Relocation from Israel to The Netherlands

The Netherlands offers a variety of advantages for immigrants considering relocation, whether for employment, investment, education, or improving quality of life. The country is characterized by a stable economy, a high quality of life, and an advanced education system. The Netherlands provides a foreigner-friendly environment thanks to the high percentage of residents who speak English fluently, a diverse culture, and unique tax benefits for foreigners that significantly reduce the tax burden. All these factors make the Netherlands an attractive destination for Israelis seeking new opportunities.

However, moving to the Netherlands, like any relocation to a foreign country, involves significant challenges. These include the need to become familiar with the local bureaucratic system and to comprehensively understand the legal, financial, and tax implications related to the move. This article presents the main considerations that should be carefully examined before making the move.

The 5-Step process for relocating from Israel to the Netherlands

1. Assess employment opportunities and living costs.
2. Consider terminating Israeli tax residency, taking into account matters such as exit tax.
3. Obtain an appropriate visa or residency.
4. Review your tax obligations under both Israeli and Argentine law, including potential double taxation and available reliefs.
5. Plan fund transfers and banking.

The following sections explain the main tax, legal, and financial considerations for Israelis relocating to the Netherlands.

Key Considerations When Relocating from Israel to the Netherlands

The relocation process consists of several essential steps.

First, conduct a thorough review of employment opportunities in the Netherlands, the cost of living, which varies between cities and regions, the local tax system, educational options for children, available healthcare services, and other important factors.

Second, consider whether you wish to terminate your Israeli tax residency and the numerous implications that come with it. It is important to plan how you will manage your finances and assets, as well as arrange for health insurance. In the Netherlands, public healthcare services are accessible to all residents, including foreigners, through a mandatory health insurance system. This means that anyone who lives or works in the Netherlands is legally required to have health insurance, even if they already have existing international coverage.

In addition, you must arrange your legal status in the Netherlands by obtaining the appropriate work permit, permanent residency permit, citizenship, or visa. Each visa type has different requirements such as age, education, income, minimum investment, employment contract, health insurance, and more. It is essential to select the visa that best suits your circumstances and to arrange it in advance. 

Tax Aspects of Relocation to the Netherlands

When moving to a foreign country, the question of post-move tax obligations in Israel arises. 

The answer usually depends on whether you have terminated your Israeli tax residency.

Termination of Tax Residency

One of the main issues in the relocation process is determining your residency for tax purposes. In Israel, Israeli residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Israel.

If you intend to settle in the Netherlands for the long term, it may be preferable to sever your residency from Israel (for both income tax and National Insurance). Note that Israelis who sever their residency are required to pay an “exit tax” on certain assets.

According to Section 1 of the Israeli Income Tax Ordinance, residency is determined based on the center of life test, and a rebuttable presumption based on the number of days you stayed in Israel, as follows:

• The days test – An individual is considered an Israeli resident if they spent 183 days or more in Israel during a single tax year. A person may also be considered a resident if they spent 30 days or more in Israel during the current tax year. This applies when their total stay in Israel is 425 days or more over the current and two preceding years. This presumption can be rebutted if the individual proves that, despite their stay in Israel, their center of life is not in Israel.
• The “Center of Life” test – This is a substantive test, in which all personal, family, economic, and social ties are examined. These include permanent place of residence, place of economic activity, location of economic interests, and more.

Anyone who meets the days test, i.e., is considered an Israeli resident under this test, must file Form 1348 – “Declaration of Residency”. This form is attached an annex to the individual’s tax report. Its purpose is to declare the termination of Israeli tax residency and to describe the circumstances demonstrating that the individual’s center of life is no longer in Israel.

It is important to note that terminating tax residency is usually not a one-time event but an ongoing process. The Israeli Tax Authority (ITA) may review your residency status even years after leaving. Therefore, it is recommended to keep detailed documentation of all actions indicating the transfer of your center of life to the Netherlands and to avoid creating new ties to Israel.

These days, a dramatic bill to amend the Income Tax Ordinance regarding the definition of Israeli residency for tax purposes has been submitted to the Knesset.

