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The tax rate in the Netherlands is a frequent topic among Americans researching the implications of relocating to Holland. There’s already a lot to love about the well-located country, including its quaint, bikeable cities, and excellent public transportation and education infrastructure. However, delving into the logistical and financial details of living in the Netherlands as an American can be exhausting and confusing.
To help guide the way, below we walk you through the essentials, including income tax in the Netherlands and a special expat tax provision Americans may benefit from, the US-Netherlands Tax Treaty, and more.
Snapshot of Taxes in the Netherlands
- Primary tax forms: P-form
- Tax deadline: May 1st
- Reporting website: Mijn Belastingdienst
- Administrative language(s): Dutch
- Tax treaty: Yes
- Totalization Agreement: Yes
Taxes in the Netherlands: A quick overview
Netherlands tax residents are subject to taxation on their worldwide income.
Non-tax residents only need to pay taxes on their Netherlands-sourced income.
In other words, you must file a tax return to pay these taxes (or receive a tax refund).
Who qualifies as a tax resident in the Netherlands?
Americans living in the Netherlands are considered subject to Netherlands taxation if they have “demonstrable ties” to the Netherlands. Examples of “demonstrable ties” include a permanent home, employment, a family, stay for prolonged periods, etc.
“You are required to pay tax in the Netherlands if you have received an invitation to file a return, you have received a C Form, or you have received income from the Netherlands.”
– Government of the Netherlands
Netherlands tax rate by income type
The Belastingdienst (Dutch tax office) classifies income types into three different “boxes,” each with its own individual tax rate.
Box 1: Income From Work & Home Ownership
| Taxable Income (EUR) | Taxable Income (USD) | Tax Rate |
|---|---|---|
| €0 – €37,149 | ~$0 – $41,008 | 9.28% |
| €37,149 – €73,031 | ~$41,008 – $80,622 | 36.93% |
| €73,031+ | ~$80,622+ | 49.50% |
Employees get a general credit of €3,070, while freelancers get a credit of €5,033.
Box 2: Income From Substantial Interest
Flat rate of 26.9% on income arising from a 5% or greater interest in a company or partnership.
Box 3: Income From Savings & Investments
Flat rate of 32% on any income generated from savings or investments above €57,000.
Property taxes in the Netherlands
There are two main property taxes in the Netherlands:
- Onroerendezaakbelasting: An annual tax for property owners that generally ranges from 0.05% – 0.3% of property value, depending on the municipality.
- Overdrachtsbelasting: A real estate transfer tax charged to those who purchase property at a rate of 2% of the purchase price.
Capital gains tax in the Netherlands
There is currently no tax on capital gains in the Netherlands outside of income that falls under Box 2 or Box 3.
Payroll tax in the Netherlands
In the Netherlands, employers generally automatically deduct income taxes and social security taxes (if applicable) from their employees’ paychecks. Income taxes are withheld according to the rates outlined in the “Netherlands tax rate by income type” section above, while social security taxes are typically withheld at a rate of 27.65% (with a cap at €9,808 a year per individual).
Important note for self-employed individuals:
Because freelancers have no employer to withhold their taxes, they must make these payments proactively.
VAT in the Netherlands
The value-added tax (VAT) in the Netherlands is known locally as Omzetbelasting (btw). For clarity, VAT is the consumption tax applied to goods and services purchased within the country. The standard rate is 21%, but there are reduced rates available:
- 0% btw: Exports and imports within the EU, solar panels, etc.
- 9% btw: Certain essentials (e.g., food, water, medicine), passenger transport, repair services, etc.
- Exemptions: Medical/cultural/social/education/financial services, insurance transactions, etc.
The 30% Ruling
US expats recruited to work in the Netherlands may qualify for the 30% ruling, which allows them to receive 30% of their salary from their employer as a tax-free allowance for up to five years. However, choosing this benefit can impact your eligibility for state benefits, such as social security payments and pensions. It’s best to work closely with both Dutch and US expat tax professionals to ensure you’re taking the right approach here.
October 2023 update
In October 2023, the Dutch Parliament voted to approve a measure that could substantially change the amount and length of time that expats may enjoy a lower income tax rate.
According to reporting in Yahoo News, the measure “reduces the 30% exemption to a maximum of 20 months; expats will then get 20% exemption for the next 20 months, and 10% for the remaining 20 months…”
This proposed measure reflects the importance of migration to the Dutch electorate ahead of political elections to be held at the end of November 2023. After receiving approval from the Dutch parliament, the measure awaits a deciding vote in the Senate.
