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Tax in the Netherlands on real estate owned by non residents

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Personal income tax in the Netherlands on Dutch real estate owned by non residents 

When owning real estate located in the Netherlands, and the owner is a non resident of the Netherlands, Dutch personal income tax applies on this real estate.

This is because the Dutch tax law for non-residents specifically mentions that Dutch real estate is subject to Dutch tax liability. This Dutch tax liability is allowed in the tax treaties as entered into by the Netherlands.

To determine the applicable tax burden, a distinction is to be made between active and passive ownership of Dutch real estate. In case of active ownership the net rent and capital gain is taxed at the progressive tax rates. Passive income is subject to equity tax.

We can advise on your situation, prepare your Dutch tax return and act as your contact person with the tax office, so any letters from the Dutch tax office directly reaches our office and we can act accordingly. If required we can also assist in order to obtain the mandatory BSN (Dutch social security number).

 

Study expenses remain deductible in 2020, change as of 2021

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Study expenses remain deductible in 2020, change now planned as of 2021 – For a number of years the government is aiming to convert the system of deducting study expenses to an allowance system.

This – apparently – is a complex transition, hence the last tax year study expenses can be deducted in the personal income tax return is being moved one year further. Meaning qualifying study expenses made in the year 2020 can still be deducted.

The plans were that 2019 was the last year, now 2020 is the last year tax deduction of study expenses will be possible. Here we have published on study expenses before as well as on the related conditions.

New VAT number in 2020 for sole proprietors / ZZP

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Approximately 1.3 million sole proprietors / ZZP in the Netherlands will receive a new VAT identification number from the Tax Authorities as of January 1st 2020. This new VAT number no longer has a link with the BSN (Dutch personal social security number). The VAT number used to consist out of the BSN and the VAT code: B.01.

In recent years, resistance to the use of the BSN in the VAT number of
sole proprietors / ZZP has arisen. This is mainly due to reasons of privacy protection and identity fraud.

The new VAT number of the sole proprietor / ZZP is intended to be mentioned on, for example, invoices and website. It is also used for intra-community transactions (trade within the EU) and other transactions based on EU regulations.

The old VAT number, based on the BSN, will for now remain in use for communication with the tax authorities. In the longer term, the Tax and Customs Authorities strive for a single VAT number to be used for all purposes.

Sole proprietors / ZZP can already seize mentioning the VAT number on their website or webshop.

Check out our one stop shop services for businesses.

Insight determining tax residency by the Dutch tax office

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Recently the Dutch tax authorities have shared documents which give some detailed information on how they determine whether a person qualifies as a Dutch tax resident. The first important insight is that the tax office only focusses on the facts within the Netherlands.

The importance of the determination whether a person can be seen as a Dutch tax resident is that such Dutch tax resident is taxable for his/her worldwide earned income and held equity. Furthermore Dutch tax residency is crucial for gift and inheritance tax.

In some cases there is no doubt about the tax residency of a taxpayer. But there are also situations where more than one State claims to be the country of residence.

If two States say that a private individual is their tax resident, usually the tax treaty between these States determines of which state that person is a resident. A tax treaty goes beyond any (Dutch) tax residency fiction. For the treaty, the factual circumstances are decisive for determining the tax residency.

Because factual circumstances determine where a natural person is located, a tax residency survey of the Tax authorities must be of a very factual nature. It is also important to note that the inspector has the burden of proof that a person is a tax resident of the Netherlands.

The extend of such tax residency survey can be far reaching. Recently the Museum Card foundation, after a long process, was ordered in a Court case to share information on a Card holder with the tax office to this effect.

Only in case of a change in the living situation, the taxpayer is the person who bears the burden of proof of this change.

The Tax office will first check whether a private individual lives in the Netherlands on the basis of provisions in National laws and regulations. If a person is not a Dutch tax resident based upon Dutch laws, there is no need to rely on a tax treaty or other double taxation scheme.

The documents made public show that the Tax Authorities,
during a tax residency survey, check whether a person has a durable personal relationship with the Netherlands. According to the documents, it is not necessary that the center of social life of the person is in the Netherlands.

Facts that indicate a durable relationship with a state include:
• the person actually has a permanent home;
• the whereabouts of the family;
• the residence of the person himself;
• the presence of social ties;
• the presence of professional or business connections;
• the presence of financial interests;
• spending pattern;
• intention in so far as this is apparent from the facts;
• registration in the basic personal data registration (BRP);
• nationality.
The tax authorities do not apply a fixed ranking for these circumstances, but attach great importance to the sustainable housing and the residence of the partner and / or children. But no fact is in itself decisive.

The inspector must also distinguish between formal and material circumstances. The whereabouts of the family and the actual residence of the taxpayer are material circumstances. Examples of formal circumstances are nationality and registration in the municipality register. The inspector must attribute higher value to material circumstances than to formal circumstances.

Certain published documents state that the Tax office do not have to weigh domestic and foreign facts. Foreign facts and circumstances do not play a role. Only what binds the person as investigated within the Netherlands is important for the inspector.

