Considering Relocation to the EU? Discover the benefits of moving to the Netherlands with Migrantic

Jun 21, 2024

Given the current and expected political and legal turmoil in the United States, many U.S. citizens are considering relocating to the European Union (EU).

The Netherlands offers an attractive package with its outstanding healthcare system and consistent top-ten ranking in the World Happiness Index. The Netherlands boasts excellent physical (e.g., Schiphol airport, public transportation, road networks), IT, legal, and tax infrastructure. Additionally, as the best friend of the U.S. on the European continent, the Dutch tax system offers numerous benefits for individuals and companies migrating, supported by an extensive tax treaty network. For example the Netherlands and the US have concluded a treaty called the Dutch American Friendship Treaty (DAFT), enabling US citizens to obtain a work and residence visa relatively smoothly.

At Migrantic, lawyers for Tax and Global Mobility, we specialize in a tailored approach to your tax structure. If necessary, your new structure can be up and running within a week. With 30 years of experience and wide-ranging expertise, we ensure you won’t risk being overbilled.

Preparing for your move as US individual shareholder

Properly structuring your savings and investments before migration is crucial for the most efficient asset allocation under Dutch tax law. Without proper planning, you could end up paying 49.5% or 33% Dutch income tax on your income. Understanding how the DAFT can facilitate your relocation is also essential.

At Migrantic, we have developed a structure that caters to both needs, especially for US citizens having their own closely held companies.

Key Considerations

Suppose that you have significant (>5%)  shareholding in your American company and decide to move to the Netherlands, using the DAFT visa.

Migrantic provides non-Netherlands resident companies with goodwill and hidden reserves, the opportunity for tax-free capital repayment under Dutch income tax laws (a ‘step-up in basis’).

For example, if the company has a share capital worth €500,000, after moving to the Netherlands it can repay €100,000 of capital in a lumpsum or annually to its shareholders using a special procedure advised by Migrantic.

In short, the procedure is as follows; as a new resident of the Netherlands, you need to change the articles of association of your company, providing evidence of a qualifying capital repayment. Annually or, if desired, one-off repayments are completely tax-free under these conditions. This allows you to avoid a dividend tax rate of 33% (24.5% on the first EUR 67,000) or income tax at a top rate of 49.5%. A significant advantage.

With a value of the shares per the immigration date of say $1,000,000, the new cost basis becomes $900,000 after the first repayment.

In the United States, as we understand, a similar treatment applies; the return of capital is generally not considered taxable income for federal income tax purposes. This return of capital is viewed as a return of the original investment and is not taxable, but it does reduce the investment’s cost basis.

By adhering to these principles and ensuring proper documentation, you can benefit from the tax-free treatment of capital repayments.

The structure also involves the incorporation of a new Dutch company. Apart from the DAFT visa, this company will have additional benefits for example by ring fencing the taxable Dutch profits compared to the profits of the US company/worldwide profits.

Additionally, our assistance with attaining the DAFT visa can make your transition to the Netherlands smoother. The resulting package will make your choice to come to the Netherlands much more advantageous compared to most other EU countries, allowing you to focus on your work or business, and enjoy the benefits of living in a stable and welcoming country.

Please contact our partner Leon van Baal for an initial 30-minute consultation, free of charge!