US Expat Taxes Explained: Filing Taxes as an American Living in the Netherlands

You are going to be required to file US expat taxes no matter which country you live in, but how will they be affected if you’ve chosen to live in the Netherlands?   It is important to understand how your US expat taxes are going to change with your move to the Netherlands and to understand how you will be taxed by The Netherlands while residing there.

US Expat Taxes in the Netherlands

If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

  • The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
  • The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes.  Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.  For more information, see US Expat Taxes Explained.

Who is a Netherlands Resident?

In the Netherlands, your residency status depends on your family residence, your intentions (of staying or leaving) when you arrive, the location of your permanent home, whether or not you are registered within a municipality of the Netherlands, and the social or economic ties you have in the Netherlands.

Dutch Income Tax Rates

The Netherlands operates on a “Box System” that separates different types of income into categories (“boxes”) which are then taxed at different rates.

  • Box 1 – Box 1 includes wages, pension payouts and social benefits, income from other activities, non-cash wages (a company car, for example), owner-occupied property, and periodic benefits and bonuses. Box 1 is taxed at a progressive rate that peaks at 52%.

The national income rates for Box 1 from the Dutch Finance Ministry are as follows:

Earnings in Euros (EUR) Rate Applicable to Income Level (%)
0-18,218 2.3
18,218 – 32,738 10.8
32,738 – 54,367 42
Over 54,367 52

 

  • Box 2 – Box 2 includes income that is generated from shares and profit-sharing certificates in which the taxpayer has substantial interest (more than 5%).  This income is taxed at 25%.
  • Box 3 – Box 3 includes income from savings and investments, including investment portfolios and real estate. While there is no “Capital Gains Tax” in the Netherlands, this is the category in which capital gains would be taxed. Any income is taxed at 30%.

There are no regional or state taxes in the Netherlands.

30% Ruling

The Netherlands has a policy in place for foreign workers who are with a Dutch employer for a period of up to 120 months.  These employees are eligible for 30% of their income to be considered tax free.  This is in place to cover the extra costs associated with living in the Netherlands for foreign nationals who have a knowledge or ability that is not readily available in the Netherlands.

US – The Netherlands Tax Treaty

The US – Dutch tax treaty is useful for defining the terms of taxation for US citizens who live in the Netherlands (and citizens of the Netherlands who live in the US).  The country that receives the tax payment is usually determined by the taxpayer’s resident status for each country.  The treaty is in place to help relieve double taxation for dual citizens. It is also useful for explaining any tax matters that may be unclear.

Dutch Tax Due Date

The tax year in the Netherlands is from January 1st to December 31st.  Tax returns need to be filed with the Dutch Finance Ministry by April 1st of the following year.  Generally speaking, you will be required to file a Dutch income tax return if you have been considered liable for Dutch income taxes.  Payment will then be due two months after the date of the final assessment.

Note that this date can be extended up to one year after the due date if you are registered with a tax agent for return preparations.

Social Security in the Netherlands

The Netherlands requires that all Netherlands residents pay into the nation’s social security insurance.

The US – Netherlands Totalization Agreement provides some insight as to which country social security should be paid to. In general, if you are sent to work in the Netherlands by an American firm for less than five years, you pay US Social Security.  If you were hired in the Netherlands, recruited by a Dutch company, or will be working in the Netherlands for longer than five years, you must pay into Dutch social insurance.

Is Foreign Income Taxed Within the Netherlands?

If you are a tax resident of the Netherlands, you are going to be subject to Dutch tax on your worldwide income.  The US – Netherlands tax treaty does exempt certain types of worldwide income from Dutch taxation, however.

Other Taxes in the Netherlands

In addition to income tax on salaries paid, there are other forms of income that are taxed in the Netherlands.

Non-cash compensation is considered taxable, including housing allowances, any services that were provided, or company cars.

In the Netherlands, transfers of any asset at death are seen as taxable if the deceased was a resident of the Netherlands at the time of passing.  These assets are taxed at a progressive rate that depends on the relationship between the deceased and the heir(s).

Note that there is also a 19% VAT (value-added tax).  This rate is reduced to 6% for certain items (food, books, etc.). There are also certain goods and services (i.e. internationally traded services) that are not taxed at all.

Saving on US Expat Taxes

With the various forms of taxation that are applied to foreign nationals working and residing in the Netherlands, it is important that you apply all of the exclusions, deductions, and credits to your US expat taxes.  The Netherlands has rather high tax rates, and understanding when and how you will be taxed is important for staying compliant with the Dutch authorities and minimizing your tax bill both at home and overseas.  If you have any questions about your US expat taxes, please contact our expat tax experts.

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