Tax residency: Where are you a resident for tax purposes?
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For the application of tax laws and treaties, it is important to know whether you are regarded as a tax resident of the Netherlands. Your tax residency determines whether you are taxed in the Netherlands based on your worldwide income or not and whether you have access to the Dutch Tax Treaties for the avoidance of double taxation.
The importance of a residency check
The state of residency is essential for many tax aspects. It determines amongst others:
- Your tax position
- Which type of form you have to file for your Dutch income tax return
- Your position with regards to tax benefits, for example, tax credits
- 30%-facility: one of the conditions to apply for the 30%-facility is, currently, that you have to have lived at least 150 kilometres away from the Dutch border prior to your employment in the Netherlands
- Your social security position
- Your position with regards to the right to certain allowances, for example, the healthcare allowance
Relevant tax residency factors
Despite what some may think, the determination of your tax residency is not a mere calculation based on your presence in the Netherlands. In accordance with Dutch legislation, your tax residency is based on all relevant facts and circumstances. From these facts and circumstances, the Dutch tax authorities will determine whether you have sufficient relevant ties with the Netherlands to be regarded as a resident.
A number of circumstances may be relevant when assessing whether or not you are a tax resident of the Netherlands. Some important circumstances are, but not limited to:
- In which country do you have a permanent home available?
- Where are you physically present for the most of your time?
- Where does your family live?
- Do you have economic ties to the Netherlands (e.g. income from or investments in the Netherlands)?
- What is your nationality?
Whether or not you registered as a resident with a Dutch municipality will be taken into account when weighing all the facts and circumstances, but is not a decisive circumstance.
The tax authorities do, however, get a notification once you register with the municipality. So, if you register at an address in the Netherlands, chances are, the tax authorities will assume you are a tax resident of the Netherlands from the moment of registration and will tax you accordingly.
Tax liability in the Netherlands
If - based on all relevant facts and circumstances – it is determined that you are a resident of the Netherlands, you will be regarded as a resident taxpayer for Dutch tax purposes.
As a tax resident of the Netherlands, you must declare your worldwide income on your Dutch tax return, when you have a filing obligation. Non-resident taxpayers are only taxable on specific Dutch source income (for example: real estate in the Netherlands).
It could be that you qualify as a tax resident of two States. This occurs when different States apply different criteria to establish residency. For example, someone physically works half a year in the Netherlands and the other half in Spain, whilst the family remains in the permanent home in the Netherlands.
In this case, the person in question would most likely qualify as a resident of the Netherlands based on Dutch legislation. However, they could simultaneously qualify as a tax resident of Spain under Spanish domestic tax laws.
To make sure that such a situation does not lead to double taxation, the Tax Treaty between the Netherlands and Spain should determine ultimately which state this person is a tax resident of. In these cases, the so-called "tie-breaker rule" in the Tax Treaty determines the residency position for tax purposes.
The tie-breaker rule
In the OECD Model Tax Treaty – the basis for most Tax Treaties - it is stipulated that an individual resides in the State in which he has the availability of a permanent home. If the individual has a permanent home available in neither State, he is considered a resident of the State in which he normally resides.
If the individual normally resides in both States and he has availability of a permanent home in both States, he is considered a resident of the State with which he has the strongest personal and economic ties. When the State with which he has his strongest personal and economic ties cannot be determined, he is resident in the State of which he is a national.
Not all Tax Treaties include a "tie-breaker rule". Some countries (directly) enter into a mutual agreement procedure to determine the individual’s place of residence. Please note that, by mutual agreement, the same circumstances as described above are significant in determining the individual's place of residence.
The 30% ruling
Under the 30% ruling, you can choose to be treated as a so-called partial non-resident taxpayer, even though you actually qualify as a tax resident of the Netherlands. As a partial non-resident taxpayer, you will be considered a non-resident taxpayer for certain types of income during the term of the 30% decree.
What do you qualify as? Go to the BDO website and do the quick residency check!
For more information about taxes in the Netherlands and how BDO and its services can help you, call +31 20 36 34 251 or fill in the contact form below.