In recent years, there have been many discussions about the pensions individuals have accrued when they choose to emigrate. The basic rule is that it’s not the Netherlands but the country where you reside that has the right to tax your pension. However, what’s the current situation? If your pension accrual in the Netherlands through your employer provided you with tax benefits, the Dutch tax authorities want to reclaim those benefits if you decide to emigrate.
No More Pension Buyouts Abroad
Many people who emigrate opt for a mix of sun, peace, culture, and lower taxes. In some countries, pension income is taxed far less than in the Netherlands. However, due to the Wage Tax Act and the Pension and Savings Fund Act (PSW), the option to buy out pensions abroad at favorable rates is essentially no longer possible.
Business Owners and Pensions
That said, there appears to be a loophole in the law, particularly for directors and major shareholders (DGA). Since most treaties assign taxation on pension buyouts to the country of residence, this means in principle that the Netherlands cannot tax the buyout. However, as the premiums were deducted from Dutch taxable profits, this creates an opportunity for the Dutch tax authorities to step in.
Under the old Pension and Savings Fund Act (PSW), buying out a pension (receiving it as a lump sum) was not allowed. However, with the new Pension Act (PW) that came into effect in 2007, DGAs are not automatically covered. This makes pension buyouts a possibility again.
Wage Tax Act Obstacles
The Wage Tax Act presents additional challenges. If you buy out your pension, there is a penalty interest rate of 20%. Additionally, the buyout is immediately taxed as income, leading to a potential tax rate of 70%. Even though older treaties dictate that the country of residence, not the Netherlands, has the right to tax pension income, these national rules are often disregarded when it comes to emigration and pension buyouts.
Moreover, the Netherlands imposes a preservation assessment on pension reserves when someone emigrates.
No Collection in the First Ten Years
For the first ten years, the preservation assessment is not collected. However, if a buyout occurs during this period, taxes are applied. This issue has been the subject of debates in courts, including the Supreme Court and the European Court of Justice. It is expected that the preservation assessment will not hold up. The Supreme Court has ruled that the Netherlands cannot unilaterally alter agreements with other countries, as is the case with the preservation assessment. On June 19, 2009, the Supreme Court issued two rulings that firmly stated the preservation assessment on pensions is prohibited.
Seek Expert Advice
This article provides an overview of what happens to your pension if you emigrate. However, due to the complexity of pension legislation and tax rules related to emigration, it’s crucial to consult an expert.
What About Your House?
After much deliberation, have you decided to emigrate? Perhaps for work or to follow your dream. Then there’s the question: what should you do with your house? More and more often, homes are not sold immediately but rented out for a few years. This provides a “safety net” in case living abroad doesn’t work out as planned.
HouseScout can completely take over the management and maintenance of your property. Contact us to explore the possibilities!