For the application of tax laws and treaties it is important to know whether you are regarded a tax resident of the Netherlands. Your tax residency determines whether you are taxed in the Netherlands based on your world-wide income or not and whether you have access to the Dutch Tax Treaties for the avoidance of double taxation.
The state of residency is essential for many tax aspects. It determines amongst others:
- Your tax position;
- Which type of form you have to file for your Dutch income tax return;
- Your position with regard to tax benefits, for example tax credits;
- 30%-facility: one of the conditions to apply for the 30%-facility is, currently, that the expat has lived at least 150 kilometers away from the Dutch border prior to his employment in the Netherlands;
- Your social security position.
Other than some might think, the determination of your tax residency is not a mere calculation based on presence in the Netherlands. Based on Dutch legislation your tax residency is based on all relevant facts and circumstances. Based on these facts and circumstances, the Dutch tax authorities will determine whether you have sufficiently relevant ties with the Netherlands to be regarded as being resident in the Netherlands.
A number of circumstances may be relevant when assessing whether you are a tax resident of the Netherlands. Some important circumstances are (not limitative!):
- In which country do you have a permanent home available?
- Where are you physically present for the most of your time?
- Where does your family live?
- Do you have economic ties to the Netherlands (e.g. income from or investments in the Netherlands)?
- What is your nationality?
Whether or not you registered as a resident with a Dutch municipality will be taken into account when weighing all the facts and circumstances, but is not a decisive circumstance. The tax authorities, however, do get a notification once you register with the municipality. So, if you register on an address in the Netherlands, chances are the tax authorities will assume you are a tax resident of the Netherlands from the moment of registration and will tax you accordingly.
If - based on all relevant facts and circumstances – it is determined that you are a resident of the Netherlands, you will be regarded as a resident tax payer for Dutch tax purposes. As a tax resident of the Netherlands, you must declare your world-wide income in your Dutch tax return, when you have a filing obligation. Non-resident tax payers are taxable only on specific Dutch source income (for example: real estate in the Netherlands).
It could be that you qualify as a tax resident of two States. This occurs when different States apply different criteria to establish residency. For example, someone physically works half a year in the Netherlands and the other half in Spain, whilst the family remains in the permanent home in the Netherlands. He would most likely qualify as a resident of the Netherlands based on Dutch legislation. He could simultaneously qualify as a tax resident of Spain under Spanish domestic tax laws. To make sure such a situation does not lead to double taxation, the Tax Treaty between the Netherlands and Spain should determine of which state this person is ultimately a tax resident. In these cases the so-called ‘tie breaker rule’ in the Tax Treaty can determine the residency position for tax purposes.
Tie breaker rule
In the OECD Model Tax Treaty – the basis for most Tax Treaties - it is stipulated that an individual resides in the State in which he has the availability of a permanent home. If the individual has a permanent home available in neither State, he is considered a resident of the State in which he normally resides. If the individual normally resides in both States and he has availability of a permanent home in both States, he is considered a resident of the State with which he has the strongest personal and economic ties. When the State with which he has his strongest personal and economic ties cannot be determined, he is resident in the State of which he is a national.
Not all Tax Treaties include a ‘tie breaker rule’. Some countries (directly) enter into a mutual agreement procedure to determine the individual’s place of residence. Please note that by mutual agreement the same circumstances as described above are significant to determine the individuals place of residence.
Under the 30%-ruling you can choose to be treated as a so-called partial non-resident tax payer, even though you actually qualify as a tax resident of the Netherlands. As a partial non-resident tax payer, you will be considered a non-resident tax payer for certain times of income, during the term of the 30%-decree.
Quick scan tax resident of the Netherlands
Want to know more about your Dutch tax position? Please answer the following five questions.
Is the answer to one or more of the above questions YES, then you could be regarded as a tax resident of the Netherlands based on Dutch tax legislation. Please feel free to contact BDO to find out more about your tax residency in the Netherlands.