How to Avoid Double Taxation as a US Expat

| Expats Overseas

Navigating the tax landscape as an American expat in the Netherlands can be challenging, US citizens residing in the Netherlands, need to understand how to effectively manage both their US and Dutch tax obligations to avoid double taxation.

Annual Tax Filing in the US and the Netherlands is Mandatory

As a US citizen or green card holder living in the Netherlands, you are obligated to file tax returns in the US every year, regardless of your residency. The US's citizenship-based tax system means your worldwide income is taxable. Consequently, you must file tax returns in both the Netherlands and the US.

Minimizing Additional Tax Liability

Often, you will owe little to no additional taxes if the rules are correctly applied. The taxes paid in the Netherlands can usually be offset against your US tax obligations (form 1116). Several mechanisms facilitate this, such as the tax treaty between the US and the Netherlands, and the Foreign Earned Income Exclusion (form 2555) which exempts the first $120,000 of foreign income from US tax (adjusted annually).

Understanding Filing Deadlines and Extensions

  • US expats are granted an automatic two-month extension for filing US taxes, typically extending the deadline to June 15th (if the day falls on a holiday or weekend it shifts).
  • You can request further extensions using Form 4868, potentially prolonging the deadline to October 15th or, in some cases, December 15th.
  • Remember, the deadline for FBAR (Foreign Bank Account Reporting) is fixed on October 15th.
  • Note: the deadline to pay tax is April 15th, there is no extension.

The Importance of FBAR for US Expats in the Netherlands

FBAR requires you to report the highest balances of your foreign bank accounts annually. Your Dutch bank accounts and other non-US accounts are considered foreign in this context. Although FBAR filings don't lead to direct taxation, failure to comply can attract substantial penalties.

Catching up with your US Tax filings

If you're behind on your US tax obligations or weren't aware of your filing requirements while living in the Netherlands, the IRS's Streamlined Procedure allows you to update your filings without penalties. This involves submitting the last three years of tax returns and six years of FBARs.

Maintaining a US Bank Account

Keeping an active US bank account is advisable for receiving government benefits like refunds and ensuring smooth financial transactions, particularly crucial for retirees in the Netherlands.

Seeking Professional Guidance

Consulting with tax professionals experienced in US and Dutch tax regulations is strongly advised. Incorrect filings can lead to double taxation, fines, and/or other legal complications which are often costly to solve.

Experts in US Expat Taxation

Our company, Expats Overseas is founded by American expats in the Netherlands and has a deep understanding of how to accurately apply the tax treaty and tax credits.

We offer an easy-to-use tax organizer for submitting your information in one go, competitive pricing, and a fast turnaround time of just four weeks after receiving all needed information and documents.

We place a high value on personal service, ensuring accessibility and responsiveness. With over 1,000 reviews, we have assisted more than 18,000 individuals with their tax needs and proudly maintain a 4.8-star rating on Trustpilot. Contact us free of charge and without any obligation