Foreign Income Taxation
Taxation of Dutch & Foreign Income
As an expat in the Netherlands you might have income from abroad in addition to your income from employment of or self- employed income in the Netherlands. Of course the tax man wants to have their share of this income.
The Dutch tax system has two types of tax residency: Resident taxpayer and the non-resident taxpayer. The tax residency determines how your income will be taxed in the Netherlands. A resident taxpayer is taxed on their world-wide income, savings and investments. A non-resident taxpayer is taxed only on the Dutch income, saving and investments.
Dutch income is divided into three taxable sources of income, called Boxes. Box 1 consists of income from (self-)employment & main residence, Box 2 consists of income from a substantial interest (more than 5% of the shares/ profit rights of an LLC), and Box 3 consists of income from saving & investments.
A resident taxpayer is taxed on world-wide income in all three boxes. If a resident taxpayer has an income source in a country which has a tax treaty with the Netherlands, the right to taxation may be allocated to the other country, and an avoidance of double taxation may be appllicable.
Many expats are unaware they have to declare the savings and investments (Box 3) which they hold abroad in their Dutch income tax return.
As a non-resident tax payer you are taxed on Dutch sourced income in all three boxes. Dutch sourced income for the boxes is as follows:
- Box 1 Income from Dutch employment or Dutch self-employment income;
- Box 2 Income from a Dutch substantial interest;
- Box 3 Income from Dutch savings and investments. In practice this usually means you only need to declare Dutch real-estate
If you are granted the 30% -ruling you have special tax status. You have the option of completing your income tax return as a partial non-resident tax payer. With partial non-resident tax status you declare your income in Box 1 as a resident taxpayer, and for Box 2 and Box 3 as a non-resident taxpayer. The benefit of this is that you only have to declare Dutch real estate in Box 3. You do not have to declare any savings and/or investments you hold in other countries in your income tax return.
If you earn income from abroad, please contact us. We can advise you on how this income will be taxed and if an avoidance of double taxation is applicable.