The new treaty with Thailand to avoid double taxation, which will come into force on 1 January 2024, including a source state levy for pensions and annuities, already entails a negative income effect for almost everyone, but many Dutch people living in Thailand can still come up a few notches.
In this article I will explain what else you can expect after the entry into force of the new Treaty, if you are dealing with a pension that you have to settle yourself with your ex-partner or an alimony obligation.
And I will also discuss the consequences of the Christmas judgment of the Supreme Court of December 24, 2021 with regard to a second home in the Netherlands, because that will also cause a financial loss, starting in 2023.
Pension equalization and spousal maintenance
We can distinguish two regimes for the settlement of pension after a divorce, namely:
a. divorced after November 26, 1981 but before May 1, 1995 and falling under the pension judgment (Boon Van Loon judgment) and
b. divorced after 30 April 1995 and covered by the Pension Rights Equalization Act (VPS Act).
Ad a. The divorced spouses themselves agree on the division of the pension, with due observance of the pension judgment, of course. The pension provider remains out of the picture and pays the (principal) beneficiary the full pension, after which he or she must continue to pay the former spouse.
From a tax point of view, this does not pose a problem when enjoying a private pension up to and including 2023 when living in Thailand, because what you do not have on balance as a result of the continued payment, you cannot bring in as income in Thailand in the year of enjoying it and you do not pay Personal Income Tax either. For the receiving taxpayer, who often lives in the Netherlands, this is then a taxable income.
However, as a result of the new treaty concluded with Thailand, the taxpayer who continues to pay and lives in Thailand pays 'ordinary' wage tax or income tax on his or her gross pension as of 2024, so including this continued payment (is negative income), without you as a non-qualifying non-resident taxpayer and what is the case when living in Thailand, you are entitled to a deduction for personal obligations, while the receiving taxpayer on this, as positive income, also owes tax and premiums. That means taxing the same amount of income twice, both the negative and the positive income: that is only possible in the Netherlands!
This situation already applied to those with a government pension to be taxed in the Netherlands, but will now also apply to Dutch citizens living in Thailand with a company pension.
Ad b. In almost all cases, both parties request the pension provider to settle the distribution agreed with due observance of the VPS Act: everyone receives his or her share, no continued payment is required and no double taxation occurs.
What happens with regard to pension to be settled yourself also applies with regard to spousal maintenance. Your gross pension is also taxed here, without you being entitled to a deduction for personal obligations, such as spousal maintenance. And here too, the spousal maintenance of your ex-partner living in the Netherlands is simply taxed as if nothing was wrong!
(JPstock / Shutterstock.com)
The Christmas judgment of the Supreme Court of 2021 and the second home in the Netherlands
On December 24, 2021, the Supreme Court issued a damning judgment regarding the capital gains tax of box 3 as being in violation of the European Convention on Human Rights (ECHR).
The levy on income from savings and investments has been the subject of controversy for many years. For 2017, the tax authorities used a notional return on your assets of 4%. As of 2017, a fictitious division into savings and investments and with fictitious returns for these two groups were assumed. It was assumed that the capital above € 50.000 would be invested and then at a higher return than that applicable to savings.
This basis, which came into effect in 2017, was burned to the ground by the Supreme Court. Taxpayers who do not invest (risky) are taxed relatively heavily. The ruling of the Supreme Court threatened a billion dollar loss for the government. This prompted the government to come up with a completely new calculation method in connection with this yield levy and which does justice to the judgment of the Supreme Court.
The solution has been found in taxing the actual amount of savings at a real fixed interest rate and taxing the other assets, such as a second home, at a fixed interest rate, which is considerably higher. Savings are not taxed when living in Thailand, but your second home in the Netherlands is taxed and, starting in 2023, considerably more than is the case for 2022.
Suppose: in 2022 you have a second home in the Netherlands with a WOZ value of € 350.000. This still has a mortgage of € 125.000. The tax-free allowance is € 50.000. In that case, the basis for savings and investments is € 175.000.
Based on the amounts and percentages applicable for 2022, you would owe € 2.038 in box 3 tax (€ 170 per month). As a result of the judgment of the Supreme Court and the resulting new system, this will go to € 4.060 (€ 338 per month). This is therefore almost a doubling and will already take effect from 2023.
