AOW, pension and tax in Turkey: article 18 in two halves

"In Turkey you pay no tax on your pension and your AOW" — that sentence appears on more Dutch-language sites than there are treaty articles, and it is half true. The half that's right is more favourable than most new treaties; the half that's wrong costs you precisely the wage tax on your AOW (the Dutch state pension). This article reads the treaty of 1986 as it is written.

Company pension and annuity: exclusively Turkish — and then the question whether Turkey levies

Article 18, first paragraph: pensions and annuities paid to a resident of one of the states are taxable only in that state. As a resident of Turkey your company pension and annuity therefore go exclusively to Turkey — without a threshold, without source-state taxation. The thresholds doing the rounds come from other treaties (Germany, the old Portugal); this treaty doesn't have them.

And then the second step, and that is precisely where it becomes uncertain. The Turkish income tax act exempts pensions paid by foreign social-security institutions — without a maximum, without withholding, without a filing obligation. On forums the conclusion drawn from that is that a Dutch company pension is untaxed in Turkey. That conclusion is too quick.

The act nowhere defines what a foreign social-security institution is. For the AOW the answer is clear: that is social security. But a Dutch industry-wide pension fund is an in-between form — compulsory and regulated by law, and at the same time not a state body. Whether it falls under the exemption is a factual question of classification that the Turkish tax authorities answer case by case.

The difference is big enough to tip your budget. If your fund falls under the exemption, you pay zero. If it doesn't, the payment counts as wages on which nothing has been withheld: you declare it annually and pay the progressive rate, which rises to 40 per cent. And because the treaty gives the taxing right exclusively to Turkey, the Netherlands doesn't credit that levy — you bear it in full.

For an annuity with an insurer or bank savings annuity the answer is probably the unfavourable one: those are not social-security institutions, and Turkish practice treats such payments as wages to be declared.

What you do with this: before you leave, have a Turkish tax adviser apply for a ruling for your specific fund. That is no unnecessary luxury but the step that determines whether your sum is right. Only after that do you apply to the Belastingdienst for the wage-tax exemption with a Turkish certificate of residence — that is justified under the treaty, but it only says that the Netherlands doesn't levy, not that Turkey doesn't either.

The AOW: the Netherlands doesn't let go

Article 18, third paragraph, says it literally: pensions paid under a social-security system may be taxed in the source state — and are only then taxable exclusively in the country of residence if the recipient is both a resident and a national of that country of residence. A Dutch citizen in Alanya is a resident of Turkey but not a Turkish national: the Netherlands keeps withholding wage tax on the AOW, and the Belastingdienst grants no exemption for it.

The exception does exist, but you have to become Turkish for it: whoever naturalises (for instance via the investment route) shifts the taxing right over the AOW to Turkey. For most emigrants that's not a plan but a side effect to be aware of.

Beyond that, the familiar list stays with the Netherlands: the government pension (article 19 — ABP years as a civil servant, teacher, police officer or in defence), a lump sum from pension or annuity (non-periodic, article 18 paragraph 2 — cashing in is fiscally unattractive here), and Dutch property with its rent and gain on sale.

Working and assets, briefly

Wages follow the state of work: whoever physically works from Turkey — including remotely for a Dutch employer — is taxed on that in Turkey, at progressive rates that run up to 40%. Profits of a business without a permanent establishment in the Netherlands fall in Turkey. On Dutch dividends the Netherlands withholds its dividend tax of 15% (the treaty allows up to 20%); Turkey credits it as state of residence. Turkey has no general wealth tax, and the treaty has no capital article — the box 3 levy ends on emigration, except for Dutch immovable property.

The AOW export and the clocks around it

Turkey is a treaty country: the AOW is fully exportable, including accrued supplements. Report the move to the SVB within four weeks, and count on the periodic proof of life that you have stamped in Turkey and send back within six weeks. Accrual stops on the day of departure — every missed year before your AOW age costs 2%, unless you apply for voluntary continuation within a year.

The year of departure goes with an M return, and an annuity or substantial shareholding travels with a protective assessment — outside the EU without automatic deferral, and the treaty gives the Netherlands five years' room to keep taxing gains from a substantial shareholding. The sum of all this — what falls away, what stays, what shifts — is the conversation with a tax adviser who knows both countries; with this article you know which questions to ask.