A private individual is obliged to provide the Tax office with information that may be important for determining this individual’s tax liability. This means that the inspector can also ask to provide information that gives insight into the place of residence. Incidentally, the obligation to provide information also applies to foreign taxpayers. However, this obligation to provide information does not go so far that the Tax office may start a fishing expedition for information.

We often advise on tax residency issues. Please be aware that even if you are not a tax resident of the Netherlands, you may still have a Dutch tax liability as a foreign tax payer. For example when you as a foreigner own real estate located in the Netherlands. In that case an annual personal income tax return for foreign tax payers is to be filed.

Dutch equity income tax system; tax rates and how does it work

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The personal income (flat) tax rate for income from equity is 30% and is calculated over a (progressive) deemed interest made on equity (equity tax is also referred to as: “box 3”). In brief equity can be summarized as (worldwide held) assets minus (worldwide held) debts. The point of departure is the value of the equity per beginning (January 1st) of the relevant tax year to be taken up in your personal income tax return. Based upon this value the deemed taxable income (benefit from savings and investments) is calculated.

The benefit from savings and investments is set at 0.13% of the part of the basis for savings and investments that belongs to yield class I, plus 5.60% of the part of that basis that belongs to yield class II. The height of the part of the basis for saving and investing that belongs to yield class I or yield class II, is determined on the basis of the following (2019 rates) table*:

An example of the above equity tax table: A single individual has an equity of € 130,360 per January 1st 2019. After applying the threshold a taxable equity remains of € 100,000. The actual income made on this equity is not relevant, nor is relevant how this equity has been invested, e.g. as bank savings and/or (partially) invested in stock. Both the taxable interest as well as the kind of investment is fictitious. The first € 71,650 is effectively deemed to have made an interest income of 1.935% (67% x 0.13% plus 33% x 5,6%) is € 1,386. The second part € 100,000 -/- € 71,650 = € 28,350 is effectively deemed to have made an interest income of 4.451% (21% x 0.13% plus 79% x 5,6%) is € 1,261. Total deemed interest is 2,647 x 30% tax = total amount on equity tax is € 794.

The idea behind the two different yield classes is that individuals with more equity are deemed to take more risk by investing in stock, yield class I is the low interest bank savings account and yield class II are the higher interest giving stocks. There is however no counter proof possibility within the law for individuals with a high amount on equity put in low interest bank saving accounts. Based upon case law dealing with double interest fictions, there may be a counter proof possibility in case the actual interest is at least 10% lower than the deemed interest. Court procedures are expected regarding the above explained equity deemed interest income system. Be sure to object on time.

For foreign tax residents the scope of Dutch taxable equity is limited to 1.
(rights related to) real estate held in The Netherlands, and 2. a (passive) profit share held in a Dutch company. Especially (rights related to) real estate held in The Netherlands will often be allocated for taxation to The Netherlands under most tax treaties.

It is therefore crucial (to avoid fines and interest) to do a timely annual personal income tax return filing. To this purpose TaxAble – as part of our tax return service – can serve as your representative at the Dutch tax office. Also our office can be held as your correspondence addres with the tax office, so we can be on top of any correspondence the tax office may send, such as assessments on which strict objection deadlines apply.

As an alternative to being taxed on deemed income from your equity, you could consider to incorporate your own company and be taxed on the actual interest you make on your equity.

Deadline personal income tax return 2018 & be aware of interest

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Now that the year 2018 has ended, it’s time to prepare for the Dutch personal income tax return (“aangifte inkomstenbelasting”) 2018! The Dutch tax year is similar to the calender year.

The Dutch tax office (“Belastingdienst”) has set the filing deadline of the personal income tax return 2018 on May 1st 2019. To this purpose you may receive a so called aangiftebrief 2018 from the Dutch tax office. Our tax advisors can assist with the full process to file your personal income tax return 2018.

In case you have to pay additional personal income tax on your personal income tax return 2018 be aware of the accruing interest (“belastingrente”) on the amount on tax due following the 2018 personal income tax return. In case you file your personal income tax return 2018 after May 1st 2019, the tax office will start calculating interest.

The tax authorities have three months to impose a personal income tax assessment 2018 after having taken receipt of a personal income tax return 2018. During this 3 months period they retain the right, if filed after May 1st 2019, to charge interest on the tax amount due following the 2018 personal income tax return.

Since the interest rate is fixed at 4% on annual basis, this interest rate is well above any interest percentage you may expect to receive on a Dutch bank current account / savings account.

Personal income tax may be due e.g. in case of savings held above the applicable thresholds or other taxable income which was not yet taxed, e.g. by means of wage tax and/or a preliminary tax assessment.

Filing your personal income tax return 2018 can be especially interesting in case of an expected tax refund, e.g. in the year of migration (immigration or emigration).

The Dutch personal income tax rates for tax year 2018 (in Dutch) can be found here. The Dutch personal income tax rates for tax year 2019 (in English) can be found here

We can assist with the full process to file your personal income tax return. If needed we can arrange for a lengthy filing extension of your personal income tax return 2018, however be aware that the possible interest calculation will not be extended by the tax authorities.