Also keep this in mind if you have a second home in the Netherlands.
Financial consequences of both measures
Having a second home in the Netherlands, together with the consequences of the treaty amendment and those of continuing to pay the settlement of your pension or partner alimony yourself, can cost you hundreds of euros per month!
This weighs all the more heavily if you live off your savings in Thailand and therefore do not owe Personal Income Tax. After all, then there is no tax advantage to be obtained in Thailand against the disadvantages and you are downright out of luck.
A well-known Dutch philosopher, who once had something to do with 'football', once spoke the wise words: “Every disadvantage has its advantage” (no, he was not a Dutch scholar). That also applies here, because despite the tax disadvantages you do live nicely in the 'Land of the Eternal Smile' with its pearly white beaches. And that may cost something! However?
Lammert de Haan, tax specialist (specialized in international tax law and social insurance).
Dear Lambert,
Thank you and compliment for your clear explanation. You can't make it more fun either, but at least you're honest and you can't always say that about the NL tax authorities...
Box 3 ???
My living situation is similar because I have been living in Brazil for 17 years. Similar because Brazil, like Thailand, is outside the EU. From 2016, the tax law was amended, without transitional measure. From that year on, my AOW and two other pensions are taxed exclusively. My wife is no longer allowed to file a tax return together with me and to file a tax return as a 'qualified Dutch taxable person' (that is with box 2 and 3 and deductions included) precisely because I live outside the EU. The NL legislature does not feel compelled to allow any advantage to exist for this group of taxpayers. In vain I appealed to the Supreme Court for the lack of a transitional measure. I am therefore surprised that the Dutch taxpayer living in Thailand is assessed for box three, even if it concerns a home in the Netherlands. At most, income from that home can be taxed, but not as 'Box 3'. In that case, it is also the case that an existing mortgage cannot be deducted, because it is a home outside the country of residence. Brazil also has a double taxation treaty, but does not have a Personal Income Tax.
Hi Ben,
The double taxation treaty concluded between the Netherlands and Brazil was concluded on 20 November 1991 and entered into force on 1 January 1992.
Not starting in 2016, but already starting in 2015, the subdivision into qualifying and non-qualifying taxpayers has been included in the Income Tax Act 2001. This was an input from Geert Wilders of the PVV in the cabinet of tolerance Rutte I and was subsequently taken over by the VVD.
Up to and including 2014, you could opt for resident taxpayer status (with a right to tax credits and deductions) or as a non-resident taxpayer (without these rights). Due to the progression reservation, the turning point was around an income to be taxed of about € 33.000.
The new Treaty concluded with Thailand shows many similarities with the Treaty concluded between the Netherlands and Brazil.
For both countries, a source state tax applies for social security benefits and private and public pensions.
However, for annuity payments, the Treaty concluded with Brazil contains a state of residence tax, while the new Treaty concluded with Thailand contains a source state tax.
The situation with regard to a second home located in the Netherlands is completely different from what you state:
1. a second home is not a home for self-occupation and will therefore never fall under box 1 and
2. In both the Treaty concluded with Brazil and the Treaty with Thailand, the situs principle is assumed with regard to a second home located in the Netherlands, involving a source state tax and falling into box 3, but after deduction of any mortgage.
If you encounter problems with your Dutch income tax return, you can always contact me. I have several clients in Brazil.
If the tax benefits indeed expire on 1-1-24 and also taking into account that the home is classified as a holiday home in the Netherlands, it may be wiser to register in the Netherlands again and therefore no longer have a (expensive and with possible exclusions) international health insurance?
Taking into account the compulsory health insurance, how long can you stay outside the Netherlands (or Europe) and still make use of this Dutch insurance?
Is it perhaps wise to take out additional health insurance for Thailand in this case?
Please respond.
Thanks
WM
For Belgium this is a maximum of 6 months, and I thought for the Netherlands a maximum of 8 months. You can correct me if I'm wrong.
Beats. In the Netherlands, you are compulsorily insured against medical expenses, and therefore pay premiums and the ZVW contribution is deducted through the benefits. The latter happens automatically. If you have been in the Netherlands for less than 4 months, you must deregister from the municipal BRP and the compulsory health insurance will lapse, also automatically. Many health insurance policies have worldwide coverage if you travel outside the EU, and therefore do not offer specific additional insurance aimed at a particular country. (Everyone should know by now!) For BE, LungAddie knows how things work out.
