This article was originally posted at https://movetonl.com/filing-taxes-us-citizen-in-the-netherlands/ Shared with permission.
Taxes are often a very intimidating topic. Tax systems can be complex, not very transparent, and making a mistake can be both expensive and land you in legal trouble. The complexity gets kicked up a notch if you’re starting a new life in a new country, and you have to learn everything from scratch!
As a US citizen living abroad, you’ll most likely need to do tax reporting both in your new country, and in the US.
To bring a bit of clarity to the whole process, we’ve chatted with Christie from BNC tax. Her team of experts focuses on personal and business tax preparation, as well as FINCEN reporting. So if you’re an US citizen planning to move to the Netherlands, dive into Christie’s insider scoop below.
1. As an expat who’s lived in multiple countries yourself, how does the Dutch tax system stack up when compared?
“The Dutch tax system is similar to the others in that it uses a progressive tax bracketing system on income taxes, and flat rates on investment income. It is unique when you get to the wealth tax, and that can scare a lot of people. But in my experience, the effective tax rate most expats will pay is around 30% of their total income.”
2. One of the top Google searches for US expats is how to avoid paying taxes both in the States, as well as in your destination country. Let’s settle this debate once for all – is this even possible?
“Yes, BUT…. You would have to be committed to living a truly nomadic lifestyle. As an expat with a US passport, you can exempt income you earn outside the US from being taxed by the US if you spend enough of your time (330 days per year) outside the US. The harder part is finding a country to reside in which will not tax your income. If you are a ‘digital nomad’. You can do it, but you have to be careful not to work illegally while on a travel visa!”
3. What’s the biggest challenge US expats face when they’re filing their taxes while living abroad?
“The tax code is written by a bunch of suits in Washington. The last people they consider are the American expats just trying to live and work abroad. Many rules can feel contradictory. It is easy to make mistakes and the penalties are harsh. People get overwhelmed and they don’t know where to find the correct information. Something that would have been very simple to report back home becomes complex very easily while working abroad.”
4. What are the main tax-related tasks you should keep in mind when planning to move abroad? Are there any items you should check off the list while you’re still at home, to make the next tax filing “easier”?
“Understand the rules of the country where you will live. It is not good enough to just ask your boss if you can work remote. You need to make sure that your employer follows local law and puts you on a local contract and local payroll, for example. Planning ahead can help avoid making very costly mistakes.”
5. If a US citizen abroad has a spouse who’s not a US citizen and doesn’t have a Green Card, are they still “fiscal partners” for the purpose of the US taxes?
“Married couples are married so in sense, yes. But for US tax purposes, only the US citizen spouse has a requirement to report their worldwide income. The non-US spouse does not. But the US spouse can “inherit” the complexities of their spouse! For example, a Dutch BV (Limited Liability Company) owed by a non-US spouse can be considered “owned” by the US spouse under US tax law.”
6. Can expats deduct their housing expenses?
“There are deductions for foreign housing expenses. These vary depending on the cost of living in the location.”
7. Are there any changes the US expats should be aware of when it comes to the next tax season? (2024)
“The Secure Act of 2023 has some major tax law changes. We’ve detailed some of it on our blog.”
8. Do you think the proposed changes to the 30% ruling will make the Netherlands less attractive to American expats?
“While many (most) of the Americans I work with actually move to the Netherlands for the change in lifestyle more than just the work opportunity, I do think it will stop some from moving. Americans tend to hold more investments than Dutch citizens and can be more likely to be hit with Box 3 tax on their assets. I always advise clients not to make a major life change like moving to a new country based on the tax rate alone! There is much to love about living in The Netherlands, and a good tax advisor can help predict the effective tax rate to help expats make it only one of the factors to consider when planning a move.“
Are there any other questions we should have asked Christie? Let us know! And if you’d like a hand with your US tax filing, make sure to reach out to the BNC tax team.