According to the proposal, there will be absolute presumptions that determine the number of days defining an individual as an Israeli resident. These presumptions cannot be rebutted. The “center of life” test will serve only as a secondary tool in cases not covered by these presumptions.

As a result, there may be situations where an individual who has terminated their residency in Israel will still be considered an Israeli resident for tax purposes. This can happen when the number of days spent in Israel in subsequent years is high enough to meet the residency threshold.

To view the draft bill, click here.

Exit Tax

Israelis leaving Israel may be required to pay an “exit tax” on certain assets. This tax is intended to capture the unrealized capital gains of assets held by Israeli residents.

According to Section 100A of the Income Tax Ordinance, an individual who ceases to be an Israeli resident is deemed to have sold their assets on the day before terminating the tax residency (“Exit Day”). The tax is calculated on the notional gain between the original purchase price and the value on the exit day. Note that some assets, such as real estate, may be exempt from this tax.

There are various methods for calculating and paying exit tax liability, each with different implications for the taxpayer. The timing and structure of these payments can significantly impact the overall tax burden. It is highly recommended to consult with an international tax expert before departing Israel to develop a tax strategy that best aligns with your specific circumstances and financial goals.

Double Taxation Treaty between Israel and the Netherlands

Israel and the Netherlands have a double taxation treaty. This treaty is intended, among other things, to prevent a situation where a person pays double tax on the same income. The treaty regulates issues such as determining residency in cases of dual residency, withholding tax rates on passive income (dividends, interest, royalties), and taxation of employment income. 

According to the treaty, income from employment earned by an Israeli resident working in the Netherlands is generally taxed in the Netherlands, provided that the work is physically performed there. However, in certain cases, if the employee is present in the Netherlands for less than 183 days in aggregate during 12 months or if the employer is not a resident of the Netherlands, Israel may retain taxation rights. Each specific situation should be examined individually.

In addition, the treaty also addresses dual residency. In cases where an individual is considered a resident for tax purposes in both countries, the treaty offers equalization rules for determining residency, as follows: 

a) The individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; if a permanent home is available in both States, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests); 

b) If the State in which the centre of vital interests is situated cannot be determined, or if a permanent home is not available to the individual in either State, the individual shall be deemed to be a resident only of the State in which that individual has a habitual abode; 

c) If the individual has a habitual abode in both States or in neither of them, the individual shall be deemed to be a resident only of the State of which the individual is a national; 

d) If the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall endeavor to resolve the question by mutual agreement. 

To read the Double Taxation Treaty between Israel and the Netherlands in English – click here.

How Will Terminating Tax Residency Affect Income Taxation? 

If the move to the Netherlands is temporary, you remain an Israeli resident for tax purposes and cannot terminate tax residency. This means you are liable for Israeli tax on your worldwide income and must report all income, including income from the Netherlands, to the  Israeli tax authorities.

If tax residency is not terminated, it is often possible to claim a tax credit for taxes paid in the Netherlands.

If the move to the Netherlands is permanent and you have terminated your Israeli tax residency, you will only be liable for Israeli tax on income sourced in Israel, while all other income will be subject to tax in the Netherlands. 

For more information on the termination of residency, click here. 

National Insurance 

An Israeli resident staying abroad is required to pay National Insurance contributions, but if they have terminated their residency status, they are not required to pay National Insurance contributions, though they are also not entitled to health services and social security benefits in Israel.

There is a social security agreement between Israel and the Netherlands. The arrangement in the agreement with the Netherlands is designed to prevent a situation where an Israeli resident would be simultaneously subject to both countries and required to pay insurance contributions in both, or alternatively, not be eligible for insurance in either country.

Tax System in The Netherlands

Dutch tax laws do not provide a specific definition of residency for individuals but rather determine it on a case-by-case basis. The main criteria for determining residency include location of permanent home, place where work is performed, place of family residence, registration with local authorities, location of bank accounts and assets, and duration of stay in the Netherlands.

The Dutch tax system is personal, whereby tax residents in the Netherlands are required to report and pay taxes on income from all sources generated both within and outside the Netherlands.

