to work?
 
 
Frank de Bats replies:

Indeed, when leaving the country you should deregister yourself. Only in highly exceptional cases, such as which has developed now, the communes accept deregistration by Power of Attorney, but only with retroactive effect if proof of incorrectness is submitted.
 
Tax residence is determined by other factors than the duty to register with the commune and they are theoretically not interlinked at all. However, in practice, the tax authorities use the communal register as their prime source of information on tax residence, and are hesitant (to say the least) to accept residence different from communal registration. You should however be able to convince the tax authorities of a certain emigration date deviating from communal registration if sustained with documents. To that purpose, you would file an appeal against the tax assessment. In your case, at first sight it does not seem incorrect that you have been taxed over your period of residence in 2005, depending on your circumstances in more detail than provided.
 
Neglecting an imposed assessment would not help you in the end. It may take a while to take effect, but many countries have concluded agreements where one country assists in recovering tax and some other public debts on behalf of the other country, and in certain cases, you can be stopped by customs.
 
Regards,
Frank de Bats - Tax Lawyer

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Frank de Bats - Tax Lawyer
De Bats Beheer BV - 27155273
Herberg 63 - NL-2264 KP Leidschendam
Telephone: +31 6 201 29 830
Fax: +31 84 728 729 6
Email:   info@frankdebats.nl

If you have a question about taxation in the Netherlands, send an email to our experts via feedback@expatica.com.

17 October 2007

Disclaimer: This column is for informative purposes only, is general in nature and is not intended to be a substitute for competent legal and professional advice. Dutch and international rules and regulations regarding taxation are subject to change.

[Copyright Expatica 2007]