The biggest blunder in post-war tax law
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This is the biggest blunder in tax legislation after WWII and concerns the division into qualifying and non-qualifying non-resident taxpayers introduced in 2015. If you qualify, you are entitled to tax credits and deductions for personal obligations. If you do not qualify, you are not entitled to it. It's that simple.
I regularly receive questions from Dutch people living in Thailand about the lack of the right to tax credits. Usually people feel discriminated against.
Although this difference in treatment between a resident and a non-resident taxpayer may feel discriminatory, it is permissible according to settled case law of the ECJ, now that this difference in treatment is based on the territoriality principle (see, among other things, the Schumacker judgment). It may be correct from a tax point of view, but that does not mean that it is ethically acceptable.
Before I discuss the issue of tax credits in detail, I note that these credits consist of two parts, namely the tax part and the premium part. Because you do not owe national insurance contributions when living in Thailand, my following consideration is only about the tax component, which is about 50% of the total amount that applies to tax credits. This makes the problem a lot less. But even “stealing a little” (taking away the tax portion of the tax credits) is not allowed in some cases in my opinion.
The situation of qualifying non-resident taxpayers before the introduction of the scheme
The qualifying non-resident taxpayers regulation, which came into effect as of the 2015 tax year, replaced the option applicable until then for non-resident taxpayers, anywhere in the world, to be treated as resident taxpayers with the right to tax credits and tax deductions.
This regulation was initially not EU-proof, but was brought into line with EU law before the transition to the system of qualifying non-resident taxpayer or not.
Nothing wrong with regard to foreign taxpayers you would say. The government had a sound instrument at its disposal to include Dutch nationals living abroad in the income tax. But the Rutte-II government nevertheless thought it necessary to create an extensive and complex new set of instruments for this in the form of a division into qualifying and non-qualifying foreign taxpayers.
Why keep it easy (the right of choice) if it can also be difficult (division into qualifying and non-qualifying non-resident taxpayers)?
When are you a qualifying non-resident taxpayer?
To qualify, including the right to tax credits and deductions for income tax purposes, you must meet three requirements, namely:
- you must live in the EU, Iceland, Norway, Switzerland, Liechtenstein or on one of the BES islands;
- In principle, 90% of your worldwide income must be taxed in the Netherlands;
- you must be able to submit an income statement from your country of residence.
Initially, the intention was to exclude all foreign taxpayers from tax credits and deductions, but this could not count on the approval of the European Commission because it conflicted with the free movement of persons, goods, services and capital within the EU. That is why the exception given under a. has been made. However, to qualify, the Dutch government has entered an extremely high percentage of 90% of your worldwide income.
The division into qualifying and non-qualifying taxpayers was initially introduced by Geert Wilders of the PVV at the Rutte I Cabinet (14 October 2010 – 5 November 2012), which he tolerated, and when this tolerance came to an end very quickly, it was taken over by Rutte II.
“Sometimes Wilders has a good idea,” Prime Minister Rutte must have thought, but whether this was really a good idea is doubtful, as will become clear below.
Qualifying and non-qualifying foreign taxpayers in the light of international tax law
In international tax law, the prevailing view is that the country of residence is obliged to grant tax facilities to its residents, insofar as the country of residence is authorized to tax the foreigner's income. The source country then withdraws (possibly pro rata) when it comes to granting tax facilities. After all, there is then little or nothing for the source country to levy and therefore no reason at all to fully apply tax credits and tax deductions or to grant full tax facilities.
Reasoned in this way, a division into qualifying and non-qualifying foreign taxpayers can be defended in every way. However, this division should not be linked to a country where you happen to live, but to the fact which country is authorized to levy taxes on your income and which country must therefore grant tax facilities.
If you receive income on which only Thailand is authorized to levy, there is no need whatsoever for the right to tax credits in the Netherlands. After all, there is nothing to shorten. However, if you enjoy an income that only the Netherlands is authorized to levy, you cannot capitalize on the Thai tax facilities and, in my opinion, the Netherlands should replace it by granting the right to tax credits and deductions.
If you enjoy multiple sources of income, whereby the Netherlands and Thailand are both authorized to levy taxes on part of this income, you should be entitled to tax credits and tax deductions pro rata. All this independent of the country where you live, but purely linked to the country that is allowed to levy taxes on your income.
The situation under the new Treaty agreed with Thailand
I assume that it is now known that in all probability a new treaty for the avoidance of double taxation will enter into force on 1 January 2024. In this new Treaty, the Netherlands has stipulated a source state levy for all Dutch sources of income. So also for occupational pensions and annuities, which may still be taxed by Thailand.
