Netherlands: tax update for internationally mobile employees

Posted on 7th January, 2015

Estimated reading time 5 minutes

In our previous newsletter, we looked at the laws surrounding the tax deductibility of mortgage interest paid on a Dutch property.  In recent months, a number of new cases have been referred to the courts concerning the possible tax relief for mortgage interest payments.  In brief:

  • On 28 April 2015, the Dutch High Court ruled that a UK national, who was tax resident in the UK but worked for the majority of year in the Netherlands where he was a non tax resident, could deduct from his Dutch taxable income the mortgage interest he paid on his house in the Netherlands, since the house in the Netherlands could be regarded as his principal place of residence.  However, as the house was joint owned with his wife (who lived in the UK), only 50% of the mortgage interest was deemed tax deductible.
  • On 18 June 2015, the European Court of Justice (ECJ) ruled that non-resident taxpayers are not allowed to take a deduction for mortgage interest paid in their home country when calculating their Dutch income taxes unless more than 90% of their total annual income is earned in the Netherlands, when they are working in the Netherlands for only part of the year.
  • The Dutch Supreme Court has asked the ECJ for its opinion on whether a Dutch national, who is living in Spain but who earns some of his income in The Netherlands (60%) and some in Switzerland (40%), can take a tax deduction in the Netherlands for the mortgage interest payments he has made on his home in Spain.

These cases show the complexity surrounding the laws on the tax relief of mortgage interest payments.  Whilst the tax relief on the payments is claimed through individual tax returns in the Netherlands, companies who employ international staff – either foreign nationals on assignment to the Netherlands or Dutch nationals working in other countries – may wish to review the guidance they provide to such employees.

30% ruling

In recent issues of the CELIA newsletter, we have looked at the legislation surrounding the 30% ruling, which allows Dutch employers to pay foreign employees 30% of their income free of tax if they meet specific skills requirements.  On 19 June 2015, the Dutch Supreme Court added further restrictions to the 30% ruling and decided that the reference date for determining whether an employee meets the specific skills requirements for the 30% ruling is the date on which their terms of employment were agreed.  If in future years the employee meets the skills requirements (eg. through an increase in salary), they will not become eligible for the 30% ruling.

The Supreme Court’s decision may offer opportunities, however, for those employees who have to pass the scarce skills specific test after five years.

Taxation on redundancy payments

The Dutch Ministry of Finance has issued new guidance on the taxation of redundancy payments made to employees who have worked in various countries.  For all termination payments made from 15 July 2014, tax will be due in the country or countries in which the employee worked during the twelve months preceding their termination. Should any double taxation arise, countries will have to start a mutual consultation procedure. 

For any termination payments paid before 15 July 2014, the previous rules will apply and tax will be due in each of the countries in which the employee worked for the five years preceding their redundancy. 

The new guidance does not apply to any period of employment in Germany, where a separate agreement with the Netherlands on termination payments applies.

Changes to inheritance law

Changes to the European Inheritance Regulations from 17 August 2015 mean that individuals can choose the inheritance law that applies to their estate at their death.  The new regulations will become law in all European Union member states (excluding the United Kingdom, Ireland and Denmark), and will allow individuals to choose the inheritance laws of their country of nationality, even if they do not live there at the time of their time of death. The choice must be legally recorded through a will.  If no choice is recorded, the estate will be inherited in accordance with the inheritance laws of the country of residence at the time of death.

Further information

For further information or to discuss any of the issues raised, please email Rina Driece or speak to her on +31 10 224 6 424

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