Approval for tax exemption under tax treaties Gulf States

16 November 2017 Add expertise tag Add service tag Add country tag
Bahrain Kuwait Oman Saudi Arabia United Arab Emirates

On 7 September 2017 the State Secretary of Finance issued a Decree in which an approval is included for Dutch residents to use the tax exemption on certain employment income that is (partly) taxable in one of the Gulf States. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates fall under the Gulf States.

The approval aims to improve the position of employees that reside in the Netherlands in comparison to local employees and to eliminate inequality of the methods to prevent double taxation in the tax treaties. In some tax treaties between the Netherlands and the Gulf States (such as Bahrain and Oman) a relief for double taxation for employment income can only be claimed on the basis of the credit method. By using the credit method, the taxes paid in the foreign country can be deducted from the taxes payable in the Netherlands. However, employees are not liable to tax in the Gulf States, which means that no relief for double taxation can effectively be claimed. This means that the employment income from Bahrain or Oman is fully taxed in the Netherlands (against a maximum tax rate of 52% for 2017). This has now been adjusted by the Decree. When using the tax exemption method, a relief for double taxation can be claimed for the income tax that is due on the income that is attributable to the other country.

Please note that based on the tax treaty between the Netherlands and the United Arab Emirates (Dubai among others), it is already possible to claim a relief for double taxation on the employment income by using the exemption method. However, the Decree now expands the exemption method to income derived from an employment exercised aboard a ship or aircraft in international traffic as well.

The Decree is rather remarkable. The State Secretary appears to find the Dutch competitive position and elimination of inequalities more important than to prevent double non taxation, since in most Gulf States no taxes are levied on employment income.

The Decree is applicable retroactively as of 1 January 2015. In case you suspect that your situation has changed on the basis of the Decree and wish our assistance with amending your 2015 and/or 2016 Dutch income tax returns or otherwise, please feel free to contact our consultant.