We continue our publication of your questions on tax and tax-related issues, answered by tax expert Frank de Bats. This selection looks at the 30 percent ruling, double taxation and capital gains in Holland. (Names of readers submitting questions are now withheld as standard.)

Question regarding 30 percent ruling

I am an American citizen living in the Netherlands. I have residency here (just applied for my extension) based on my relationship with a Dutch citizen. I moved here in September 2007, I just started working in March 2008 and we're getting married in May 2008. Since I moved here and my residency is based on our relationship and I found the job here in the Netherlands on my own, would the 30% ruling still apply to me?  I worked in the USA as an industrial microbiologist and was sought after in my current position for my skills.  Is this a question best posed towards the HR at my current company?  Or can you be of help?

Frank de Bats replies:
As you may have noticed, I regularly answer readers’ questions in the tax field for Expatica. Yes, I can be of help normally and I do assist personnel departments of employers in such cases, but your situation does not look too good.

As I understand it, there are two main criteria to obtain a 30% ruling: you have specialist skills scarce on the Dutch labour market and you are recruited from abroad. The former criterion may not be too much of a problem to fulfil as you say you have a work permit and you are much sought after, but, especially if you earn the knowledge migrants qualifying salary, at least EUR 47.565 or EUR 34.881, if you are under 30 years of age (2008).

The latter criterion is more of a problem, judging from what you are writing. If and only if you are able to demonstrate and sustain with documents that you have retained (permanent) residency abroad during recruiting and at the date your employment agreement was agreed upon, you may still meet the first criterion, but this highly depends on the personal circumstances. In the past, I have been able to obtain a 30% ruling for someone who first bought a home in the Netherlands and only subsequently entered into an employment agreement, but he was able to demonstrate that the entire recruiting process including a firm offer and acceptance had taken place from his home address abroad. Kindly let me know whether you feel you meet both criteria and especially, if you can sustain your residence abroad upon entering in the employment agreement.

Please note that the above is tentative in nature.

Kind regards,

Frank de Bats

Question on double taxation

I have been reading the questions and answers on Expatica and I have a question on an issue that I could not find anything about.

Frank de Bats replies:

Thank you for an interesting question. I deduce you are working for an international treaty organisation, which treaty provides for an exemption from tax on labour income in the country of residence. I further deduce you are regarded as a resident of The Netherlands. Therefore, you are apparently considered to be a Dutch tax resident, and you are apparently liable to tax on income from savings and. I am not aware of any change in the law or treaty that would have exempted box 3 income prior to 2006.

The above means that your worldwide assets need be stated in the annual tax return. Based on the relevant tax treaties, such as the one between The Netherlands and the UK, the residence country normally has the right to tax income from savings and investment arising in the other country, except for investment in real estate (right to tax vests in the country of situs). Therefore, your income from UK savings need be stated in the Dutch return, however, according to the Dutch tax system, not the actual income, but rather the fictitious income determined as 4% of the taxable base (average net assets).  A full tax credit is available for any withholding at source on the actual income, and can therefore be offset against the box 3 tax liability, but with one important catch: withholding taxes may not exceed tax due over box 3 income. An excess can be carried forward.

Please do not hesitate to call on my assistance when you consider that useful.

Kind regards,
Frank de Bats

Double taxation for Australians

I currently work for an international company, in their Australian operation. I am looking at transferring over to the Netherlands operation under a Dutch employment contract.  Will I be double-taxed for the income I earn in the Netherlands?  Or is one only taxed by the country in which the income was earned? What are the rules/pitfalls I should be aware of, if any?

Frank de Bats replies:

No, you will not be double-taxed, Almost all cases of applicable tax legislation of more countries at the same time are covered by international tax treaties. Indeed, the main line of international tax treaties including the Australian-Dutch tax treaty is that the right to tax employment income is attributed to the country where you perform your duties. If you remain an Australian resident, you will also have to report the Dutch income in your Australian tax return, but you would claim double tax relief for same – in many cases by applying a foreign tax credit.

If you could elaborate on the circumstances of your posting to The Netherlands we may better be able to identify pitfalls and possible tax shelters. For example, if and only if you undisputedly retain Australian tax residence - you may exclude your days sustainably worked outside the Netherlands - from your Dutch taxable income and incur Australian tax burden only. You may also wish to discuss your social insurance position, as you may remain subject to Australian social security during your posting, if favourable.

You may also find the following features of Dutch law of interest to your situation:

1. Please note that you will also have to gain access to our country in terms of a residence and work permit, usually only granted to people whose admittance is in the interest of the Dutch economy. A “fast lane”, which nevertheless takes considerable time to pursue, is open for “knowledge migrants”, well educated foreigners earning at least some € 46500 gross per annum (€ 34130 (2007) if under 30 years of age). Please let me know if you require assistance in this field.
   If you qualify as a knowledge migrant, you may very well also qualify for the 30%-ruling.
   
2. The 30%-ruling is a set of tax relief measures for foreign specialists recruited from abroad. The 30%-ruling provides the following tax relief (in summary):
   a.       Reduction of tax payable by converting 30% of taxable salary into a tax free cost reimbursement;
   b.       Free reimbursement of international school fees is made possible;
   c.       Exemption from (box 2 and) box 3 taxation on income from savings and investments, safe exceptions.
   View how the tax authorities discuss the 30%-ruling.
   
