What the end of the partial non-resident tax liability means for you

Since the start of 2025, those receiving the 30% ruling can no longer declare themselves as partial non-residents of the Netherlands. This has a major impact on all those affected, but especially for US citizens. Mia van Dijk from tax specialists BDO explains more about what this change might mean for your tax bill. 

For US citizens who receive the 30% ruling, the removal of their eligibility to receive partial treatment as a non-resident taxpayer has brought significant changes. They, like all other employees with the 30% ruling, can no longer choose to be considered as a partial non-resident taxpayer. As a result, their income in both Box 2 (income from substantial interest) and Box 3 (income from savings and investments) will be fully taxed in the Netherlands.

This particularly affects employees who are US citizens, because they are also considered a tax resident of the US based on their nationality. For this group, it is important to consider how the changes, which came into effect on January 1, 2025, will affect them. For those who were already receiving the 30% ruling in 2023, a transitional law applies, meaning the change for them is delayed until January 1, 2027.

Tax residency in the Netherlands

To decide whether someone is taxed in a country, it is important to determine where they are a tax resident. Tax residency in the Netherlands is determined on if their circumstances indicate that there is a sustainable bond of a personal and economic interest with the Netherlands. That bond does not have to be stronger than the bond with another country, which means that someone can be seen as a tax resident in both the Netherlands and another country.

Partial non-resident taxpayer

Employees to whom the 30% ruling has been awarded may have opted to be treated as a partial non-resident taxpayer for Dutch tax purposes. This means that income from both substantial interest (an interest of 5 percent or more) and from savings and investments is only reportable and taxed if it comes from Dutch sources of income, such as real estate established in the Netherlands or a substantial interest in entities in the Netherlands. They did not have to report their worldwide income.

Tax residency from a US perspective

The US has a tax system that is based on nationality. This means that US citizens - individuals born in the US or who have a green card, regardless of the nationality of their parents - remain subject to US taxation even if they reside in another country.

Double taxation for US employees in the Netherlands

In many cases, US employees who live and work in the Netherlands are considered tax residents of the Netherlands. This means that they are taxed on their worldwide income in the Netherlands based on Dutch law, but are also liable for tax in the US based on the US legislation.

A tax treaty between the Netherlands and the US aims to prevent double taxation by allocating tax rights over income sources like employment. For the purposes of the tax treaty between the Netherlands and the US, an individual who has chosen to be considered a partial non-resident of the Netherlands is not considered a tax resident in the Netherlands, even if they would usually be so on the basis of Dutch national legislation.

Since the option to take the status of partial non-resident has been abolished as of January 1, 2025 (or January 1, 2027 if the transitional law applies), an individual might now qualify as both a tax resident in the Netherlands and the US, despite the tax treaty between the countries.

If so, the tax treaty uses a tiebreaker provision to determine the tax residency of an individual who might be considered a tax resident of both countries. The decision as to which country the person is considered tax resident is solely for the purposes of the tax treaty. It will not have any impact on the status of the person under domestic legislation.

Tax consequences for US nationals

When a US citizen opted for the partial non-resident status, the right that the Netherlands had to levy tax on their employment income was generally limited to the income that was received for work that was done within the Netherlands. Remuneration that could be allocated to workdays done outside the Netherlands was not subject to taxation in the Netherlands.

The effect of removing the partial non-residence status is that the worldwide income of this US citizen becomes subject to taxation in the Netherlands, including the income that can be allocated to the days that they worked outside of the Netherlands. Furthermore, they should now declare their worldwide income in the Dutch personal income tax return. That includes their passive income, e.g. balances of all bank accounts and stock portfolio, properties and other assets (e.g. 401K/IRA accruals).

Without the shelter of the partial non-resident status, the employee should pay taxes in the Netherlands based on their worldwide income but then may be able to claim tax relief if the tax treaty tiebreaker allocates taxing rights to the USA. Further tax relief for any double tax incurred should be claimed in the US.

So, now that US citizens cannot opt for the partial non-resident status, this will not only affect their personal income tax return in the Netherlands, but also their US tax return. In addition, in cases of compensation agreed under tax equalisation or under tax protection arrangements, this may have an impact on the employment costs for their employer.

If you are worried or unsure about how this change in tax law will affect you or your employees, email BDO at info@bdo.nl or call them on (040) 269 81 11 to speak to an expert and find out more.