Residency for tax purposes
Residency for tax purposes - Netherlands
To understand the implications of any specific tax situation, it is important to first assess the (corporate) residency for tax purposes. In this article we will provide an executive summary of key information about the tax residency status of natural persons (individuals) and legal persons in the Netherlands.
Criteria for individuals
According to Dutch tax law, the tax residence of individuals is based on facts and circumstances including, inter alia, the availability of a permanent residence, the place where their partner and/or family lives and the place of personal and economic relations (such as the place of employment and the place where your bank accounts and assets are maintained). The relevant factors should be balanced to determine the tax residency status.
If, based on the relevant facts and circumstances, you are a Dutch resident for tax purposes, you will have to declare all of your worldwide income in your Dutch tax return.
Criteria for entities
An entity is in principle treated as resident of the Netherlands if it is incorporated under Dutch law (usually as a private company with limited liability; BV) for Dutch corporate and withholding tax purposes (incorporation fiction). As such, a Netherlands incorporated entity is subject to corporate tax on its worldwide profits.
Notwithstanding the incorporation fiction, a Netherlands incorporated entity would not be treated as a tax resident of the Netherlands if another jurisdiction rightfully claims that the entity is tax resident of that other jurisdiction under the relevant tax treaty. This typically occurs when the place of effective management of the Netherlands incorporated entity is located in that other jurisdiction. It would then not be entitled to the benefits of the relevant tax treaty. As such, it is important that the place of effective management of the Netherlands incorporated entity is located in the Netherlands.
Where the place of effective management is located depends on the facts and circumstances. The factors to be taken into account in determining where the place of effective management of an entity is, include (but are not limited) the following:
- The place of residence of the (executive/managing) directors of the entity;
- The place where the entity’s board meetings or similar policy-holding meetings take place and decisions are made;
- Local employment of (executive/managing) directors.
It is important to stay on top of one’s (corporate) tax residency status. Failing to do so can lead to income being unexpectedly taxed elsewhere, losing out on tax treaty access or losing out on local beneficial regimes such as the fiscal unity regime.
Would you like to know more? Please do not hesitate to contact our office at +31 (0) 85 0187471 or via email@example.com.