3. You will wish to take into account the following tax and social insurance rates (updated from the tax authorities’ publication and after deduction of employee insurance premiums):
   Tax rate for income from employment and home ownership (Box 1)
   The rate for income from employment and home ownership is a progressive rate that is charged over four 'brackets'. As a result, you will pay a proportionally higher amount of tax as your income increases. The following table shows the brackets and the corresponding tax rates in 2007, including national insurance contributions (in the first two brackets only) under the statutory pension insurance (AOW), surviving dependants' pension insurance (ANW) and exceptional medical expenses insurance (AWBZ) schemes:
   Bracket Taxable income from employment and home ownership Income tax and contributions combined rate
   1. up to € 17,319 inclusive 33,65%
   2 . € 17,319 to € 31,122 inclusive 41,40%
   3 . € 31,122 to € 53,064 inclusive 42.00%
   4.  € 53,064 and more 52.00%
    
   The above is stripped from numerous exceptions and deduction possibilities. However, you need to know that basic tax credits are available to the following amounts (2007, only most important mentioned):
   •        General tax credit                                 € 2,043
   •         Labour tax credit <57 years of age    € 1,392
    
   2008 brackets and rates will be published in definite form only later this month. Please note that should you remain socially insured in Australia, as much as 31,15% of Dutch social insurance premiums are taken from the rates in the first two brackets, and replaced by Australian social insurance premiums (which may extend into other tax brackets as well).
    
   I trust to have informed you appropriately and I am looking forward to receiving your reaction.
    
   Kind regards,
    
   Frank de Bats

Capital gains in Holland

I have read your articles on Expatica and found them of interest. I have a question with regards to capital gains.

I understand that capital gains on property owned by an individual are taxed at 0% in the Netherlands. I have a number of properties in the UK that I am thinking of selling. According to the UK tax system you can pay taxes (inc. CGT) in the country of residence and not be liable in the UK if you do not return to live permanently in the UK for 5 tax years. As I am self employed and do not need to stay in the UK for more than a few months a year I am planning to relocate to Netherlands with the view to minimise the impact of capital gains, but I am looking to confirm that this is the current tax rule. Could you clarify?

Frank de Bats replies:
Thank you for your compliments.  I understand that your question regards property other than your owner-occupied house. 

If you are a Dutch tax resident, you are taxable for your worldwide income in principle. I will come back to that later. The property you have mentioned would be attributed to box 3 (unless exploiting the real estate requires quite an amount of labour or specialist knowledge). The Dutch 2001 Tax reform that introduced box 3 taxation, is based on the general thought that tax on income from savings and investments as well as tax on net wealth should be simple, predictable, at modest rates and especially, independent of economic fluctuations. Therefore, both types of taxation are integrated in a taxable base of a deemed fixed annual return of 4% of average net assets (that is assets less debts) in excess of a basic tax free amount, to be taxed at a flat rate of 30%. This gives an effective box 3 tax rate of 1,2% of net assets. Capital gains are therefore not taxed directly, but only very indirectly, namely through an increase of average net assets.

Tax treaties attribute the right to tax types of income to one of both treaty parties. Typically, the right to tax operating income from real estate as well as capital gains on real estate is attributed to the state where the real estate is situated. In your case therefore, the UK has the right to tax income and capital gains from UK real estate. This irrespective of whether the UK effectively taxes such income from real estate. However, the state of residence would have the right to tax bank account balances.
As a Dutch tax resident, you would report in first instance deemed income from worldwide assets in box 3, and subsequently you can claim double tax relief for the deemed income from UK real property. Indeed, deemed income means that actual income and actual capital gains are not relevant for Dutch tax purposes. Further, please note that effectively, if you convert UK real estate into a bank account balance, the right to tax deemed income shifts from the UK to The Netherlands, due to the nature of the income included in the box 3 taxable base.

I trust to have informed you appropriately.
Kind regards,
Frank de Bats

Capital gains in Holland (next step)

Following your information I have now made the decision to become a Dutch tax resident.  Could you be so kind to let me know what the procedure is for an EU citizen i.e. forms to complete, etc. Is the procedure available in English? I have just been checking www.belastingdienst.nl/english/individuals.html but can not find how to register.

Frank de Bats replies:

No, you will not find information with the tax authorities. Kindly go to your local town hall with your EU passport (and bring that part of your family that is of age and their passports) and they will register you as an inhabitant on the spot, with immediate effect (an earlier effective date impossible).

Communal Registration law (obligation to register if you spend the majority of week nights) is a bit different from tax law (tax resident based on factual personal and economic circumstances). But as both criteria are close, the tax authorities receive an automatic update from the town hall and will automatically issue a tax registration number. At the end of the calendar year, the tax authorities will note your town hall registration and will in principle invite you to file an immigrant’s tax return (type M). Only on this form (otherwise by earlier letter) you can advise the tax authorities that your factual immigration date may differ from your registration date. Consequently, the date you are technically able to have a Dutch owner-occupied home (you need to be resident) and deduct mortgage interest, varies with the date of becoming a factual tax resident. Kindly note that many employees with the tax authorities think that town hall registration equals becoming tax resident, but the law says otherwise.

This is a bit of abstract theory, but otherwise you will probably drown in practical details. If you require further assistance, for example if you wish to advise our tax friends you have become a tax resident already in 2007, you know where to find me.

Kind regards,

Frank de Bats

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, please go to our Ask-the-Expert channel.

2 April 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 2008]