What are the possibilities for homeownership & mortgage interest deduction across the border?
If an employer has recruited an international employee who moves to the Netherlands, it is possible that this person owns a house. The house can be kept abroad or the employee can buy a real estate in the Netherlands. This article gives more information whether the foreign employee does have to pay taxes on his home in the Netherlands and whether the mortgage interest is deductible in the Netherlands.
Buying a house in the Netherlands
There are two different possibilities to buy real estate in the Netherlands. The home is taxed in Box 1, like for example the salary, or the home is taxed in Box 3 (income from savings and investments).
If the employee moves into the new home him/herself, then this house is likely to be the main residence. The home is then taxed in Box 1. If a mortgage has been taken out by a Dutch bank, then in most cases the mortgage interest for this loan is deductible. If the employee would take out a loan for a new home with a foreign bank, then the interest is only deductible when the employee repays the loan at least as an annuity within a maximum of 30 years. The employee may deduct the interest owed, minus residential enjoyment expressed in euros (notional rental value) from the taxable income in the Netherlands.
If the foreign employee buys a home in the Netherlands to rent it out, then this property (home) is in principle taxed in Box 3. The tax authorities calculate a notional return on the difference between the value of the home and the debt that is offset by it. The actual rental income is therefore untaxed. This can change in case the employee is too much involved with the management of the house. It is also important to understand that costs for a house taxed in Box 3, such as mortgage interest or renovation costs, are not deductible.
Foreign home owner
What are the tax consequences if an employee moves to the Netherlands and keeps a home abroad?
If a foreign home owner decides to rent out the house during staying in the Netherlands, then in most cases the foreign house is taxed in Box 3. The employee is obliged to declare the value and associated debt of the house in the tax return with the date of January 1 of that particular year. Depending whether the Netherlands has concluded a tax treaty with the home country of the employee, the treaty will most probably state that real estate income is taxed in the country where the property is located. A prevention of double taxation will be granted by the Netherlands. If an employee has assets, some taxation may still remain in the Netherlands, despite the exception granted. This is called a progression disadvantage.
Note: the foreign home does not need to be declared in case the 30% ruling is granted to the employee.
The employee can also decide to keep the foreign home vacant pending a sale or returning to the home country. In such complex situations your employee may be entitled to a mortgage credit on the foreign home in the Netherlands. The global mobility specialists of DRV Accountants & Advisors are happy to find this out.
Temporary employment scheme
Do you have employees moving from the Netherlands on a temporary base to your company based abroad? They can also conditionally deduct the mortgage interest in the Netherlands.
This requires that:
the house is empty; or
persons belonging to the same household before transfer are remaining in the house; or
anti-squatters with a squat guard agreement stay in the house.
At the same time the employee is not allowed to receive income from another property, for example, from an owned house in the working country. If your employee has no taxable income in the Netherlands during a temporary assignment to deduct the mortgage interest deduction, then the interest deduction will be shifted to the first year in which the employee has again taxable income in the Netherlands. The temporary employment scheme is quite specific.
Just recently there has been litigation, whereby interest deduction was canceled because an outliving daughter stayed for one month in the parents residence before she could move into her owner-occupied home. A relatively simple solution could have prevented this loss. Therefore, it is important that the employee is well informed before leaving for a foreign country.
Conclusion
Whenever you as an employer recruit an employee from abroad, it is important to know that the person is aware of the Dutch real estate taxation. It is advisable to be well informed in time.