Obligated to pay taxes abroad or domestically?
When you live and work in the Netherlands, normally you would have to pay taxes in the Netherlands. You are, like almost everyone living in the Netherlands, obligated to pay taxes domestically. That makes sense, but however even if you do not live in The Netherlands, you may be obligated to pay taxes here. In this case you are considered a taxpayer from abroad: you live abroad, but pay taxes in the Netherlands. But how do you know if you, when you live and/or work abroad, are obligated to pay taxes in the Netherlands? And what are the differences between paying taxes abroad or domestically? We will explain this in this article.
What is your fiscal residence?
The country where you are obliged to pay taxes is determined by your fiscal residence. This means that the location at which you are registered, not always automatically is also your fiscal residence.
According to the Dutch law, your residence is determined based on circumstances: You are obligated to pay taxes in the Netherlands if the basis of your social and economic activities are in the Netherlands. This means that those circumstances include not only where you live and work but also where, for example, your family lives, your children go to school and where you go to bars and restaurants, the doctor and the gym. This way, you may work and even live (occasionally) in a residence abroad, but if your life is predominantly in the Netherlands then you are obliged to pay taxes here.
When you are residing abroad temporarily, this does not necessarily mean that you are no longer obligated to pay taxes in the Netherlands. The Tax Authorities, for example, take your intentions into account: How long are you planning to live abroad? This way a temporary move abroad is not necessarily considered emigration, so the fiscal residence will remain in the Netherlands.
183- days ruling
A general and important principle to determine where you are obligated to pay taxes is the 183-days ruling. The most important criteria of the 183-days ruling is, as the name gives it away, that you reside abroad less than 183 in a year. Not only the days you are working abroad are counted in this, but also the remaining days you were in the country you are working in. For the government it is most important to determine where the focus of your activities as an employee are. The ruling serves as a tool to determine this. The place you resided for more than six months in a year, is considered your primary residence. When this is the Netherlands, you are usually obligated to pay taxes in the Netherlands.
Several countries maintain different rules about being tax obligations. So, it can happen that you are considered to be a taxpayer in the Netherlands as well as abroad. To prevent you from paying taxes twice, these countries have made so-called bilateral agreements. These bilateral agreements determine in which country you are obligated to pay taxes. It can be that the taxing rights are divided between two countries.
Qualified as obligated to pay taxes abroad
Until 2014 in some instances, you could choose to be considered as obligated to pay taxes domestically. As of January 1, 2015 the regulation surrounding this has been altered and the right to choose has expired. Instead, the ruling for qualified as obligated to pay taxes abroad has come into effect. This ruling determines that if you live abroad, but meet certain requirements you are or remain obligated to pay taxes in the Netherlands. Different from obligated to pay taxes abroad, with this ruling, for the law you are in between abroad and domestic. You then do not have all the benefits of domestic tax obligations, but you do have more rights than as someone obligated to pay taxes abroad.
Are you qualified as obligated to pay taxes abroad or not?
On the website of the Tax Authorities, by choosing the country in which you reside and checking what part of your income comes from The Netherlands, you can determine if you are qualified as obligated to pay taxes abroad or domestically (in Dutch). When this is the case, you can use the benefits of those qualified as someone obligated to pay taxes domestically. This applies to matters such as the right for personal deduction, tax deductions and tax-free capital.
Obligated to pay taxes abroad
These benefits do not apply for those obligated to pay taxes abroad that do not qualify for the ruling of qualified as obligated to pay taxes abroad. They can enter less income components in their tax declaration. Namely, only:
- The income from work and residence in the Netherlands;
- The taxable income from substantial shareholding in a partnership established in the Netherlands;
- The taxable income from savings and investments in the Netherlands.
Lastly, it is advisable, when you work (partially) abroad, to be informed about the 30% ruling. The 30% ruling is a special expense allowance ruling in the payroll taxes. It is a compensation for the Tax Authorities for the additional expenses that an employee makes by working abroad, Read more about the requirements and application here.
If you gain income in two different countries, the Dutch Tax authorities provide information on how and where to pay taxes. Read here what you will need to take into consideration for the purpose of taxes. Or go for more information to the homepage about living and working outside the Netherlands of the Tax Authorities.