Kenya has picturesque white sandy beaches like Thailand and it is marvellous country with rich experiences in food, culture and music among others. That’s why many people choose to retire in Kenya as a foreigner. If you choose so, you must choose your tax advisor/lawyer wisely in order to avoid interruptions to your relaxed lifestyle!

Pension Taxation Precedents

In the previous article about retirement, the application of the Netherlands – Thailand double taxation treaty was discussed. In particular, the situation was evaluated wherein a resident of the Netherlands accumulates a Dutch pension with contributions that were tax deductible in the Netherlands.

The individual then moves to Thailand for retirement and receives his Dutch pension at a zero or low Thai personal income tax rate, instead of the high rate he would have received otherwise from The Netherlands. The outcome was confirmed on the 18th of February by a Dutch Lower Tax Court.

This final outcome is still at odds with the Dutch Tax Treaty Policy, issued by the Dutch Ministry of Finance on the 11th of February 2011, specifically paragraph 2.11.1. In most other tax treaties that The Netherlands has concluded with countries such as Hong Kong, The Netherlands has normally kept its taxing rights on Dutch pensions received by residents of Hong Kong whenever the contributions were tax deductible in The Netherlands at one stage in the past.

Pension Taxation if you Choose to Retire in Kenya 

In Dutch Lower Tax Court case on the 27th of May 2011, a National of the Netherlands received a monthly Dutch pension from which Dutch wage withholding tax was withheld. On the 1st of September 2006, however, this individual immigrated to Kenya.

Together with his Dutch tax advisor, on the 21st of November 2006 the National submitted a standard request form (issued by the Dutch Tax Authorities) for exemption of Dutch wage withholding tax on the monthly Dutch pension received in Kenya.

It should be noted here that this standard request form can only be used for those countries that have concluded a double taxation treaty with the Netherlands, which is not the case with Kenya.

On the 13th of December 2007, the Dutch tax authorities sent a letter to the National`s tax advisor, approving the aforementioned request and allowing the National to receive his Dutch pension in Kenya free of any Dutch wage withholdings tax. This decision from the Dutch tax authorities was based on rules relating to residents of the Netherlands, despite the fact that the National was a resident of Kenya.

However, on the 14th of October 2010 the Dutch tax authorities cancelled the tax-exempt status and taxed the National accordingly. Although the particular reason for this sudden change is not clear from the court case, it is very likely that the tax authorities realised that mistakes by its department had been made and at the same time found out that in Kenya the pension income was not subject to any personal income tax (whilst the National had been able to deduct his pension contributions from his Dutch taxable income).

Obviously, the National objected to this tax assessment on the principle of protection of legitimate expectations (in Dutch ‘vertrouwensbeginsel’). The Dutch tax authorities claimed that the previous exemption was so clearly in violation of relevant Dutch tax law that the National in all reasonableness should not have counted on the fact that the exemption would really be applied after all.

The lower Dutch court agreed with the Dutch tax authorities but charged the authorities with the costs of the court procedure, as it was obvious that they had made many mistakes and caused much confusion for the National.

Retire in Kenya with Tax confidence

Therefore, whenever claiming any benefits or exemptions under a double taxation tax treaty, one should consult a tax advisor/lawyer in order to ensure these policies have not been changed. A recent pension case demonstrates that one not only has to be careful with the tax advisor/lawyer one chooses, but also should question the professionalism of the Dutch Inland Revenue from time to time.