In that case, the levying of the Thai Personal Income Tax on your Dutch income will lapse and you will no longer be able to capitalize on the Thai tax facilities.
Then in my opinion you should be right again
on the Dutch tax facilities, but nothing could be further from the truth. You are completely empty-handed: no tax facilities from Thailand and no tax facilities from the Netherlands!
I will show you how much this could cost under the new Treaty in the following calculation example.
A calculation example
Below I give a calculation example of two single AOW recipients, living in the Netherlands and Thailand respectively. Both enjoy an income of € 27.500 per year, with an income tax rate of 9,42% (norm 2022). Both have to do with spousal maintenance and mortgage interest due to an owner-occupied home.
| Description | The Netherlands | Thailand |
| AOW benefit | € 12.500 | € 12.500 |
| Company pension | € 15.000 | € 15.000 |
| Down: partner alimony | € – 5.000 | €0 |
| Minus: mortgage interest | € – 5.000 | €0 |
| Taxable income | € 17.500 | € 27.500 |
| Income tax due on this 9,42% |
€1.648 |
€2.590 |
| Less: tax component of tax credits |
€ – 1.560 |
€0 |
| Income tax on balance | €88 | €2.590 |
See the extreme difference that you “may” pay more in income tax because you do not live in the Netherlands, but in Thailand. Logically (or not)!
It is completely understandable that the Netherlands will withdraw the right to tax all pensions and annuities under the new Treaty. After all, this income is tax-facilitated in the Netherlands in the accrual phase, in the expectation that it will be taxed in the distribution phase. But that does not mean that if you now live abroad, you should no longer be entitled to tax credits and tax deductions. In my opinion, that right should not be linked to the country where you happen to live, but to the country that is authorized to levy taxes on the income.
Time for action
It is high time that associations of Dutch people abroad take action towards politics. They do not have to turn to Mark Rutte or Geert Wilders, but to, for example, the independent Member of Parliament Pieter Omtzigt.
Pieter Omtzigt often goes to war when it comes to abuses and that is clearly the case here.
See ao: https://www.facebook.com/pieteromtzigtcda/?locale=nl_NL
Another option is to write to the Association for the Advocacy of Dutch People Abroad (VBNGB). See the website for this: https://vbngb.eu/.
The Grenzeloos Onder Een Dak Foundation (Stichting GOED) is also concerned with the interests of Dutch people living abroad.
See the website for this: https://www.stichtinggoed.nl/
Sometimes I also come across the suggestion to contact the National Ombudsman, but that does not seem to me to be a realistic option at this stage. In the Netherlands, the National Ombudsman is an independent ombudsman that handles complaints from citizens about improper government action.
However, there can be no question of improper conduct by the Tax and Customs Administration as long as this Office implements the law. It is only the politicians' turn to put an end to the undesirable practice of qualifying and non-qualifying foreign taxpayers.
A solution direction
In my opinion, there are two possibilities here:
- the reintroduction of the choice to be treated as a resident taxpayer, with the omission of the objections of the ECJ shown in, among other things, the Gielen judgment, i.e. as this regulation was already sufficiently effective due to emergency measures already taken well before the qualifying taxpayers regulation was introduced manner was worked out, or
- granting tax credits and tax deductions in proportion to the distribution of the tax rights over the Netherlands and the country of residence.
I prefer option b. since in my view such a regulation does the most justice to an appropriate levy
Lammert de Haan, tax specialist (specialized in international tax law and social insurance).
Dear Lammert de Haan, I read your explanation and calculation example with interest, I wonder how it is technically possible in the new treaty that tax credits are no longer given,
for a state pension in thailand, that is a nice amount that you get back every year
Hi Emile,
Unless you also have a foreign income, you do meet the "90% requirement" under the new Treaty, but you live outside the country circle of the EU, Iceland, Norway, Switzerland, Liechtenstein or the BES islands, so you do not qualify as a foreigner taxable person and as a result of which you are not entitled to tax credits and tax deductions.
Under the new Treaty, only the Netherlands levies on your income from the Netherlands. That means that you have the Thai tax facilities such as:
a. exemption of 50% up to a maximum of THB 100.000 of your income brought into Thailand;
b. the reduction of THB 190.000 at age 65 or older;
c. the personal deduction of THB 60.000 and
c. the 0% due to the first installment of THB 150.000
cannot monetize.
The Dutch tax facilities such as tax credits and deductions for personal obligations should replace this, but unfortunately that is not the case under current tax legislation.
