US Tax Treatment of Netherlands Pension Plans (Dutch Retirement)

US Tax Treatment of Netherlands Pension Plans (Dutch Retirement)

US Tax Treatment of Netherlands Pension Plans

When a US Person (US Citizen, Lawful Permanent Resident, or Foreign National who meets the Substantial Presence Test) and has a foreign pension in the Netherlands — there are both tax and international reporting implications. In general, a US Person has to report their foreign bank and financial accounts, such as bank accounts, investment accounts, life insurance, and foreign pension/retirement accounts. The failure to report and pay tax on a foreign pension from the Netherlands may result in unanticipated taxes due – along with penalties for non-compliance with FBAR (Foreign Bank and Financial Account Reporting); FATCA Form 8938 (Foreign Account Tax Compliance Act) – and possibly Form 8621. Let’s review the basics of the United States Tax Treatment of Netherlands Pension Plans:

Worldwide Income

In general, the United States taxes individuals residing in the US and/or abroad on their worldwide income. If a US person has a foreign pension, such as pension in the Netherlands, then the income can become taxable in the US as well (subject to some Taxpayers who may qualify for a Tax Treaty Position or the Closer Connection Exception to the Substantial Presence Test.

Pillar 1 of Netherlands Pension Plans (Social Security Equivalent)

As in most countries, Pillar 1 of the Netherlands Pension Plans is equivalent to Social Security in the U.S. There is no account per se, and the Taxpayer pays into the system via employment — and then depending on their age and how long they have resided in the Netherlands, they will qualify for monthly payments. Generally, these are not accounts and are not reportable.

Pillar Two Netherlands Pension Plans (Occupational)

Pillar 2 is a work-type of pension or “occupational” and is similar to the US 401K. Taxpayers have their own account number and therefore a Pillar 2 Netherlands Pension Plan account – and may also be taxable depending on whether the income is contributions, growth, or distributions.

Pillar Three Netherlands Pension Plans (Personal)

Pillar 3 is a personal type of pension and similar to an IRA – this type of personal pension is generally acquired through insurance, investment accounts, and/or other supplemental pension opportunities. Taxpayers have their own account number, and therefore Pillar 3 Netherlands Pension Plans are reportable – and are generally taxable.

FBAR (FinCEN Form 114) for Dutch Pension Pillars 2 and 3

FBAR refers to Foreign Bank and Financial Accounts. The reporting is not just limited to foreign bank counts, but it also includes foreign financial accounts – – which generally include pillars two and three.

FATCA Form 8938 for Dutch Pension Pillars 2 and 3

FATCA refers to the Foreign Account Tax Compliance Act. Similar to the FBAR this form is used to report foreign bank accounts and other assets. For pension plans are one of the tops before account/assets that are required to be disclosed on Form 8938 each year the Taxpayer meets the threshold requirements for filing form 8938.

Form 8621 (PFIC) for Dutch Pension Pillars 2 and 3

Form 8621 refers to PFIC (Passive Foreign Investment Companies) — which includes foreign mutual funds and similar types of investment funds. Form 8621 is more complicated than the two above-referenced FBAR and 8938 forms — and it requires significantly more disclosure, depending on the nature of the underlying investments and whether there are any distributions or excess distributions. Before determining whether Form 8621 is required for the Netherlands pension plans, taxpayers have to dive into the underlying investment to get a baseline understanding of what it is comprised of.

Amnesty for Missed Netherlands Pension Plan Reporting

For taxpayers who are non-compliant with Netherlands Pension Plan reporting, the IRS has developed several international tax amnesty programs to assist with safely getting into offshore tax and reporting compliance.

Golding & Golding: International Tax Lawyers

Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance with getting compliant.