Completing a tax return in a foreign country can be bewildering. To help out, here is a basic overview of the core workings of the Dutch tax procedure, courtesy of Blue Umbrella tax advisors.
Tax Return Filing Year
The timeframe used to file a Dutch income tax return is defined as a calendar year, running from the 1st January to 31st December of a given year. The income tax return for the year 2016 covers the tax period from the 1st January 2016 until 31st December 2016.
Tax Return Filing Due Date
The due date for the Dutch income tax return is the 1st May (used to be the 1st April) of the year following the tax year. For the tax return filing year 2016, this date is the 1st May 2017. The Dutch Tax Office is fairly relaxed about providing an extension on your tax filing due date; dial the toll free number 0800-0543 to request one. If you file your taxes through a tax adviser, then the agency can obtain an extension (usually for free) for you.
When to File your Income Tax Return
If you are a resident of the Netherlands, or became one in a given tax year, you are expected to pay taxes in the Netherlands for the period you were a resident. The Dutch Tax Office will probably invite you to file your income tax return. If you receive an invitation, you have to comply, even if you had no income for that period. If you do not receive an invitation to file your taxes, you may do so voluntarily if you believe you are eligible for a tax refund.
Tax Return Filing in your First Year of Residence
Tax filing the year you arrived in the Netherlands is different from filing for residents with a complete tax year. When you arrive in the Netherlands for the first time and become a resident, you also become a tax resident from the moment of immigration. In the given year of immigration, you may need to report to two (or more depending on your migration status) different tax authorities: the country you came from, and the Dutch tax authority for the period after immigration into the Netherlands.
Frequently, discrepancies arise between the immigration date reported by the new tax resident and the immigration date set by the Dutch Tax Office. The Dutch Tax Office receives your immigration date from the municipality you registered with when you first arrived. The municipality sets your immigration date as the date of registration, which may differ from your actual immigration date. Your actual immigration date is what the Dutch Tax Office should use, therefore you may inform them (through your tax adviser) about the discrepancy.
Payroll Taxes and Income Tax Return Filing
People employed by a Dutch-based company pay taxes through their monthly salary payments from their employer. This is a form of provisional income tax payment, since the actual income tax reporting and payment happens after the year is concluded. For the average employee, the (provisional) tax payment through their employer may reflect the correct tax payment.
However, any deviation from the average leads to a discrepancy between the amount of (provisional) tax paid through the employer and actual tax amount due. Filing one’s income tax return after the year is completed (on a voluntary basis if needed) will correct this discrepancy. Expect such a deviation if you did not live in the Netherlands for the full calendar year or if you are entitled to tax credits (for items such as a mortgage rebate, study expenses, uncovered medical expenses, uncovered commuting expenses, etc.).
The 30 Percent Facility for Specialists Recruited Outside the Netherlands
The 30 percent facility (or 30 percent ruling) was introduced to attract specialists to the Netherlands. The facility provides cost benefits to the employer and tax benefits to the employee.
The facility allows employers to pay their employee 30 percent of his or her salary (before tax) free of tax. This is why this facility is commonly referred to as the 30 percent ruling. The remaining 70 percent of the salary is taxed normally. In addition, the employee can be exempt from taxation in box 2 and 3 for non-Dutch assets.
Employer and employee are required to apply jointly for the 30 percent ruling. The employee should be recruited from outside the Netherlands, have specific experience or expertise not available (or rarely available) in the Netherlands, and receive a salary beyond a set minimum. The Dutch Tax Office typically requires a minimum gross annual salary of €37,000 (2017 figure) as a measure of unique qualification.
Worldwide Income and Double Tax Relief
Residents of the Netherlands and non-residential tax payers should report their entire worldwide income in their income tax returns. This worldwide income may include revenue which the Dutch Tax Office is not entitled to tax under international regulations set out in bilateral tax treaties. Examples of such revenue are income from employment, profits from business activities, or capital in other countries.
To avoid a situation where you have to pay tax twice in both countries over the same source, the Netherlands grants a credit to compensate for the tax owed outside the Netherlands. This is commonly referred to as double tax relief.
Dutch Income Tax Calculator
To find out how much income tax you owe the Dutch Tax Office for either employment or self-employment, you can use the Blue Umbrella Dutch Income Tax Calculator. This calculator may also be used for 30% Ruling calculations.
Olof Lakmaker works for Blue Umbrella, supporting international residents with their tax and childcare allowance questions. For more information, contact Blue Umbrella at +31(0)204687560 or by e-mail or visit their website.
photo credit: Flickr