Mortgage interest relief for non-residents in proportionality to income

The European Court of Justice recently ruled on a number of questions the Netherlands Supreme Court had put to it concerning mortgage interest relief for non-Dutch residents whose income derived from the Netherlands and who were not earning an income in their country of residence.

Greater scope for tax relief

The European Court’s 1995 ruling in the Schumacker case had already opened the door for non-residents to claim personal tax relief in their country of work on condition that 90% or more of their family income should be earned there. The European Court has now created greater scope for non-residents to claim tax relief by ruling that 90% or more of the family income should be earned outside the country of residence in order for the non-resident in question to qualify for tax relief in his or her country of work, with tax relief being granted on the basis of proportionality to the portion of the income earned within the country of work in question.

Court case

The European Court’s ruling was handed down in a case involving a Spanish-resident Dutchman who was the director-cum-controlling shareholder of two limited-liability companies, one of them based in the Netherlands and the other, in Switzerland, with the Dutch-based company accounting for 60% of the director’s income and the Swiss-based company, for the residual 40%. The director owned a home in Spain, but was not in a position to seek local tax relief for his mortgage interest payments. According to the European Court’s ruling the director should be entitled to 60% mortgage interest relief in the Netherlands, in line with the Dutch-generated portion of his income. The Court moreover stipulated that the level of entitlement to tax relief should not be affected by whether or not the country from which a non-resident was deriving part of his or her income did or did not qualify as an EU Member State.

Dutch Version: Aftrek hypotheekrente niet-ingezetene naar rato van inkomen.