Expatriate Executive: Netherlands

Summary of local taxation situation

A foreign national working in the Netherlands will be taxed as a resident or as a non-resident, or may be able to take advantage of what was initially known as the '30% ruling'.

There is no precise statement of what constitutes residence, but the criteria include the length of time spent in Holland during a tax year, ownership of real property, family or other personal connections. If an individual is registered in a municipal register then there is a presumption of residence.

The 30% ruling applies to foreign nationals assigned to work in the Netherlands for a company which operates the Dutch withholding tax scheme on its payroll. This can be a Dutch subsidiary of a foreign company. The ruling also applies to Dutch nationals if they have been absent (non-resident) for a period of at least 8 years before returning to work in the Netherlands.

In order to qualify under the ruling, an employee must have skills which are not easily found in the Netherlands; by and large, senior employees find it easier to fall under the ruling than do junior employees. Under the ruling, which can apply to one individual for up to 10 years, a substantial part of a person's Dutch earned income is tax-free.

Individuals benefitting from the 30% ruling may also apply to be treated as non-resident for Dutch tax purposes.

Before 1 January, 2001, non-residents of Holland who were offered employment by a resident Dutch entity could have applied for preferential income tax treatment which, if granted by the Ministry of Finance, resulted in 35% of the applicant's earnings being tax free.

After 2001 the allowance was reduced from 35% to 30% and the top Dutch tax rate was reduced to 52% from 60% so that the effective top rate for qualifying expatriates under the new rule was 36.4% as against 39% previously.

Other improvements include exemption from 30% of social security tax as well as income tax, and tax-free reimbursement of school fees for expatriates' children.

Dutch tax residents pay tax on their world-wide income, while non-residents pay tax only on their Dutch-source income. There is no capital gains tax as such in Holland, although some types of gain are counted as income, including gains realised on the disposal of 'substantial participations', meaning more than a 5% interest in an entity. Transfer of a shareholding (ie of the 'seat' of the entity concerned) out of the jurisdiction amounts to a deemed disposal.

There is a wealth tax in Holland, and there are estate (inheritance), gift and transfer taxes, all of which apply to Dutch residents, but only to the Dutch assets of non-residents (although a Dutch citizen remains liable to pay estate tax for up to 10 years after becoming non-resident). Estate taxes can run high.

If a Dutch resident becomes non-resident, then his 'substantial participations' in foreign Dutch entities are subject to a 'preservative assessment' of capital gains tax, which is not collected as long as the shares are not alienated within 10 years of departure. This rule does not apply to foreign residents if they have spent less than 8 years in Holland.

Dutch tax law has now recognised the concept of the trust.

NB: Dutch tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

It is clear from the above that an expatriate working in or from Holland needs to try to fall within the 35% (now 30%) ruling, not least in order to have non-resident tax status. This being the case, an expatriate individual can maintain existing offshore or foreign interests, or set up new ones, without much concern for Dutch tax law.

However, if for any reason an expatriate becomes Dutch tax-resident, then it can be seen that there are considerable dangers that foreign assets will become entangled in the Dutch tax net, and a danger of capital taxation when residence ceases. Wealth and estate taxes would also be a concern.

It follows that before taking on Dutch employment, it is essential to take professional advice on any offshore holdings, and on the availability of the special exapatriate regime

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 35 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.