Wage tax and double taxation

In early 2019, there was a stir due to the elimination of the tax portion of the payroll tax credit for non-resident taxpayers. The Association for the Advocacy of Dutch Pensioners Abroad ( VBNGB ) focuses on laws and regulations relevant to emigrants with a Dutch pension. Below, you will find background information compiled by VBNGB on the aforementioned issue. This information is also available on the VBNGB website.

Tax treaties

Taxation is not an international matter. It's a purely national issue. However, the Netherlands has concluded tax treaties with many countries. This treaty is an agreement between the two countries; therefore, they are always bilateral treaties. A tax treaty stipulates which country may levy income tax for each type of income: the Netherlands or the country of residence. It's often claimed that you can choose which country you pay tax in. This isn't true; the tax treaty determines which country has the right to levy tax on which types of income.

Taxation rights often differ for pensions and state pensions. It also depends on whether it's a government pension or a company pension. Different agreements generally apply to these. The text of the tax treaty with your country of residence can be found online. Anyone receiving income from multiple countries must comply with the tax treaties between their country of residence and all those countries. Finally, in some cases, your taxation rights depend on whether you are a national of the country of residence. Knowledge of the tax treaty with your country of residence is crucial!

No double taxation

There are two options for "not levying": the "credit method" and the "exemption method." With the credit method, tax is calculated and then the amount of tax paid in the other country is deducted. The tax is, as it were, distributed. With the exemption method, which is most commonly used, no tax is levied, but the untaxed amount is included in determining the tax rate on the income that is taxed.

If a portion of your income is not taxable in the Netherlands, you can apply for an exemption from withholding payroll tax . Many people haven't done this with their AOW (state pension) and were never aware of it. This could be because the payroll tax credit was higher than the calculated income tax. As a result, the payroll tax was zero. Now that the payroll tax credit is no longer applied at the beginning of this year, payroll tax is suddenly being withheld. Taxpayers who are entitled to the payroll tax credit are advised to submit this application now. The Tax and Customs Administration will reimburse the wrongly withheld payroll tax during the current tax year. Otherwise, you will have to wait until the tax assessment.

Qualifying Foreign Tax Liability Scheme

Unfortunately, not everyone is eligible for the payroll tax credit. The reason for this lies in the Qualifying Foreign Tax Liability Scheme (KBB), which was introduced in 2015. Before 2015, non-resident taxpayers (anyone abroad who is liable for tax in the Netherlands) had the option of being treated as a resident taxpayer. This favorable scheme was abolished because it conflicted with EU law. The new method has rigorously abolished this. There is no longer a right to choose. Each taxpayer's personal situation determines whether they are eligible for tax benefits. Tax benefits include tax credits and tax deductions (mortgage interest, medical expenses, alimony, etc.).

The first distinction is already made with the country of residence. Emigrants living outside the "country group" are not entitled to tax benefits in the Netherlands. This group consists of the EU, the EEA, Switzerland, and the BES islands. Within these countries, 90% of the worldwide income must be taxed in the Netherlands to qualify for tax benefits. For example, if your AOW (state pension) is taxed in your country of residence and your supplementary pension in the Netherlands, that supplementary pension must be 9 times higher than the AOW benefit. This is rare.

These strict rules have meant that thousands of foreign taxpayers have suddenly lost all tax benefits in the Netherlands.

An exception may apply if you don't meet the 90% requirement and are liable for tax in your country of residence for part of your income, but don't actually pay tax there. In that case, you can still be classified as a KBB. The Dutch Tax and Customs Administration won't simply allow this, but the VBNGB (Association of Dutch Tax and Customs Administration) is currently in litigation on this matter.

Wage tax credit

Because many emigrants lost their entitlement to tax benefits, including the right to the tax credit, in 2015, it was often incorrectly calculated in their payroll tax return. In all these cases, the tax credit had to be repaid later through their tax assessment. For this reason, the Ministry of Finance has decided to no longer include the tax credit in their payroll tax return. Those who were previously classified as KBB (Dutch Tax and Customs Administration) in a previous year can still receive their monthly payroll tax credit payment by submitting a provisional assessment application.

Conclusion

The real problem isn't the payroll tax credit itself, but the KBB Regulation. The VBNGB (Association of Dutch Tax and Customs Administrations) has been raising awareness of the injustices in this scheme for some time. A return to the old optional scheme is legally impossible. However, adjusting the 90% standard is certainly feasible. This would mean that not all non-resident taxpayers would reclaim their tax benefits, but a significant number would. Furthermore, there is considerable room for improvement in the scheme's implementation.