Is joining a tax favourable Dutch pension scheme the best option for expatriate employees?

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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.

Resources

• ‘Netherlands – pension accrual and the 30% ruling’: Bas Dieleman, Loyens & Loeff NV
• Danner judgement – C-136/00

Further information

For further information or to discuss any of the issues raised, please contact Bas Dielemann or Rina Driece, Loyens & Loeff Rotterdam, +31 10 2246424

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