Global mobility

Pro-rata deduction for non-resident taxpayer if the 90% requirement is not met

Arthur Gude Arthur Gude

Are you a non-resident taxpayer? The Netherlands will, under certain circumstances, take your personal and family situation into account. However, in the past, non-resident taxpayers could only claim deductions if more than 90% of their income came from the Netherlands. This restriction is not in accordance with EU law. This was demonstrated in the EU Court of Justice judgement regarding Spanish football agents. The State Secretary for Finance comments on the consequences of this judgement in a policy decree.

Situation

The party involved in this case had no taxable income in 2007 in his home country of Spain, while in his countries of work, the Netherlands and Switzerland, he generated 60 percent and 40 percent of his total income, respectively. Besides this, he had negative taxable income from his property in Spain – according to Dutch tax standards. In that situation, the Netherlands is, according to the European Court of Justice, obliged to provide deduction for the negative taxable income according to the proportion of the Dutch income to the total income.

A natural person, not resident in the Netherlands, who receives income from the Netherlands, is a non-resident taxpayer. Non-qualifying non-resident taxpayers, who do not receive (sufficient) income in their home country, can appeal to make use of the new policy to take personal deductions and compensation into account on a pro-rata basis. The decree came into effect on 14 December 2019, with retroactive effect up to and including 9 February 2017, the date of this judgement. While awaiting a change to the Wet IB 2001 (Dutch Income Tax Act 2001), this policy decree details the manner in which the tax authorities will implement this judgement.

Application of the judgement for non-resident taxpayers

Is your world-wide income fully, or almost fully (at least 90% of that income), subject to income tax or wage tax in the Netherlands? Then, as a non-resident taxpayer, you will, in principle, be considered as a qualifying non-resident taxpayer (for deductions).

However, following the judgement, the Netherlands now, in specific situations, also has to take the personal and family situation into account (on a pro-rata basis) for non-resident taxpayers who do not earn their full (or almost full) income in the Netherlands. This relates to the situation where a non-resident taxpayer generates income in two or more countries – including the Netherlands – while he generates (almost) no income in his home country. In that case, the non-resident taxpayer does not meet the requirement of generating his (almost) full income in any of the countries where he works, while in his home country he also has no taxable income to offset against his personal deductions and compensations. In such a situation, the European Court of Justice has determined that each of the countries in which income is generated, is obliged to take personal deductions and compensations of the taxpayer into account, on a pro-rata basis (dependent on the income generated in that country).

The implementation of this judgement in the levying of Dutch tax can be split into two steps. The first step is to determine whether the situation falls within the scope of the judgement, in order to assess whether the Netherlands is obliged to take the personal and family situation of the taxpayer into account on a pro-rata basis. A non-resident taxpayer must meet the following requirements:

  1. The non-resident taxpayer, as a resident of another Member State of the European Union, another State that is a party to the Agreement on the European Economic Area, Switzerland, or the BES islands, is subject to taxation in that other Member State, State or BES island;
  2. The (world-wide) income of the taxpayer, determined according to Dutch standards, is fully, or almost fully, subject to income tax or wage tax in two or more countries in which the person works (including the Netherlands), other than his home country. In other words, the non-resident taxpayer has no, or very low, taxable income in his home country (less than 10%).
  3. The (world-wide) income of the taxpayer, determined according to Dutch criteria, is not fully, or almost fully, subject to income tax or wage tax in another country of work (other than the Netherlands).
  4. The taxpayer provides a declaration of income from the tax authorities of his home country.

If the first step is fulfilled, the second step is to determine the tax over the Dutch income. In determining the tax due in the Netherlands, personal deductions and compensations will be taken into account on a pro-rata basis. The amount of the deduction is determined by the degree to which the income to be taxed in the Netherlands is a part of the world-wide income. This regards the negative taxable income from main residence, expenses made for income provision, the personal deductions and the tax part of the levy rebates.

The tax due in the Netherlands, and therefore also the pro-rata deduction, is calculated separately for the taxable income from work and residence (box 1), the taxable income from a substantial interest (box 2) and the taxable income from savings and investments (box 3). Both the amount of the personal deductions and compensations, and the part of the world-wide income that can be taxed in the Netherlands, are determined according to Dutch standards. Where the amount of a deduction depends on the income, the world-wide income will be taken into account in determining the amount of the deduction.

Request of application of this decree

Non-resident taxpayers, who do not generate (sufficient) income in their home country, can apply to make use of this new policy for taking personal deductions and compensations into account on a pro-rata basis. If you wish to apply to make use of this decree, an objection or request for official reduction can be filed with the Dutch tax authorities.

Would you like to know, or would you like us to calculate, whether the tax situation as a qualifying non-resident taxpayer is more beneficial in your situation, please contact our Global Mobility specialists.

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