Taxation for US nationals in the Netherlands is different in many ways, in comparison to other nationalities, as a US national is considered a US tax resident regardless of where he or she is living.
Tax residents abroad
In international tax treaties the residence status of a foreign national is decided by establishing the country with which they have the closest ties. The center of living can be determined by facts and circumstances such as the place of residence and of the family; the place where employment is exercised; financial interest, social contacts, nationality, will and the intention of the tax resident.
If the above test determines a residency in the Netherlands, then a foreign national will be considered a Dutch tax resident.
US tax residents
However, a US national or green card holder will also and always be considered a tax resident in the US if he/she is living in the Netherlands. So how do US nationals in the Netherlands determine where they are a tax resident?
The tiebreaker rule
The tax treaty between the US and the Netherlands provides for a tiebreaker rule in which a person qualifies as a Dutch or US tax resident based on the closest ties with either country.
In the following explanation we assume that the US national is a Dutch tax resident under the treaty since their closest ties are with the Netherlands. As a consequence, the US national must declare his worldwide income in the Netherlands.
Tax from employment with the 30% ruling
A US national who has the 30%-ruling can have an additional advantage by choosing to be considered as a partial non-resident in the Netherlands.
This means that, if the US national is working outside the Netherlands, then the income derived from non-Dutch work days will be exempt. However, the foreign work days have to be declared in the US tax return.
Furthermore, there is no tax due on dividends and capital gains from foreign-based entities (box 2 on the tax return) or income from savings and investments (box 3).
US pensions in the Netherlands
In the US there are several pension schemes. We can divide US pensions into different categories such as a state pension, 401K, IRA, Roth IRA or social security. These schemes are all taxed differently in the Netherlands. A brief outline of how they are taxed is given below.
› State pension
A state pension is considered as a pension under Dutch tax law and needs to be declared in box 1 on your income tax return. The taxation right on state pensions is allocated to the US, so the Netherlands will give a full exemption. However, the distribution of the state pension is taken into consideration when calculating your Dutch social security contribution.
› 401k pension
A 401k is considered as pension under Dutch law and is taxable in box 1 when it is paid out. The right to tax the payment is allocated to the Netherlands according to the Dutch/US tax treaty.
When paid out, the value of the 401k payment is subject to the taxation of the social security contribution. The value of the 401k is neither taxed as an asset in box 3 nor taxed for Dutch social security.
› IRA pension
An IRA is considered a periodical payment in box 1 when amounts are distributed. The taxation right on the payment is allocated to the Netherlands in accordance with the Dutch/US tax treaty.
The value of the distribution is subject to the taxation of the social security contribution. However, the total value of the scheme is not taxed as an asset in box 3, nor taxed for Dutch social security.
› Roth IRA pension
In the Netherlands a Roth IRA qualifies as an asset, not a pension. This means that the total value of the Roth IRA needs to be declared as an asset in box 3 and will be taxed 1,2 per cent annually.
The declared value of the Roth IRA is not subject to either box 1 or the social security contribution.
› Social security benefit
A social security benefit from the US is considered as income from pension in box 1. The tax treaty between the US and the Netherlands allocates the taxation right to the US. The value of the entitlement is subject to the social security contribution.
› Social security contribution
In the previous paragraphs reference was made several times to the Dutch social security contribution. The Dutch income tax return consists of income tax and social security contributions. The maximum annual contribution amounts to 9.455 euros in 2015.
A US national is insured in the Netherlands if he/she is working or living in the Netherlands. In case the US national is working outside the Netherlands, other rules may apply.
The tax treaty on social security contributions between the US and NL gives more clarity as to in which country a person is insured for social security.
Moreover, it is possible to receive an E101/A1 statement from the SVB in case of a temporary secondment to another country or working in another company. This statement provides for continued cover in the "home" country and an exemption in the work country.
Careful management
All in all, tax returns for Americans in the Netherlands are very complicated and should not be neglected - especially when pensions are involved. Not every American is aware of it.
However, with some care and attention, or good financial assistance, US nationals can find the best taxation arrangement for their situation.