US-Netherlands Totalization Agreement
Individuals planning to spend their retirement years in the Netherlands should be aware of the Totalization Agreement with the US. This means that US citizens are protected from double taxation on their Social Security distributions, among other things.
Social security in the Netherlands
US citizens living in the Netherlands must pay social security taxes to either the Netherlands or the US. The country to which you pay social security taxes depends on the duration of your stay in the Netherlands:
- 0-5 years in the Netherlands: Social security taxes paid to the US government
- 5+ years in the Netherlands: Social security taxes paid to the Dutch government
Pro tip:
While Social Security is related to US expat tax concerns, inquiries specific to Social Security and Totalization Agreements should be referred to the Social Security Administration's website.
How US taxes work for Americans living in the Netherlands
Unlike the majority of countries, the US has a citizenship-based taxation model. This means that all US citizens and Green Card holders who meet certain income thresholds are required to file a US federal tax return. This rule applies irrespective of their place of residence or the source of their income. While any tax you may owe is still due by April 15, expats get an automatic filing extension until June 15. This can be extended still further until October 15 upon request. Additionally, a third extension to December 15th can be requested.
It’s important to note that if you’re subject to taxation in the Netherlands, though, there are likely ways to avoid double taxation.
US-Netherlands Tax Treaty
The key tenant in this document is that US citizens living in the Netherlands are shielded from double taxation.
Common IRS tax provisions available to Americans in the Netherlands
There are several ways Americans living in the Netherlands can reduce their US tax bill, often to zero.
Foreign Tax Credit (FTC)
The Foreign Tax Credit provides US expats who pay taxes to foreign governments with dollar-for-dollar credits that they can apply toward their US tax bill. To qualify for the FTC, the taxes must be a) based on income, b) legal, c) issued specifically in your name, and d) paid. You can claim the FTC by filing IRS Form 1116.
Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion is another option, permitting the exclusion of up to $120,000 of foreign-earned income from US taxation for the 2023 tax year, as declared on IRS Form 2555.
Those who are eligible for the FEIE can also claim the Foreign Housing Exclusion, which allows you to write off qualifying foreign housing expenses (e.g., rent, utilities, necessary repairs, etc.).
There are two tests that are used to qualify for the FEIE, the Physical Presence Test, and the Bona Fide Residence Test.
Child Tax Credit (CTC)
US expats living in the Netherlands with qualifying children or dependents living with them can claim the Child Tax Credit just like in the US. Typically, this will give you up to $1,500 in partially refundable credits per qualifying child/dependent.
Tax implications of renting out your US residence while in the Netherlands
Renting out your US property while living abroad can provide a substantial source of passive income. However, doing so means that you will have to report the income and expenses associated with it to the IRS. To do so, complete Schedule E.
Note: Since this is passive income, not earned income, it cannot be excluded under the FEIE.
Common questions about rental income for Americans living in the Netherlands
It’s not uncommon for working Americans to accept a work placement abroad for a designated period of time. In that situation, many homeowners are faced with an important question: Should they rent their US property, or sell it?
The answer will vary from person to person. Below, we answer common questions to aid you in making the best decision for yourself.
If I own a rental property in the US or outside the Netherlands, do I have to report it to the Dutch tax authorities?
If you are a tax resident of the Netherlands, you must report your worldwide income, which would include foreign rental income. However, if you’re not classified as a tax resident, you wouldn’t have to report anything besides income sourced from the Netherlands.
Which country do I pay taxes to on my rental property income?
US expats who aren’t tax residents of the Netherlands would only have to pay taxes on their rental property income to the US government. Those who are tax residents, however, would be subject to taxation by both the US and the Dutch governments. Fortunately, they could likely avoid double taxation by claiming the FTC.
Other US tax and reporting considerations when living in the Netherlands
If you have over $10,000 in one or more foreign accounts at any time during the tax year, you must report by filing a Foreign Bank Account Report (FBAR). This is an administrative form that is straightforward to fill out. However, there are significant financial penalties if you neglect to file. Examples of foreign accounts include savings accounts, pensions, and retirement accounts, among others.
FATCA
Additionally, if you have foreign assets worth over $200,000 on the last day of the tax year — or over $300,000 at any point during the tax year — the Foreign Account Tax Compliance Act (FATCA) compels you to report them by filing Form 8938.
Catching up on filing US taxes
The IRS offers an amnesty program called the Streamlined Procedure that allows those who have accidentally fallen behind on taxes to catch up penalty-free. To qualify, you must not currently be under IRS investigation or have already been contacted by the IRS regarding back taxes. The Streamlined Procedure requires you to file your last three tax returns and last six FBARs (if applicable), as well as certify that your previous failure to file was unintentional.
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