Is joining a tax favourable Dutch pension scheme the best option for expatriate employees?
Most expatriate employees who start working in the Netherlands can join a tax favorable Dutch pension scheme. However, according to a recent article by Bas Dieleman in ‘Pensioen & Praktijk’ (an English language version of which is available below), joining a tax favorable Dutch pension scheme is, in most cases, not tax effective if the 30%-ruling is applicable.
The 30% ruling allows for Dutch employers to pay a tax-free allowance for up to eight years to employees recruited from abroad, provided they satisfy certain criteria. From 1 January 2015, this allowance will be included in pensionable salary, meaning that pension rights will be accrued in relation to the 30% tax-free allowance as well as normal salary. However, as the 30% ruling effectively reduces an employee’s income tax contributions, the benefits of a tax favourable pension scheme may be lost.
In addition, as the tax favourable treatment for approved (‘designated’) foreign pension schemes only applies for a maximum of five years, remaining in their home country pension scheme may also not be the most tax effective option for those under the 30% ruling who remain in the Netherlands for a longer period. Instead, for these employees – in particular those who are EU residents* – joining a non tax facilitated Dutch pension scheme may be the most tax effective way of accruing pension benefits whilst working in the Netherlands.
Cross-border pensions are a complex issue and there may be further issues to take into consideration depending on the home country of your expatriate employees.
* Following the ‘Danner’ ruling, taxation of benefits under non tax facilitated foreign pension schemes is contrary to EU law.
- ‘Netherlands – pension accrual and the 30% ruling’: Bas Dieleman, Loyens & Loeff NV
- Danner judgement – C-136/00
Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information see our legal page.
Circular 230 disclosure
To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
If you would like to copy or otherwise reproduce this article then you may do so provided that: (1) any such copy or reproduction is for your own personal use or if it is made available to any third party it is done so on a free of charge basis; and (2) the article is reproduced in full together with the contact details, disclaimer and any logos as they appear on each article.