The United States Netherlands Tax Treaty

No matter where you live abroad, you need to pay your income tax if you are a citizen of America. Thus, if you move to the Netherlands, you need to know that the tax regulations still pertain to you and that there are Dutch tax regulations that you also need to follow. Thus, the United States and the Netherlands have joined a treaty to help its residents from double taxation and prevent income tax evasion.

US Expat in The Netherlands Tax Policy

If you have settled recently in the Netherlands, just like a resident taxpayer you will be taxed and still be liable for social security contributions and healthcare insurance contributions. On the other hand, you still need to continue filing and paying for your US tax return annually. Aside from paying for your annual income tax return, other additional tax provisions are applicable to you, and they are as follows:

  • Deduction for moving expenses: You can also claim tax deductions for the expenses that you have paid for your move to the Netherlands. This also includes storage of your furniture and other important expenses to get you settled in the country.
  • Foreign tax credit: Income duties paid to the Netherlands that is likewise subjected to US taxes, you can file for a foreign tax credit so that you can reduce your US tax liability to a significant amount.
  • Foreign Earned Income Exclusion: This provision lets you disregard your foreign salary for up to $102,000. You can also discount employer-provided housing to a specified limit.

The Netherlands and US Tax Agreement

The tax agreement between the Netherlands and the United States follow the OECD Model Tax Agreement thus making it straightforward for the taxpayers to understand. This treaty can help determine if a particular income is tax-exempt or not in the Netherlands. It is important to take note that the provisions of the tax treaty do not lower the taxes due to the United States by expats even though they live overseas. As citizens, they still need to pay US income tax as
specified in the US tax code.

To make matters more complicated, many individual states in the country also collect taxes from their residents’ income. So aside from paying income taxes, they also have to pay for the state taxes. But because of the treaty, many American expats are saved from paying other taxes aside from the income tax return. Under the agreement, the country that is awarded the right to taxation will be allowed to tax the income of the people–residents or expats. For example, the maximum US federal tax rate on income is at 39.6%, but the maximum income tax rate in the Netherlands is 52%. Thus, if you live in the Netherlands and you get a bonus from your US employer, that bonus is subjected to the full Dutch taxation rate.

Understanding tax treaties can be complicated, and it is important that you know the provisions so that you pay your taxes right and not get in trouble with both countries. Let MKS&H help you with tax preparation and filing. Their reliable tax accountant will also help you understand tax treaties from one country to the other so that you can maximize your finances and ensure that you don’t get into trouble with your taxes.