Tax Residency: Determining Your Fiscal Residence and Navigating a Tax Residence Audit

If you live or work internationally, one question is crucial: in which country are you considered a tax resident? The answer determines where you are liable to pay tax and can have significant financial consequences. The Dutch Tax Administration (Belastingdienst) places great importance on determining a person’s tax residence and will investigate this thoroughly—especially in cases involving (wealthy) individuals who move abroad. In some instances, for example where an emigration appears to be mainly for tax avoidance purposes, the authorities may even initiate criminal proceedings.

For wealthy individuals, directors-shareholders (DGAs), expatriates, and internationally active entrepreneurs, clarity on your country of tax residence is essential. This article explains what it means to be a tax resident, how the Dutch tax authorities determine residency, how tax treaties prevent double taxation, and why knowing your tax residence is so important. It also outlines what a residence audit by the Dutch Tax Administration involves and what you can do if you are subject to one.

What Does It Mean to Be a Tax Resident?

A tax resident is someone who is regarded by a country’s tax law as residing there for tax purposes. There is no universal definition: under Dutch law, residence is determined by your actual circumstances. In essence, your fiscal residence is the place with which you have a durable personal bond—where your personal and economic life is most closely connected.

Courts have described this as a “lasting bond of a personal nature,” where the intensity of your connection matters more than the duration. It is not merely about where you spend the most time physically, but where the centre of your personal and financial interests lies.

Authorities look at your overall situation: where your family lives, where you work, own property, hold assets, and receive healthcare. No single factor is decisive; all circumstances are weighed together to determine your country of tax residence.

How the Dutch Tax Administration Determines Residency

There is no fixed checklist or points system. The Dutch Tax Administration considers various indicators, including:

• Residence and physical presence – Do you maintain a home in the Netherlands? How much time do you actually spend here? A property that remains available for your personal use is a strong indicator of Dutch residence.
• Family and social ties – Where do your spouse and children live? Their residence often carries significant weight in determining your fiscal home.
• Work and economic interests – Where do you work and earn your income? Having a business, employment, or major investments in the Netherlands suggests economic ties.
• Formal indicators – Nationality and registration in the Dutch population register (BRP) are not decisive, but they can be indicative. Failure to deregister when emigrating, for instance, may suggest you never intended to leave permanently.

Importantly, you can have strong ties with more than one country, but under Dutch law you can still be treated as a resident if your most substantial connections remain with the Netherlands.

Examples:
A pilot stationed in Turkey was still deemed a Dutch tax resident because his spouse and child lived in the Netherlands, forming the centre of his life. Conversely, a Dutch entrepreneur spending most of the year in the Netherlands was not considered a Dutch resident, as his family and home base were in the UK. Each case depends on its unique facts.

Double Taxation and the Role of Tax Treaties

It is not uncommon for two countries to consider the same person a resident under their domestic laws. Without coordination, this would result in double taxation. To prevent this, the Netherlands has concluded tax treaties with many countries, which include so-called tie-breaker rules to determine a single country of residence for treaty purposes.

These treaties apply a hierarchy of criteria:

1. Permanent home – In which country do you have a permanent home available?
2. Centre of vital interests – Where are your personal and economic relations closest?
3. Habitual abode – Where do you normally stay during the year?
4. Nationality – If the first three tests do not resolve the issue, nationality may decide.
5. Mutual agreement – If still unresolved, the competent authorities of both countries must reach an agreement.

The country determined as your treaty residence may tax your worldwide income, while the other country is limited to specific sources of income (e.g. local employment or real estate). The treaty then obliges your residence country to eliminate double taxation, typically through exemption or credit relief.

Note: Always check the specific treaty provisions—criteria and definitions can differ. For instance, under the Netherlands–UAE treaty, you must hold UAE nationality to qualify as a UAE resident for treaty purposes.

Keep in mind that treaties mainly govern income and wealth taxes. For inheritance and gift taxes, far fewer treaties exist, meaning double residence (and double taxation) may still occur. The Netherlands, for example, applies the well-known ten-year rule: if a Dutch national emigrates and dies or makes a gift within ten years, Dutch inheritance or gift tax may still apply.

Why Determining Your Tax Residence Matters

Your tax residence determines where and on what you pay taxes.

• If you are a Dutch tax resident (domestic taxpayer), you are taxed in the Netherlands on your worldwide income and assets—covering income from work and home (Box 1), substantial shareholdings (Box 2), and savings and investments (Box 3).
• If you are not a Dutch resident, you are only taxed on specific Dutch-source income, such as rental income from Dutch real estate or Dutch employment income.

The difference is substantial.
A clear understanding of your tax residence prevents double taxation and unpleasant surprises. Misjudging it can lead to tax assessments, penalties, or lost deductions. This is particularly relevant for emigrants, entrepreneurs, and high-net-worth individuals engaged in estate planning.

In short: your tax residence determines your tax obligations. Establish clarity early—preferably with professional guidance.

Residence Audits by the Dutch Tax Administration

If the Tax Administration doubts your declared country of residence, it may initiate a residence audit (“woonplaatsonderzoek”). The purpose is to verify where you actually live for tax purposes—essentially, whether you should still be treated as a Dutch resident.

Common triggers include:

• Deregistration from the BRP while maintaining a home, family, or business in the Netherlands.
• Frequent stays in the Netherlands or continued use of Dutch facilities such as healthcare or vehicles.
• Inconsistencies in your tax return or information received from foreign banks under international exchange frameworks.
• Tips or public information suggesting a “sham emigration.”

During the audit, the Tax Administration may request information about your residence, work, family, and financial affairs. There is no standard questionnaire; all relevant facts are weighed. Material circumstances (actual residence, family location, economic interests) carry more weight than formalities like nationality or registration.

To verify your whereabouts, authorities may even examine utility usage, payment data, or phone and travel records, and sometimes review public social-media information. Although intrusive, such measures must comply with strict internal and legal safeguards: information may only be collected if necessary and proportionate.

Your Rights and Obligations

If you are subject to a residence audit:

• Stay calm and respond carefully. Cooperate with reasonable requests but do not provide irrelevant information.
• The burden of proof lies initially with the Tax Administration—they must show that you (still) reside in the Netherlands. You can then counter this with supporting evidence, such as foreign lease contracts, tax returns, or travel records.
• You have the right to access the data the authorities hold about you and to request corrections under privacy laws.
• If you disagree with the outcome—e.g., if you are wrongly deemed a Dutch resident—you may file an objection and, if necessary, appeal in court.

How Port Sight Tax Can Help

A residence audit can be stressful and complex. Engaging a qualified tax advisor early can make all the difference. A professional can help draft accurate responses, compile supporting documentation, and manage communications with the Tax Administration to safeguard your rights.

At Port Sight Tax, we specialise in cross-border taxation and frequently assist clients with residency matters and audits. Our services include:

• Detailed analysis and determination of your fiscal residence;
• Tax planning and guidance for emigration or remigration;
• Representation and support during residence audits;
• Resolution of double taxation cases through treaty application or mutual agreement procedures.

We combine deep technical expertise with a personal, boutique-style approach. If you seek clarity about your tax residence or are facing a residence audit, please contact us for an exploratory consultation. We will help you achieve certainty and peace of mind—so you can live, work, and invest internationally with confidence that your tax affairs are fully in order.