Tax deductions for foreign employees

2 January 2020
Article

Do you live abroad and work in the Netherlands? This could affect your right to Dutch tax deductions.

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Written by:
Clea Cremers Senior tax advisor
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Qualifying domestic tax liability

Are you taxable in the Netherlands for at least 90% of all your income? Then you are eligible for the Dutch qualifying domestic tax liability. In that case, you are entitled to the same tax facilities in the Dutch income tax return as all other Dutch nationals. This includes, for example, mortgage interest deductions and tax deductions. 

Non-qualifying domestic liability

Are you not taxable in the Netherlands for at least 90% of all your income? Then you are not eligible for the Dutch qualifying domestic tax liability. Amended rules apply to you. 
As a non-qualifying foreign taxpayer, for example, you are only entitled to a part of the tax deductions. 

Foreign employees often receive too many tax deductions

Employers who are tax liable in the Netherlands withhold payroll taxes on wages (wage tax and social security contributions) on behalf of employees. These payroll taxes are then paid to the Dutch Tax Authorities. 

When calculating the payroll taxes due the employer often takes into account full tax deductions. After all, the employer does not know whether its employees qualify privately for the domestic qualifying tax liability. As a result many employees who live abroad have received too many tax deductions. The Dutch government estimates this amount at around 350.000 foreign employees

Legislative amendment 

The Dutch government wants to change the legislation on this point. From 1 January 2019, the employer must treat all employees living abroad as non-qualifying for the domestic tax liability. These employees then only receive a part of the tax deductions. Employees who are entitled to full tax deductions will receive this amount via the income tax return.
 

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