A person is subject to Dutch tax when that person is a Dutch tax resident. A Dutch tax resident is a person whose life is focused on the Netherlands. When you are a Dutch tax resident, your worldwide income and worldwide assets are taxed in the Netherlands.
A non-resident taxpayer is a person who does not live in the Netherlands, but owns property in the country. Property is taxed in the country where the property is situated, hence the non-resident taxpayer status. This also works the other way around. If you are a Dutch tax resident and you have property abroad, this property is not taxed in the Netherlands. You then receive a double taxation credit.
The famous 183-day rule determines whether you are a Dutch tax resident. This means that if you spend more than 183 days in the Netherlands, you are deemed to reside here and therefore pay taxes here. Furthermore, you must have been sent to the Netherlands by a foreign employer and you do not work in a fixed location owned by your employer in the country where you work. The last two criteria often neglected. If these three rules do not apply, tax treaties determine that the country where you work is where one pays taxes.
The Dutch tax return system has a limited number of deductions, as the Dutch Government aims at simplifying the system. Mortgage deduction, study costs, illness costs and charity donations are the main deductions. In 2022 the study cost deduction will end. The illness costs deduction has a threshold of 1% of the combined income. Health care insurance premiums and co-pays are deductible.
United States Income Tax
A person is subject to US tax if that person is a US “person”, which generally means a citizen, resident or green card holder, no matter where the person lives. Whether a US citizen is required to files taxes is dependent on their income: US people who have income of more than $12,600 or self-employment income of more than $400 must file a tax return. Minors who are US persons must file their own tax return if their unearned income (e.g. from investments) is more than $1,100. Thus, most US citizens living abroad have US tax filing obligations, even if they do not owe US tax. This includes dual Dutch-US nationals.
US citizens living in the Netherlands generally pay Dutch income tax as outlined above, and are therefore eligible to either exclude their Netherlands-based earned income from the US tax using the “Foreign Earned Income Exclusion”, and/or to claim “Foreign Tax Credits” for the income tax paid in the Netherlands.
State income tax returns may also need to be filed if a person has state-sourced income, such as rental property or remote working income.
Some taxpayers may be able to get a US tax refund due to child tax credits, or from withholding on their US-sourced income. The only way to get a refund is to file a tax return within three years of the original due date of the return.
Written by Arnold Waal