You are going to be required to file US expat taxes regardless of the country in which you live, but how will your taxes be affected if you’ve chosen to live in the Netherlands? Understanding how your taxes would change with a move to the Netherlands is important, so we’ve broken the information down for you below.
US Expat Taxes in the Netherlands
If you are a citizen or permanent resident of the United States, then you are obligated to file US taxes with the IRS each year no matter the country in which you live. In addition to the regular income tax return, you may also be required to file an informational return reporting your interest in foreign bank accounts (FBAR) with form FinCEN 114.
The US taxes the international income of its citizens and permanent residents who reside overseas, but it also offers special provisions to help avoid double taxation including:
- The Foreign Earned Income Exclusion, which allows you to decrease your 2017 taxable income by the first $102,100 earned as a result of your labors while a resident of a foreign country (and $104,100 on your 2018 taxable income),
- A Foreign Tax Credit that could lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
- A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes. Please note that, even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.
Who is a Netherlands Resident?
In the Netherlands, your permanent residence determines your residency status. That is, if your permanent residence is in the Netherlands, you will be a tax resident. And how do they determine permanent residence? By looking at your own personal facts and circumstances! Factors that are considered include your family residence, your intentions of staying or leaving when you arrive, the location of your permanent home, whether or not you are registered within a municipality of the Netherlands, and the social or economic ties you have in the Netherlands.
Dutch Income Tax Rates
The Netherlands operates on a “box system” that separates different types of income into categories or “boxes” which are then taxed at different rates.
- Box 1 includes wages, pension payouts and social benefits, income from other activities, non-cash wages (a company car, for example), owner-occupied property, and periodic benefits and bonuses. Box 1 is taxed at a progressive rate that peaks at 51.95%.
For the 2018 tax year, the national income rates for Box 1 from the Dutch Finance Ministry are as follows:
|Earnings in Euros (EUR)||Rate Applicable to Income Level (%)|
|20,143 – 33,994||40.85|
|33,995 – 68,507||40.85|
|68,508 and over||51.95|
- Box 2 includes income that is generated from shares and profit-sharing certificates in which the taxpayer has substantial interest (more than 5%). This income is taxed at 25%.
- Box 3 includes income from savings and investments, including investment portfolios and real estate. While there is no capital gains tax in the Netherlands, this is the category in which capital gains would be taxed. Any income is taxed at 30%.
There are no regional or state taxes in the Netherlands.
The Netherlands has a policy in place for foreign workers who are employed by a Dutch employer for a period of up to 8 years. These employees are eligible for 30% of their income to be considered tax free. This is in place to cover the extra costs associated with living in the Netherlands for foreign nationals who have knowledge or an ability that is not readily available in the Netherlands.
US-Netherlands Tax Treaty
The US-Netherlands tax treaty is useful for defining the terms of taxation for US citizens who live in the Netherlands and citizens of the Netherlands who live in the US. The country that receives the tax payment is usually determined by the taxpayer’s resident status for each country. The treaty is in place to help relieve double taxation for dual citizens; it is also useful for explaining any tax matters that may be unclear.
Dutch Tax Due Date
The tax year in the Netherlands is from January 1st to December 31st. Tax returns need to be filed with the Dutch Finance Ministry by April 1st of the following year. Generally, you will be required to file a Dutch income tax return if you have been considered liable for Dutch income taxes. Payment will then be due two months after the date of the final assessment.
Note that this date can be extended up to one year after the due date if you are registered with a tax agent for return preparations.
Social Security in the Netherlands
The Netherlands requires that all Netherlands residents pay into the nation’s social security insurance.
The US-Netherlands Totalization Agreement provides some insight as to which country social security should be paid. In general, if you are sent to work in the Netherlands by an American firm for fewer than five years, you pay US Social Security. If you were hired in the Netherlands, recruited by a Dutch company, or will be working in the Netherlands for longer than five years, you must pay into Dutch social insurance.
Is Foreign Income Taxed Within the Netherlands?
If you are a tax resident of the Netherlands, you are going to be subject to Dutch tax on your worldwide income. The US-Netherlands tax treaty does, however, exempt certain types of worldwide income from Dutch taxation.
Other Taxes in the Netherlands
In addition to income tax on salaries paid, other forms of income are taxed in the Netherlands.
Non-cash compensation is considered taxable, including housing allowances, any services that were provided, or company cars.
In the Netherlands, any assets transferred at death are taxable if the deceased was a resident of the Netherlands at the time of passing. These assets are taxed at a progressive rate that depends on the relationship between the deceased and the heir(s).
Note that the Netherlands also has a 21% VAT (value-added tax). This rate is reduced to 6% for certain items (food, books, etc.). Certain goods and services (e.g., internationally traded services) are not taxed at all.
Saving on US Expat Taxes
With the various forms of taxation that are applied to foreign nationals working and residing in the Netherlands, it is important that you apply all of the exclusions, deductions, and credits to your US expat taxes. The Netherlands has rather high tax rates, and understanding when and how you will be taxed is important for staying compliant with the Dutch authorities and minimizing your tax bill both at home and overseas.
Have Questions About Your US Expatriate Tax Return?
If you have specific questions about how to file your US taxes as an American living in the Netherlands or would like to learn about how we can help you file your US expatriate tax return, please contact us.
Originally published in 2012; updated February 28, 2018.