Understanding Dutch tax residence issues
Last year we reported a case involving a Dutch national who claimed an exemption from import duty and tax on his personal property, including his car when he returned to the Netherlands after living outside the EU for a number of years.
The European Court of Justice was asked to rule on how to determine a person’s ‘normal residence’ and in April 2016 ruled that:
- An individual cannot have his ‘normal residence’ in both an EU Member State and a third country, and
- When weighing personal and occupational ties, particular importance has to be attached to the length of the person’s stay in the third country.
The Dutch Supreme Court will now have to determine where the Dutch national’s country of residence is for import duty and tax purposes. This will allow the Dutch Supreme Court to confirm whether this person could claim an exemption from import duty, VAT and car registration tax for his car and other personal belongings when returning back to the Netherlands.
If it is determined that on balance his country of residence is the Netherlands then it can be concluded that he did not move from a third country and he cannot benefit from the moving exemptions.
How tax residence works from a Dutch point of view for income tax
In the Netherlands in order to establish if someone is a resident for income tax purposes, all facts and circumstances are taken into consideration which may be different from the criteria for ‘normal residence’ for import duty purposes. The existence of a long-term personal connection with the Netherlands is regarded as an important factor.
Dutch case law shows that the following circumstances, amongst others are relevant in this regard:
- the place where he has his home;
- the places where his family (partner) resides;
- the duration of his stay in the Netherlands,
- other facts such as where he holds bank accounts, social life, etc.
Any individual from abroad who is working in the Netherlands can have a long-term personal connection with both the Netherlands and another country and thus be considered a resident of more than one country. This can result into double taxation; however most tax treaties agreed by the Netherlands provide some kind relief for this.
How does this affect my business?
An individual’s residence for tax purposes is always important, as it can have significant financial consequences both for the individual and their employer. For companies dealing with cross border workers or international assignments, it is prudent to clarify the residence (and tax) position of their assignees in both the home country and the host country as soon as possible to enable proactive tax planning during the assignment.
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