If you have income that varies significantly from one year to another, for whatever reason, there’s a less well known Dutch tax ruling that could be to your benefit.
‘Middeling’ – which means averaging – looks at three consecutive tax years to find your average income. With this average in place, your tax is recalculated and if you would owe at least €545 less in tax than you actually paid, the amount can be refunded.
Think, for example, of a change in job, a period out of work, or perhaps a year in which you received a substantial bonus, followed by less lucrative years. All of these could be instances in which it is worth your while to investigate your tax situation using the three-year average.
There are a number of important conditions: averaging can only apply to income that falls into Dutch ‘box 1’, which covers work and your own home. The three years must be consecutive, and you need to have a definitive tax return for the last year for which you are claiming for the averaging. In all that time, logically, you need to have been paying tax in the Netherlands.
One ‘averaging’ period cannot overlap with another, and you need to submit the request within 36 months of the time when the tax for those years is definitive and no more subject to any challenge (generally a six-week period). In the averaging, any year with a ‘negative’ income from work and deductible housing costs, will be treated simply as zero.
A Blue Umbrella spokesman said that few expats are aware of the possibility for averaging, but that it could make a significant difference for some. ‘If you have had varying income, for example with a job change or a bonus, it is well worth looking into whether it would be to your advantage to submit a claim for averaging,’ he said.
Once an application is made, it typically takes around eight weeks for the Dutch tax office to decide on your situation, and you will get the result digitally in your government mail box (at MijnOverheid or Mijn Belastingdienst) and also on paper.
Blue Umbrella is starting a new service to help expats who would like to investigate their situation and, if it is to their advantage, to apply for the ruling, which has to be done by a written request to the local tax office in Dutch.
For a trial period, this service will be available for an all-inclusive fee of €95 plus BTW.
Contact Blue Umbrella to find if averaging could be advantageous for you.