Thanks, so max more than 7 months Thailand and more than 4 months minimum the Netherlands. Clearly.
Dear Herman,
for Belgium it is completely different. I have described this in detail, here on TB, which can be found under files, here on the left: 'UNSUBSCRIBE FOR BELGIANS.'
There are quite a few misunderstandings about that. I'm not going to describe it again here: read the file on deregistration for Belgians under 'Health insurance funds' and it will clarify things for you.
Those 6 months, which you are talking about, are only the 'Statutory REPORTING OBLIGATION', which you must make to your municipality, 'if you are absent from your home address for longer than these 6 months. If longer than 1 year, the 'Statutory UNSUBSCRIBE OBLIGATION' applies. Everything has nothing to do with the health insurance fund. There are completely different rules.
Hi Lammert,
Thanks for the update, thanks for pointing it out so clearly. I read that the new treaty will enter into force on 01-01-2024. In the most recent treaty overview of the tax authorities of 1 July XNUMX.
(https://www.rijksoverheid.nl/documenten/circulaires/2022/07/11/verdragenoverzicht)
I don't read that yet. Do you have another source regarding this entry into force?
Sincerely, Mark
Hi Mark,
You will indeed not yet find the new Treaty in the Treaty Overview of 1 July 2022. It has not yet been published in the Tractatenblad, but I still think I know the text of the new Treaty. This is based on the Memorandum on tax treaty policy 2020 and will not deviate significantly from recently concluded treaties.
In 2020, at the request of Thailand, negotiations began to arrive at a new treaty. Thailand made this request in view of the new provisions included in the OECD model treaty regarding improper use or abuse of a treaty and the avoidance or evasion of taxation. The Netherlands put forward its long-cherished wish of a source state levy. This in accordance with the 2020 Fiscal Treaty Policy Memorandum.
A source state tax also with regard to private pensions and annuities deviates from the OECD model treaty, so the Netherlands was the requesting party in the negotiations.
The new Treaty thus created was adopted by the Council of Ministers on September 2, 2022 and will certainly enter into force on January 1, 2024, partly in view of the procedures surrounding other recently concluded treaties.
I dare say that without a request from the Thai government, no new Treaty with Thailand would have been reached. As a result of the travel restrictions related to corona, the government has fallen behind in establishing amended or new treaties.
Thailand is satisfied with the new anti-abuse, anti-avoidance and anti-evasion provisions and the Netherlands is satisfied with being the only country allowed to levy taxes on all sources of income originating from the Netherlands. Count out your profit (or loss)!
Lammert,
Thanks again for your crystal clear explanation, interspersed with a clear example regarding 2nd house in NL!
Thanks to you, I now know that I did not have to reclaim the withheld healthcare insurance contribution (Aegon!) from the foreign tax authorities (Heerlen), but from the Utrecht office. Recently done and I expect to receive > 1000 euros back!
Thank you!
It seems to me that the return rate that is now set at 6% for box 3 is much too high. My AXA investment is pledged to the mortgage. The value of this has decreased in 1 year from 20429 euros to 18020 euros. Fortunately, this is not taxed in box 3 because this investment is pledged to the mortgage. But it seems to me that there are few people who actually get a 6% return on their investment. I hope that action will be taken to change the grossly unfair tax measures. Lammert has all the knowledge for this, but is ready for some rest at his age 🙂 I hope that experts will arise to discuss the new measures with politicians. I also read in the media that there will be many adverse effects for the real estate market.
Interesting article Lambert. I am Belgian and therefore does not apply to me. I have another question regarding taxes in Thailand. How can I get in touch with you? Regards, Luke
You can contact me by email, Luc.
That is: [email protected]. Five readers of Thailandblog have already preceded you. I will answer them during the day.
I fall under ad a arranging and paying pension to my ex in the Netherlands myself.
certainly has no effect if you deposit your pension into a Dutch account, pay the alimony there and then transfer the rest to Thailand. (just an idea)
there is no way to recover this because paying all taxes in the Netherlands is a disadvantage but does not have the advantages
I am by no means a tax expert, rather a layman, but this is again typical Dutch legislation to collect as much tax money as possible
Hi Eric,
You are exactly one of the victims my article is about. You are a “do-it-yourselfer”: apparently divorced under the Boon Van Loon judgment, which means that you have to settle yourself.