Much respect for your submission. Your clear example with an extreme amount of tax to be paid later when you, as a Dutch pensioner, have Thailand as your country of residence, speaks for itself. Your solution direction is also clear. And although I wholeheartedly endorse your advice to ask representatives of Dutch nationals living abroad to take action in this matter, I doubt whether that will be successful. The reason for my pessimism is that few in the Netherlands, both politicians and citizens, understand the urgency and unreasonableness of the problem. In my opinion, politicians will not get excited about insisting on repair of the tax legislation. On the one hand because so many other cases claim priority and on the other hand because as far as they are concerned it is probably not interesting enough given the relatively small group of victims. And the Dutch citizen will be the worst about the legislation regarding emigrants. Compatriots who reside permanently in Thailand are regarded as privileged anyway and sometimes even labeled as profiteers, who 'misuse' their state pension and pension abroad instead of spending it in the Netherlands. In addition, I note that Dutch people living outside Europe, including Thailand, have not been able to derive any rights from Dutch health insurance for a number of years now. In my opinion also extremely unjust, what is the difference whether I will live in Spain or Thailand with regard to medical costs? Mr De Haan, I hope my pessimism does not come true. In addition to respect, thank you very much for your efforts!
Dear Lammert, thank you for your explanation of how Rutte Netherlands believes it should treat pensioners fiscally because we prefer to spend our old age in a warmer climate in many respects. I, too, am of the opinion that the general tax credit and the elderly person's tax credit should simply apply to pensioners with state pension and pension. Why shouldn't we enjoy tax breaks after years and years of working and making our contributions. Not just fiscally. At the same time, retirees living in Thailand or elsewhere should not be denied access to health insurance. Simply remain insured, pay monthly premiums, and pay the ZVW contribution annually via the tax return. But that aside.
Because I think I also owe Thailand tax because I use their services (however imperfectly sometimes) as a resident, I think option B is indeed a good solution.
I am very familiar with the pensioner advocacy foundations abroad you mentioned, and I recently had the privilege of drawing attention to a new foundation: https://www.thailandblog.nl/expats-en-pensionado/pensioen/steun-de-stichting-pensioen-voldoen-uw-claim-om-pensioenindexatie-recht-te-doen-lezersinzending/ The post has generated many responses.
Still, I have a few questions about your calculation: in your example, you assume an AOW pensioner in the Netherlands who pays only 9,42% tax. But isn't that 19,17%? In the Netherlands, every AOW pensioner pays this percentage up to the amount of €36.410, right? That means an assessment of €3355 (instead of €1648). Less tax credits, the assessment to be paid amounts to €1795 instead of €88.
Another 5,5% is deducted from the ZVW contribution = €963. Those who live in Thailand do not have to pay this contribution.
The total tax assessment in the Netherlands is then € 2757.
The state pensioner living in Thailand is slightly cheaper in the current situation. Is my reasoning correct?
Hi Ruud,
Your calculation is incorrect. The percentage of 19,17% you mentioned consists of 9,42% payroll tax/income tax and 9,75% national insurance contributions (9,65% Long-Term Care Act premium and 0,10% General Surviving Dependents Act premium). When living in Thailand, however, you are not insured for the Wlz and the Anw. In the comparison between Thailand and the Netherlands, you should therefore disregard the applicable percentages. Otherwise you will be comparing apples with pears.
Dear Lammert, thank you for your answer. But isn't the reasoning of the Dutch legislator that instead of tax credits we no longer pay national insurance and health insurance premiums because we are not (or are not allowed to) use them, so that we still come off well on a net basis? Isn't that legally contestable? Because to only grant the right to tax credits to pensioners if they live in countries as mentioned under 1 in your explanation, that can only be arbitrary or arbitrary, can it? What reasoning has been followed by the legislature here? Is that known to you?
Hi RuudJ,
When living in Thailand, no national insurance contributions are indeed deducted from your Dutch income, which means that you “will come off well”. However, that is an apparent advantage since you are no longer insured for the national insurance schemes. It is not for nothing that emigrants often take out voluntary AOW insurance with the SVB in order to avoid or limit an AOW shortfall.
And because you do not pay any national insurance contributions, you are also not entitled to the premium component of the tax credits.
So far everything is going correctly.
Under the new tax treaty concluded with Thailand, the Netherlands is the only country that is allowed to levy taxes on your Dutch income. Thailand is completely sidelined. In that case, in my view, you should be entitled to the tax component of the tax credits.
