Effective tax planning is not only important during tax season but also during an expat’s immigration, emigration, start of employment and property sale or purchase.
Effective tax planning is not only important during tax season in the Netherlands, but also during immigration, emigration, start of employment and property sale or purchase.
Experienced expats know that tax returns must be filed before 1 May. If you are new, make sure you are planning on filing taxes in the Netherlands before or on this date. If you want to take your integration in the Netherlands seriously, however, you should learn how to let taxes work for you. In the Netherlands, tax systems are not as harsh as often thought — especially for expats where the 30 percent ruling applies.
Dutch tax refunds and immigration
An obvious but still sometimes forgotten situation in which it is likely that you will be entitled to a tax refund in the Netherlands is at the beginning of your time in your new country. When you register in the Dutch city council or town hall where you reside, the tax authorities will be notified automatically and consider your registration as immigration. You will then be regarded as a domestic taxpayer, with all the advantages and disadvantages of a regular Dutch taxpayer.
You will have to submit a special migration tax form, which transfers your status from non-domestic to domestic taxpayer. Although this tax form is more complicated, it provides more opportunities for a tax refund in the Netherlands. In the following years, you will need to file a regular tax return. Registration, however, is not always favourable, e.g. if you only stay in the Netherlands for several months.
Dutch tax refunds: start of employment or new business
If you come to the Netherlands to work, it is worthwhile to see if you are entitled to the 30 percent ruling, leaving up to 30 percent of your salary untaxed. The current maximum period for the 30 percent ruling is eight years, but there are plans to limit this to five years, most likely from 2019 onwards.
To qualify for the 30 percent ruling, which leaves 30 percent of your net income untaxed, you must be able to prove that you were recruited from abroad by a Dutch employer. That means the contract has to be signed before you start living in the Netherlands. In fact, the requirement is that you to have lived more than 150km away from the Dutch border during the last 16 months.
The Dutch tax authorities are strict regarding this rule, but the term “living” is quite variable. For example, if you started working in the Netherlands after studying at university—and while studying, you were still registered in your home country, located more than 150km away—it is worth trying to apply for the 30 percent ruling. You can also ask for a second opinion if the first application is denied.
If you change jobs, make sure no more than three months pass between the jobs in order to keep the 30 percent ruling.
If you have or start your own company, it is also possible to recruit yourself, your business partner or employees from abroad to ensure that the 30 percent ruling applies to you or them. If your spouse will work for you, this can be especially financially attractive.
Mortgage interest deductions: a major Dutch tax benefit
If you know you will be living (partially) in the Netherlands for a longer period, it can be quite favourable to buy a house instead of renting one. Rent for expats is usually higher than the monthly cost of buying a house, and the interest rate for mortgages is currently at its lowest in the Netherlands, which makes your monthly expenses lower than if you were renting a house.
For homeowners, mortgage interest is tax deductible (on your primary residence), as well as mortgage-related expenses. The mortgage interest deduction will be gradually limited by 3 percent per year until it reaches the tax rate of 36.93 percent. During 2017, the mortgage is deductible at a maximum rate of 50 percent if the deduction takes place in the current fourth tax bracket (for an income exceeding EUR 67,000).
Tax relief can be paid in monthly instalments during the year after filing the tax form for a provisional refund for mortgage relief, requested at the Dutch tax authority. If you move out of the country again, you can rent out the house, sell it, or keep it for your own use. If you keep it for your own use, in some circumstances, the property can remain in box 1 with mortgage interest deduction. In case you sell the property, note that there is no capital gains tax.
Taxes on savings in the Netherlands
A very topical subject is the tax on savings, known in the Netherlands as the box 3-levy. It is important that you have opted for partial non-resident taxation to make use of the savings scheme. If the 30 percent ruling does not apply, it is not possible to opt for partial non-domestic taxation; your worldwide assets are therefore taxable in the Netherlands.
For foreign real estate, double taxation should be requested. The tax-free amount for 2017 is EUR 25,000.
In 2017, the box 3 tax consists of 0.86 percent for savings up to EUR 100,000; 1.38 percent for savings between EUR 100,000 and EUR 1,000,000 and 1.62 percent for savings over EUR 1,000,000.
The property in which you reside in is not classed as an asset. That particular property is taxed in box 1, not in box 3. There is no tax on a box 1 property, and the mortgage interest is deductible. If your first residential property has a value of, for example, EUR 1,000,000, and you have no mortgage, the property does not lead to any taxation. Another way to save on box 3 taxation is to repay the mortgage on the box 1 property. You can consult a financial or tax advisor regarding what is wise in your situation.
File a joint tax return to access Dutch tax benefits
If you are married, you qualify as fiscal partners and you can file a joint tax return. You can do this the smart way by allocating deductions such as mortgage interest, study costs and alimony payments to the partner with the highest income.
This also counts if you have a legally-registered partnership and are registered as living at the same address, if you and your partner are registered at the same address and own the house together, have a child together, or have a joint pension scheme.
Note that if you are married, you do not need to live on the same address; if you have immigrated to (registered in) the Netherlands before your partner did, you cannot file a joint tax return in the migration year.
It is wise to become legally registered partners if you have a child together. For the inheritance tax, you can only inherit from your partner if you are married or if your partnership is legally registered.
Emigration and finalising tax
Do not forget to deregister with the city council when you emigrate again from the Netherlands, whether you become an expat elsewhere or return to your home country. You will have to mention that you are leaving the country and supply a foreign address at the town hall.
If you forget to deregister, you will continue to be viewed as a domestic taxpayer and possibly miss out on the extra tax refunds in the Netherlands.
Get a free tax review
To make sure you don’t let a refund opportunity pass by, you can request a free tax review from many reputable tax preparers. After examining your current tax situation, a consultant will provide a quote for submitting your tax return or for further advice.
A free tax scan can also be useful even if your tax return is already arranged by your employer, which is usually carried out by a large accountancy office. Expats often feel that they get a one-size-fits-all service from employers, finding that the accountancy company works primarily for the employer’s interest and not theirs—especially in regard to having no knowledge of what Dutch tax refunds they are entitled to. To avoid this, it is worthwhile to get a second opinion from a tax adviser specialising in tax returns and refunds in the Netherlands.