Next year, your gross private pension will be taxed as positive income in the Netherlands, but you cannot deduct the continued payment to your ex-partner as negative income as a personal obligation from your taxable gross pension.
If your ex-partner lives in the Netherlands, he/she will then owe income tax and national insurance contributions.
I call that taxing the same income twice: both your negative and the positive income of your ex!
Just read dark clouds for people living in Thailand.
4 June 2023received a letter.
WE CONTINUE THE EXEMPTION FROM WAGE TAX
UNTIL 2026
Is it possible to undo promises made?
I don't think it's useful to receive mail from the future now. May we know who sent that letter dated June 4, 2023?
Hello Jan.
The exemption decision of presumably June 4, 2022 will certainly contain a disclaimer in the sense that it may lapse as a result of new laws and regulations. And that is therefore the case as a result of the new Treaty with Thailand established subsequently, namely on September 2, 2022.
I have a question..
Does this also apply to Dutch people who live in Thailand with a WAO benefit?
BVD,
John..
Hi John,
A WAO benefit is already taxed in the Netherlands.
You will not yet have to deal with pension to be settled yourself, but if you owe spousal maintenance, this is not deductible from your taxable income.
And if you own a second home in the Netherlands, the increased yield levy of box 2023 will also apply to you from 3.
thank you Lambert.
G'day Lammert,
You notice that we are 'the hare' if we live off our savings and therefore do not have to / cannot pay PIT. There will be people who do not need their entire income, which they leave in their bank in the Netherlands, but only transfer what they need, regardless of the source of income (pension, benefit,)
What implications does that have for your attack in Thailand?
Bye Nick.
After the entry into force of the new Treaty, which includes a source state levy for all sources of income originating from the Netherlands, Thailand will no longer have any levying rights.
But if you already owe little or no Personal Income Tax (PIT) because you live in Thailand for an important part of your savings, the tax benefit that can be obtained due to the expired PIT is also only small, while in the Netherlands you do pay the full pound “ may” pay!
G'day Lammert,
Will savings deposits in the bank in the Netherlands also be taxed in the Netherlands with this new scheme? Would it be useful to know this before I go to Thailand from another country, or do savings you have in Thailand also have to be declared?
Now I have to pay tax on the interest, so that is not worth it with the interest of recent years. But the amount of savings (capital?) is not taxed, not in the Netherlands and not where I live now. (Ned Antilles). I have been away from the Netherlands for a long time, so I know next to nothing about what goes on there.
Furthermore, I already pay tax in the Netherlands on my ABP (state) pension and my AOW, so little has changed in that regard, I understand.
BVD
Rinse, Face Wash
Hi Rens,
If you live in Thailand, your Dutch savings will not be taxed in the Netherlands. In box 3 – savings and investments, only real estate located in the Netherlands is taxed.
In principle, Thailand may tax the interest due to your Dutch savings, but does not do so because Thailand has a withholding tax due to interest income. If you then bring in the interest received in Thailand to live on it (so you are a real 'rentier'), then it is taxed in Thailand and then forms part of the Personal Income Tax (PIT).
But before you get to paying PIT, it must be reduced, given the many exemptions
and the tax-free amount for the PIT, however, are a princely (let's say "royal") amount of interest and a princely (let's say "Imperial") amount of savings, given the low interest rate.
Thank you very much Lammert de Haan for the clear information.
Rinse, Face Wash
HI Lammert, If you live in Thailand for 7 months and in the Netherlands for five months, you can let the health insurance run in the Netherlands, but for tax purposes you are then a foreign taxpayer, so that your box 3 is exempt from tax on assets. Is this correct?
That's not right, Evert.
If you live in Thailand for 7 months and in the Netherlands for 5 months, you do not have to deregister, you keep your Dutch health insurance, but you are still a resident taxpayer.
If you live or stay outside the Netherlands for more than 8 months during a period of 12 months, you are obliged to deregister, you lose your Dutch health insurance and you are a non-resident taxpayer.