5 October 2017

Exemption method also applies in the tax treaties concluded by the Netherlands with the Gulf States

The State Secretary for Finance approved on 13 September 2017 that residents of the Netherlands can apply to the so-called exemption method for work performed in one of the Gulf States (Bahrain, Kuwait, Qatar and the United Arab Emirates), Oman and Saudi Arabia.

The Netherlands generally declares income from employment, which has been allocated to a country with which the Netherlands has concluded a tax treaty, free through the so-called exemption method (with progression reservation).

In a number of cases the tax treaties with the Gulf States generally prescribe a so-called credit (or settlement) method. This method is generally less favourable because only the tax actually paid in the country of employment qualifies for set-off. It can be said that the exemption method is always more favourable if the foreign tariff is lower than the average Dutch rate.

The State Secretary is of the opinion that the settlement method leads to unintended differences in treatment and competitive disadvantages for residents of the Netherlands working in one of the Gulf States in employment.

For these reasons, it is approved that residents of the Netherlands who carry out work in one of the aforementioned countries (and where the tax law has been assigned to one of those countries under the relevant tax treaty) may apply the exemption method.

The decision of the State Secretary will go back to 1 January 2015.

Amsterdam, October 5, 2017

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