TAX & LEGAL IN THE NETHERLANDS FOR EXPATS

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1 TOGETHER FOR YOUR SUCCESS TAX & LEGAL IN THE NETHERLANDS FOR EXPATS

2 Auren together for your success Auren is an international firm, leader in advanced professional services of Advising, Consulting, Human Resource, Tax & Legal, Accounting and Auditing, whose aim is to contribute towards improvements in business management. Auren s style is based on close involvement with our clients, in 9 countries with 1,500 professionals. Auren is a member of the international network Antea, which network has members in 60 countries. In The Netherlands, Auren is located in Amsterdam and Amersfoort and has a team of approximately 90 professionals. Moving to a new country can be a daunting experience, but in The Netherlands, an expat will find a modern and open-minded society with many possibilities for foreign citizens. The Dutch population is famous around the world for combining risk and hard work in their business. The advantageous way to do business in The Netherlands is shown in a number of international business surveys. For example, The Netherlands was ranked 28th out of 189 countries in the World Bank s Ease of Doing Business Survey for The Netherlands has a great number of non-transparent rules, which makes it difficult for foreign employees (hereinafter: expats) to get a proper insight into all rights and obligations. Auren has an Expat desk, comprising experienced expat tax and legal advisors. Our professionals provide assistance and guidance in all Dutch matters when relocating either temporarily or permanently to The Netherlands. Below we describe the Dutch key facts regarding taxation matters for expats in The Netherlands. Please note that this brochure is intended to provide general information only. Professional advice is highly recommended before committing to formal obligations. Dutch personal income tax An expat transferred or relocating to The Netherlands will become subject to Dutch personal income tax, either as a resident or a non-resident taxpayer. In order to determine whether an expat qualifies as a resident or a non-resident taxpayer, we recommend a meeting with a tax advisor before the expat actually relocates to The Netherlands. Please note that tax planning can be beneficiary in this case and not only to avoid double taxation. In general, the 2015 Dutch personal income tax rate for income from employment is 36.5% to 52% (these rates include Dutch social security contributions due by the employee). Any employer should withhold wage tax via the payroll, which can be offset in the personal income tax return. Further, the income tax due will be reduced by the amount of (general) levy rebates. There are three categories of taxable income (Box I, II and III) for personal income tax. Please note that the tax year in The Netherlands is a calendar year. Further, for the year of relocating to The Netherlands a migration tax return has to be filed, taking the worldwide income of the expat into account. In case the expat is not considered to be a resident taxpayer, only Dutch income will be subject to tax in The Netherlands and a non-resident tax return has to be filed accordingly.

3 BOX I - TAXABLE INCOME FROM WORK AND OWNER-OCCUPIED DWELLING The income tax rate is divided into four brackets and varies from 36.5% to 52% (including social security). Interest paid on a qualifying mortgage used to finance an owner-occupied dwelling can be partly deducted from the taxable income BOX II - TAXABLE INCOME FROM SUBSTANTIAL INTEREST In case of substantial interest (ownership of at least 5% shares or certificates in a company), taxable income is taxed at 25% BOX III - TAXABLE INCOME FROM SAVINGS AND INVESTMENTS Savings and investments are taxed at a flat rate of 30%, taking into account a lump-sum yield of 4% (which means an effective tax rate of 1.2%) on the fair market value (worldwide assets minus liabilities). This rate applies to savings and investments to the extent these exceed 21,330 (2015), which amount is tax exempted In order to receive Dutch salary and benefit from the (general) levy rebates, a Dutch social security number (so-called BSN) is required. This is a unique and personal number which is used as identification for all government related issues. Please note that if an expat does not have a BSN (yet), an anonymous tariff of 52% will be applicable. Fiscal partner If the conditions for fiscal partnership are met, the expat and his/her fiscal partner may determine who declares which amount of certain types of income and deductible items in their tax return. Please note that the total income or deductible item should be 100%. As a result, a tax advantage can be created. If the expat is married or has a registered partnership, they are automatically fiscal partners. If the expat is living together without being married, then the expat and his/her partner are fiscal partners when they meet one of the following conditions: They have jointly concluded a cohabitation contract before a civil-law notary and are both adults They jointly have a child One of the partners has a child and the other partner has acknowledged the child They are registered as partners with a pension fund They are joint owners of a property that is their main place of residence Fiscal partnership starts at the time the partners are both registered at the same address with the municipality and ends when they are no longer registered at the same address. Extraterritorial expenses If an expat is recruited from abroad to work in The Netherlands or is transferred to The Netherlands from abroad, the expat has - compared to local employees - additional costs, so-called extraterritorial costs. An employer may grant the expat a tax-free reimbursement for the actual extraterritorial costs incurred. However, it may be difficult for an expat to prove the deductibility of such costs according to the Dutch law. Therefore, the Dutch tax authorities can issue a so-called 30%-ruling. 30%-ruling The 30%-ruling is a special tax regime for highlyskilled migrants transferred to The Netherlands or recruited from abroad to work in The Netherlands. If an expat meets certain requirements, the employer can grant the expat a tax-free allowance as a reimbursement for the additional costs of a temporary stay outside the home country. The granted tax-free expense allowance can be up to a maximum of 30% of the gross salary, subject to Dutch payroll tax. However, if any additional extraterritorial expense allowance is reimbursed by the employer separately, this will be deducted from the 30%-ruling. The requirements The Dutch tax authorities grant the 30%-ruling upon request. To obtain the 30%-ruling, the expat and the employer should submit a 30%-ruling application, which will be granted if the expat meets the following requirements:

