One of my most shocking discoveries in working with US clients in the Netherlands is how few of them realize that they are potentially subject to Dutch Inheritance Tax (Successiebelasting). Many US citizens living in the Netherlands (actually their heirs) would in fact owe this tax if they passed away. In contrast, relatively few individuals in the US exceed the tax-free estate limits (note: there is currently no US estate tax for individuals who pass away in 2010).
Who is subject to Dutch Inheritance Tax? As a US citizen, you are potentially subject to Dutch Inheritance Tax on worldwide assets if any of the following conditions are met:
1) You had a “tax domicile” in the Netherlands for 7 of the 10 years prior to your death (i.e. you have lived in the Netherlands for 7 years or more);
2) You lived in the Netherlands for fewer than 7 years but were not in the Netherlands for business, professional, educational, training, tourism or similar purpose (e.g. retiree or non-working spouse married to a Dutch national);
3) You lived in the Netherlands for fewer than 7 years but you had a clear intention to remain indefinitely in the Netherlands; and/or
4) You are a US-Netherlands dual citizen who is a Dutch resident and/or was a resident of the Netherlands at any point in the 10 years prior to passing away.
In addition, even if you are not considered a Dutch resident, real estate located in the Netherlands will be subject to Dutch Inheritance Tax.
What is “Inheritance” Tax? It is a very different concept from the US “Estate” Tax. In the US, Estate Tax is paid in its entirety by the estate of the individual who passed away, and the remainder is then distributed to the person’s heirs. In the Netherlands, the individual who receives the inheritance is responsible for paying the Inheritance Tax (whether the recipient is resident in the Netherlands or not).
There are currently three Dutch Inheritance Tax rate categories, depending who the recipient is in relation to the person that passed away.
Category 1: Spouses (incl. registered partners) and children (Maximum rate = 20%)
Category 2: Grandchildren (Maximum rate = 36%)
Category 3: Others (Maximum rate = 40%)
The tax-free amounts (2010) are also very limited:
Spouse/Partner: EUR 600,000
Children: EUR 19,000
Grandchildren: EUR 19,000
Chronically Ill or Handicapped Children: EUR 57,000
Parents: EUR 45,000
Others: EUR 2,000
Are you subject to Dutch Inheritance Tax? If so, it probably makes sense to meet with an expert in this field to discuss planning opportunities. In general, most people can focus on the Dutch aspects since the US tax kicks in at a much higher level. However, I would still recommend reviewing any Dutch estate tax planning for the US tax implications.
Thanks to Robert Bosma of Finsens Planning (www.finsens.nl) for his review and input for this post.