The fact that Dutch people living within the aforementioned circle of countries are entitled to the tax component of the tax credits, provided that their worldwide income is taxed for 90% or more in the Netherlands, is related to EU law, but which does not apply to you if you live in Thailand. You can indeed call this discriminatory, but it is permitted on the basis of ECJ jurisprudence (including the Schumacker judgment), now that it is based on the territoriality principle (living in the aforementioned circle of countries versus living in Thailand).
The reasoning of the government is therefore easy to guess. She would have preferred to exclude the right to tax credits for every Dutch person living abroad. However, this would be contrary to EU law. That is why an exception has been made for residents of the EU, EE, Switzerland and the BES islands, subject to further conditions.
I remain of the opinion that, when living abroad, the right to tax facilities, such as tax credits and deductions, should possibly be linked pro rata to the country that is authorized to levy taxes on your income and not to the country where you happen to live. lives!
At the start, in 2015, I already wrote/mailed political parties and Stichting Goed. The political parties did not even consider it necessary to answer. St. Goed didn't think it was her job to take action on this and certainly not because I hadn't made a donation yet. I don't expect anything at all from action now, 8 years after the start. Perhaps when Rutte has finally disappeared. But that will take another 10 years or so.
Hi Henk,
You were a little too early in 2015. I note that the VNGB and Stichting GOED are now aware of the problem of the division into qualifying and non-qualifying non-resident taxpayers. And that applies in particular to the VNGB, where most of the expertise is housed.
In my article I very deliberately did not suggest contacting a political party. I don't see any point in that. I very consciously mentioned the name of Pieter Omtzigt, the former CDA politician and now an independent Member of Parliament.
Omtzigt is a very driven and critical Member of Parliament who frequently denounces abuses.
When his name also came into the picture during the cabinet formation, it was not for nothing that the message appeared: "Omtzigt function elsewhere?" As a man with clear principles, he was considered too difficult.
He then continued as an independent Member of Parliament.
Before that, he had ensured that the CDA was not minimized after the elections by single-handedly giving the CDA three seats in parliament with preferential votes cast for him.
It is a clear explanation of the inequality that has been introduced.
But if you have worked and paid taxes for more than 50 years, the foreign tax office is of the opinion that I have filled in something incorrectly. Had no problem until last year when I suddenly received a letter that they could not assess my tax return correctly and they immediately gave a period that they could use of a maximum of 3 years.
This seems very strange
There is a lot of inequality in the world.
Sometimes this is unfavorable for the expat, sometimes favorable.
Sometimes it works out favorably for one expat and not for another. (married or not, cohabiting or not, partner with income or not)
A lot has to do with the fact that the government (at the request of all of us) has made so many rules and exceptions that we can no longer see the wood for the trees. Life is not as complicated as the rules of the (in this case Dutch) government.
I must say that I - living in Thailand - am glad that I do not have to meet the same conditions as Thai citizens who want to live in the Netherlands (with their partner). I think that many expats here would not pass a Thai integration exam and would have mastered the Thai language, with the punishment to return to the Netherlands.
Last week I met a Thai man in Udonthani who started speaking Dutch to me when he heard I was from the Netherlands. He worked as a cook in Maasticht for 20 years and had to learn the Dutch language in order to stay.
According to your own statements, you have been away from the Netherlands for many years, you have worked as a teacher in Thailand, you have at least AOW and ditto NL pension, you have an insignificant Thai pension, but you enjoy incoming financial contributions from your Thai wife resources. Fine! But why do you still get involved in discussions like this, while you have no contact with it (anymore)?
Excuse me? Do you think I no longer pay tax in the Netherlands?
You could call the foreign service and ask where the problem is, and then you might be able to put it right quickly.
Despite the fact that I have read negative reports about the foreign service in the past, I have always had good experiences with the employees.
But be kind and polite, of course.
Jan, unfortunately you don't say what the service asked you in that letter. Did they explain WHAT was wrong with your declaration? That is the minimum you can demand.
Dear Lammert, we have had this legislation since 2015 and wasn't that the year in which the coalition had a narrow majority in the senate?
I read above that 'Rutte' is blamed, but fortunately legislation in NL still depends on a majority in both chambers! We have just seen from the new pension legislation that the opposition also wants to vote with the coalition if buckets of negative advice are poured out on the senate. As the leader of the BBB Senate faction said on TV, "we judge by the bill." I wonder whether, in the new senate composition, a majority would be found for a similar 'qualifying taxpayer' proposal.
