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Will the corona crisis affect your fiscal place of residence?
The corona crisis has greatly affected people's ability to travel. Travelling abroad or returning home from a foreign destination was (and in cases, still is) not always possible. This may affect the place of fiscal residence
Implications for individuals
Under Dutch law, an individual’s place of residence is determined ‘based on the circumstances’. This is a broad concept and may sometimes lead to discussions with the Dutch Tax Authorities. In practice, the Dutch Tax Authorities will assess whether a person has long-term personal ties with the Netherlands. A temporary stay either abroad or in the Netherlands, will not generally impact your fiscal residence. This is especially true if the temporary stay is caused by the corona crisis.
Consequences of changed place of residence
If the Dutch Tax Authorities conclude that your fiscal residence has changed, this may have far-reaching tax consequences. A fiscal resident of the Netherlands is subject to tax on their worldwide income. People who are not fiscal residents of the Netherlands, are by contrast ‘only’ subject to Dutch taxation on specific Dutch sources of income.
Fiscal residence in two countries, is that possible?
In some cases, both the Netherlands and a different country may consider someone to be resident for tax purposes. In such cases, tax treaties will often determine in which country that person is a resident for treaty purposes. This generally prevents double taxation from occurring.
Fiscal residence of companies
The corona crisis may also affect the fiscal residence of companies. In determining that residence, the place of effective management is relevant. Where are the most important decisions taken? As many board decisions are currently taken during online (board)meetings, the question arises whether this leads to a change in the place of fiscal residence. After all, the company is no longer run from its country of residence, but rather from the places of residence of its directors, as they (jointly) make decisions online, working from home.
Consequences of changed place of residence
If a company emigrates, this may have significant tax consequences. It is possible that an exit tax is levied on any hidden reserves present in the company. Companies may also be faced with dual residence. Here too, tax treaties usually provide a decisive answer regarding residence.
Starting point: corona crisis should not affect fiscal place of residence
The Organisation for Economic Co-operation and Development (OECD) has published a report on the consequences of the corona crisis with regard to among others the fiscal place of residence of individuals and companies. The report concludes that exceptional and temporary changes as a result of the corona crisis should not affect the fiscal place of residence. The situation must be assessed over a longer period of time.
No immediate consequences in the Netherlands
The Secretary of State for Finance and the Dutch Tax Authorities have confirmed that the Netherlands agrees with the OECD analysis. A temporary change in your circumstances as a result of the corona crisis, should not have immediate consequences for your fiscal residence, or the residence of your company.
Make sure you are properly prepared
However, should the Dutch Tax Authorities nevertheless argue that a fiscal immigration or emigration has taken place, this may have significant tax consequences. A discussion regarding fiscal residence often hinges on the specific facts and details of the case. It is therefore important to identify any potential risks at an early stage, in order to document and map them as completely as possible. For example, if your board meetings are currently held online , it would be prudent to (specifically) document that this is a result of travel restrictions and not a conscious policy change.
Need assistance regarding fiscal immigration or emigration?
If you have any doubts or queries regarding whether changes in your circumstances may lead to a fiscal immigration or emigration, or if you would like to discuss the risks and consequences, please feel free to contact our tax advisors.