4 Has an employment contract The employer is registered for Dutch wage tax purposes Offers specific expertise that is not or is only barely available on the Dutch employment market. The specific expertise requirement is usually met in case of a taxable salary of 36,378 (excluding the 30%-ruling). If the expat is a young professional (younger than 30) and has a master s degree or a PhD, the salary requirement is lowered and the taxable salary must amount to at least 27,653 (excluding 30%-ruling). Furthermore, for a special group such as scientific researchers and medical interns, no minimum salary is required to obtain the 30%-ruling. Moreover, the requirement to obtain the 30%-ruling relates for this group to the employer (university or institute) The expat should be recruited from abroad. Basically, the expat should have lived more than 150 kilometres from the Dutch borders for least 16 out of 24 months before arrival in The Netherlands. If an expat completed a PhD in The Netherlands it is possible to qualify for the 30%-ruling if the expat is hired within one year after graduating and meets the 150 kilometres requirement before relocating to The Netherlands The 30%-ruling request should be filed within four months after commencement of employment in The Netherlands in order to be granted retroactively. The 30%-ruling will be granted for a maximum period of eight years in total. Please note that a previous stay in The Netherlands could shorten the duration of the 30%-ruling. To apply for the 30%-ruling, the expat should be subject to Dutch wage tax. As a result, an expat who is not living in The Netherlands could also apply. Please note that the employment contract should specifically refer to the 30%-ruling. The remuneration package should be drafted in the employment agreement (or an addendum) in such a manner that the 30%-tax free allowance will be paid in addition to the wage. Further, an employee who has already been granted the 30%-ruling can switch to a new employer and benefit from the 30%-ruling again if a new application is submitted. In that case, the tax authorities will apply the specific expertise test again. Please note that a period of time in between jobs, may not exceed three months. Furthermore, the 30%-ruling for the expat cannot be applied to the partner s employment income. If the expat s partner the requirements, the partner should submit an individual request to apply for the 30%-ruling. Benefits of the 30%-ruling Notwithstanding the tax benefit, the 30%-ruling provides other benefits for the expat. Below we describe a few advantages. Partial non-resident status An expat who has been granted the 30%-ruling can opt out and be treated as a partial non-resident taxpayer. As a result, the expat is considered to be a non-resident taxpayer for Dutch income tax purposes for the duration of the facility.

5 As a result of opting out for the partial nonresident status, the expat will only be taxed for his/ her Dutch-sourced income, which normally means that the expat does not have to report income from substantial interest (box II) and income from savings and investments (box III). Therefore, opting for the partial non-resident status is advantageous when an expat is wealthy (e.g. more than 21,139 in assets). The status eliminates the tax burden on interest, dividend and rental income completely. The choice to opt out should be made ultimately in the tax return and can be revised each year. If the expat has a fiscal partner, the partner can benefit from the partial non-resident status of the expat for Box II and Box III income. International school fees The employer may also provide a tax-free allowance for extraterritorial costs for fees of an international school or for an international department of an ordinary school. A school or department qualifies as an international school if: The education program at the relevant school or school department is based on a foreign system The school or department is in principle open to children of expats Driver s license An expat could use his/her own driver s license for a certain period of time in The Netherlands. After this period of time the expat may need to exchange its current license for a Dutch one. Driver s licenses from EU-countries, Iceland, Lichtenstein, Norway and Switzerland are valid in The Netherlands up to 10 years after issuing. For all other countries licenses are valid up to six months from registration date in The Netherlands. An expat who has been granted the 30%-ruling can exchange the driver s licence for a Dutch one if certain conditions are met. One condition is that a foreign driver s license should be valid at any time when exchanging it. Please note that foreign driver s licenses from some countries cannot be exchanged in The Netherlands and the regular exam is required in order to obtain a Dutch driver s license. Disadvantage of the 30%-ruling Finally, a disadvantage of the 30%-ruling is that the pension base and employee social security (unemployment and disability benefit) is reduced. This means that the contributions to the pension and social security benefits are levied on a lower base and will result in lower future benefits. This can lead to pension and disability gaps. Social security In case of international employees, social security coverage may switch to another country. In principle, an expat will become subject to the social security system of the state where the expat is assigned to. However, if certain requirements are met, it is possible to remain (exclusively) covered by the social security scheme of the home country. If a social security treaty has been concluded between the home state and The Netherlands, it is possible to apply successfully for a certificate (A1) if the expat meets the requirements. The certificate will then state that the expat remains covered by the social security scheme of the home country. In that case, no social security premiums are due in the work state.

6 Finally This brochure is a summary of the Dutch tax consequences for an expat relocating to The Netherlands. It is intended as a general guide and should not be acted upon without further advice. If you have any questions or comments related to this brochure, or any other tax or legally related questions, please contact: Auren, The Netherlands Eline Nouwen LLM - Tax advisor elinenouwen@auren.nl Tip How to apply for the BSN? WHO: Everyone who lives and/or works in The Netherlands WHEN: Within five days after arrival Auren, The Netherlands Rocio Herrero LLM - Legal advisor rocioherrero@auren.nl WHERE: Municipality ( gemeente ). Please note that if you are only working in The Netherlands you can only register yourself in 18 offices of the municipality and you only need a valid passport or identity card AUREN AMSTERDAM Herengracht 466, 1017 CA Amsterdam amsterdam@auren.nl AUREN AMERSFOORT Amsterdamseweg 3, 3812 RN Amersfoort amersfoort@auren.nl