In the Netherlands, taxable income is divided into three different types, with each “box” determining different tax rates according to the source and amount of income.

Box 1: Tax rates for income from employment or business

• up to €38,441 – tax exempt.
• €38,441-76,817 – 35.82%.
• Above €76,817 – 49.5%.

Box 2: Tax rates for capital gains (originating from rights of 5% or more)

• up to €67,804 – 24.5%.
• Above €67,804 – 31%.

Box 3: Tax rate for savings and investments.

• Tax is charged on an estimated annual return, not on actual income received from savings and investments. The estimated annual return is subject to a fixed tax rate of 36% in 2025, unchanged from 2024. A tax exemption threshold of €57,684 applies in 2025.

Corporate Tax

The standard corporate tax rate is 25.8%. There are two taxable income brackets. A lower rate of 19% applies to the first income bracket of €200,000. The standard rate applies to the excess taxable income.

Inheritance tax

In the Netherlands, inheritance tax is imposed on assets transferred to heirs after the death of a Dutch resident, with the tax rate determined by family relationship and inheritance amount. Spouses and children pay 10%-20%, grandchildren 18%-36%, and other heirs 30%-40%, with certain exemptions based on relationships.

The 30% Ruling – Tax Benefit for Foreigners in the Netherlands

The Netherlands offers a tax benefit for foreign workers known as the “30% Ruling,” which allows employers to provide foreign workers who have come to work in the Netherlands with a tax advantage. Under this benefit, up to 30% of their taxable income is granted as a tax-exempt allowance, intended to cover additional expenses resulting from relocating to the Netherlands. The benefit is designed to attract skilled workers from abroad.

Starting from January 1, 2025, the benefit rate will be 30% for all workers for the years 2025 and 2026, and from 2027 it will be reduced to 27%. To be eligible for this benefit, the employee must be recruited from abroad, reside at a distance of more than 150 km from the Dutch border for a significant period before starting work, and possess expertise that is not readily available in the Dutch labor market. Additionally, they must meet a predetermined salary threshold (without the benefit).

For employees who applied for the ruling before 2024, transitional provisions exist, allowing them to continue enjoying the 30% benefit throughout their entire eligibility period as originally determined.

Transferring Funds from Israel to the Netherlands

You should review the various options for transferring funds abroad – bank transfers, international credit cards, etc. Each option has its advantages and disadvantages in terms of fees, transfer times, exchange rates, amount limits, and regulations. Pay attention to reporting requirements for authorities and banks, following anti-money laundering laws and international regulations (FATCA, CRS). It is also advisable to open a bank account in the Netherlands in advance. 

According to Section 170(a) of the Ordinance, when making a payment from Israel to a foreign resident that constitutes taxable income, withholding tax applies. Therefore, transfer of funds which are not constitute taxable income may not be subject to tax but may require an upfront approval from the ITA. 

In addition to this, there are additional requirements regarding the transfer of money abroad, such as an accountant’s approval regarding tax payments or the source of funds, and more.

For more information, see the article “Transferring Funds from Israel Abroad.” 

Opening a Bank Account in the Netherlands

Opening a bank account in the Netherlands is possible for foreigners, but the process requires a valid passport, visa/residence permit, proof of address in the country, proof of income, and sometimes additional documents.

Returning to Israel

When returning to Israel, it is important to carefully assess the potential implications. If you have terminated your tax residency, you may qualify for benefits as a regular or veteran returning resident, depending on the duration of your stay abroad. These benefits can include tax exemptions on income and capital earned outside Israel.

You should also take into account the waiting period of up to six months for the renewal of National Insurance (Bituach Leumi) health coverage, as well as possible benefits available through the Ministry of Aliyah and Integration.

In short, relocation to the Netherlands offers many opportunities, but it is a complex process that requires professional planning, personal guidance, and a thorough understanding of all legal and tax aspects. It is recommended to consult with international tax experts to ensure early and comprehensive planning for a smooth and successful transition to your new life in the Netherlands.

The firm of Nimrod Yaron & Co. has extensive experience advising on international relocation and Israeli tax residency termination. For an initial consultation, click here.

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