Tax exemption or tax credit for resident taxpayers of the Netherlands in relation to foreign source income

In this Chapter, the following topics will be discussed:

The taxation of cross border income

An individual who qualifies as a resident taxpayer of the Netherlands is in essence subject to Dutch personal income tax for his/her worldwide income.

Many countries also levy tax from non-residents in lieu of income arising in their country. A typical example is the levy of withholding tax on outbound interest, royalty and dividend payments, but also the levy of income tax on income arising in their country of residence for instance as a consequence of conducting business activities or just working in that country.

Without any special arrangements, such cross-border income therefore risks to be taxed twice: once in the source country (the country from where the income originates) and once in the home country (the country where the taxpayer is residing). In other words, double international taxation can arise.

Measures to avoid international double taxation

The Dutch legislator considers double international taxation undesired and has taken measures to prevent double taxation for resident taxpayers.

For individuals who qualify as a resident taxpayer, the tax treaties (formally described as conventions for the avoidance of double taxation) and, if no tax treaty applies, the Dutch Decree for the Avoidance of Double taxation (in Dutch: “Besluit ter voorkoming van dubbele belasting”) can be used. If an individual qualifies as a non-resident taxpayer of the Netherlands, this individual can in general not make use of the Dutch tax treaties concluded with other countries or the Dutch Decree.

The Dutch tax treaties

The Netherlands concluded tax treaties with more than 90 countries worldwide. We refer to the Online Dutch tax treaty database for the tax treaties currently in force.

On a continued basis, the Netherlands are also (re)negotiating tax treaties with (additional) countries for which we refer to the list of Dutch tax treaties’ negotiations. Please note that when negotiating a tax treaty it may take years before the tax treaty actually enters into force (if at all).

As a general rule, a tax treaty only applies to residents of one of the contracting states which receives income out of the other contracting state. The main purpose of a tax treaty is to avoid double taxation. A tax treaty may also have the purpose to avoid double non-taxation or prevent fiscal evasion. A tax treaty has two main functions. The first is to allocate the right to tax of certain income categories between the source and the home state. The second is to prescribe a method that has to be applied by the contracting parties to avoid double taxation, so either a tax credit or income exemption to its tax residents who may be taxed in the other state.

Each treaty has an independent status and although virtually all tax treaties are generally based on the OECD Model tax treaty the contents of every treaty can differ significantly.

The Dutch Decree for the Avoidance of Double taxation

Only if no tax treaty applies, the Decree may become applicable.

The rules for obtaining a tax exemption for foreign sourced income are comparable to the rules applying under tax treaties, with the main difference that the foreign sourced income must actually have been (deemed to be) subject to foreign tax before it can qualify for the exemption.

The Dutch Decree also provides for a tax credit, but only for withholding tax originating from designated developing countries, and within certain limits.

The tax credit or income tax exemption

Dutch tax residents who receive qualifying foreign sourced income can be eligible for a tax credit or an income tax exemption depending on the applicable Dutch tax treaty or the provisions of the Dutch Decree for the Avoidance of Double taxation (if no tax treaty applies).

The method to calculate a tax credit or an income tax exemption is provided by the applicable tax treaty and/ or Dutch Decree for the Avoidance of Double taxation. Please keep in mind that every tax treaty is different and must be reviewed in order the determine the exact amount of the tax credit or tax exemption in a specific situation. 

What we can do for you:

We are professional tax lawyers and we can advise you on your personal tax position and handle the preparation and filing of your annual Dutch personal income tax return and other tax compliance matters on your behalf.

We have very competitive rates for individuals and we can prepare and file your personal income tax return (and take care of other personal income tax compliance) on the basis of fixed prices which are agreed upon with you in advance.

The price for a specific tax return is dependent on your personal circumstances and the service which you wish to receive from us.

Please feel free to use our ONLINE FEE CALCULATOR for determining the fixed fee which you would have to pay us for the preparation of your personal income tax return.