Understanding Double Taxation
If you earn income or own property abroad, it’s important to explore ways to avoid double taxation. Double taxation occurs when multiple countries seek to tax the same income or assets. This can lead to you being taxed twice on the same earnings. Fortunately, the Netherlands offers options to claim deductions that can help prevent this situation.
How It Works
When you pay taxes on income or assets in another country, you may be eligible for a tax exemption in the Netherlands for the same income. However, navigating these rules can be complex, as income may sometimes be taxable in both countries and not taxed at all.
Why Seek Professional Advice?
The regulations surrounding double taxation can vary significantly between countries and individual circumstances. It’s essential to seek specialized advice early on to ensure you understand your options and obligations. By sharing your specific situation with us, we can help you identify the best strategies for minimizing your tax burden.
Examples of Situations to Consider
Here are a few scenarios where avoiding double taxation may apply:
- Earning Salary in Multiple Countries: If you receive salary from different countries, splitting your salary may help reduce your overall tax liability.
- Working for International Organizations: Different rules often apply to employees of international organizations, which can lead to tax exemptions in certain cases.
- Premium Exemptions: In some situations, you may qualify for exemptions from certain tax levies.
Decree on Avoidance of Double Taxation (Bvdb 2001)
The Decree on Avoidance of Double Taxation 2001 (Bvdb 2001) is a unilateral Dutch regulation designed to prevent residents and companies in the Netherlands from paying tax twice when no tax treaty applies.
The decree applies to income tax, wage tax, corporate income tax, inheritance and gift tax, gambling tax, and bank tax. It fills the gap where no tax treaty exists, for example with developing countries or non-treaty jurisdictions.
Who is eligible?
- Dutch tax residents with income or assets abroad (worldwide income).
- Double tax liability exists, even if tax is only due in both countries.
- No other arrangement applies, such as a tax treaty.
- The foreign tax system is comparable to the Dutch system.
How does the regulation work?
The Netherlands applies two methods to avoid double taxation:
- Tax exemption: the foreign portion of the income is exempt in the Netherlands, so Dutch tax applies only to the remaining income.
- Tax credit: foreign tax paid is offset against Dutch tax on the same income. For companies, the credit is capped at the Dutch tax due.
Recent update (December 27, 2024)
- Withholding tax credit can never exceed Dutch tax due.
- Adjusted calculation of the “second limit” for non-standard fiscal years.
- Possibility to credit fictitious withholding tax in tax sparing situations (e.g. Brazil and the Philippines).
Why is this important?
- You never pay too much tax.
- Legal certainty even where no tax treaty exists.
- Essential protection for individuals and businesses with cross-border activities.
The Decree on Avoidance of Double Taxation 2001 is a key instrument in Dutch tax law. Correct application is crucial to optimize tax burden and minimize fiscal risks in international situations.
Get in Touch Today!
Contact us to discuss your unique situation, and let’s explore the most advantageous strategies for minimizing your tax liabilities.