I have no hope that this piece of legislation will ever be replaced by a fairer system. I once asked about this when the Health Insurance Act came into force (2006) and I received the answer from one of the political parties: 'You have your money on your back in the sun…'. Well, with the idea that the Spanish sun is allowed (EU rules) and the Thai sun is not, you will never get there…
Hi Eric,
It is certainly thanks to Wilders and ultimately Rutte that we are now stuck with such a monstrosity of tax legislation. It is, however, a result of a bill proposed to the House by the Rutte II Cabinet. On this point, no initiative bill from the House could have been expected.
It is remarkable that this amendment to the law was adopted by both Chambers almost without any discussion.
It was not until the new tax treaty concluded with Germany that there was some discussion regarding whether or not foreign tax liability qualified and an example calculation was submitted to the House, which unfortunately was also faulty.
Dear Lammert, exactly what you write! I think that the Rutte cabinets would prefer to abolish all emigration facilities. The health insurance was the first, the tax credit the next.
An article in this blog explained the plans of the 'right', including closing embassies, which would increase the travel time of migrants. After 2006 (the new health insurance) I never understood why Dutch people in Thailand voted so en masse for the right as for PVV, Forum and VVD.
What more can we get if the shift to the right continues? More rejections for Schengen visas? The end of the BEU treaties, as a result of which all AOW will go to the 50% benefit? Or will the country factor come into view, as a result of which all benefits from the security will fall? The legal options are there and you will not be bothered by EU judges because their jurisdiction ends at the border of the EU.
I fear that our 'own' migrants will be the victims if the state budget becomes less well filled and people start looking for opportunities. In that light, I am pleased with the rise of the left in the last elections, although you never know whether red will let go when it comes to dealing with money. And good old Wim Kan already knew the latter…
Rutte 2 was the cabinet with our friends from the PVDA, wasn't it?
That is probably why there were no problems in the 1st room.
What you also have to count for the sake of niceness and clarity is not having to pay, (logical because people live in Thailand), of rent, care and possible other benefits.
With my income (2022) of just under €20.000, I may pay €1929 in tax from next year.
When I was still living in the Netherlands, I received around €5000 in rent and healthcare allowance (figures 2016).
They no longer have to pay them. It's okay that I don't get those benefits anymore because I pay much lower rent here and I don't have health insurance, but the government spends less on me.
I think those amounts should also be included.
In itself I have no problems with paying taxes, but this is very crooked.
And then I'm not even talking about the "Zuidas"
G'day Lammert,
Thanks for this explanation. This week I read documents in the House of Representatives that the new tax treaty between the Netherlands and Thailand has now been signed by the Dutch government. The entrance now only depends on signature by Thailand, which could possibly happen at the end of 2023 or in 2024. I am now reading the recently concluded tax treaty with Chile, which is based on the same principle. That might be an interesting piece to study in preparation for the new treaty with Thailand. Article 28 deals with being “qualified” or not. At first reading, it looks like the Netherlands is granting itself even more rights to self-tax all income, including pensions.
Hello Gerard,
I fully assume that the new Treaty will enter into force on 1 January 2024. After all, this Treaty has been concluded at the request of Thailand and in which all wishes of Thailand have been met.
Your conclusion is absolutely correct. In the press release from BUZA regarding this new treaty, a total source state levy for all sources of Dutch income was already announced. This is entirely in accordance with the Fiscal Treaty Policy Memorandum 2020.
This means that Thailand no longer has the right to tax on income from the Netherlands, so that you can no longer capitalize on the Thai tax facilities. Since the Netherlands is the only taxing country, in my opinion you should be entitled to Dutch tax facilities, such as tax credits and deductions due to personal obligations. However, these rights are not linked to the country that is allowed to levy taxes on your income, but to the country where you happen to live (EU+). And that's where the shoe pinches!
Dear Lambert,
Thanks for this article.
The change in 2015 cost me thousands of euros. On June 1, 2014, I took early retirement from my position at the Dutch embassy in Bangkok. From June 1 to October 28, I received no income or pension. The embassy pension only started on 28 October.
Without the change, as a resident taxpayer, I was entitled to resources from my income for the years 2013-2015 (1 year full salary, 1 year 5/12th salary and 1 year zero). Unfortunately, as of January 1, 2015, I was treated as a non-resident taxpayer, so that the averaging was no longer possible.
At the end of August, after 10 years, my payroll tax exemption in the Netherlands will expire. Today, the letter from the Tax Authorities states that the exemption has been extended until January 1, 2024. Because then the new treaty with Thailand to prevent double taxation will enter into force, according to the Office.