Running a business in the Netherlands as an American expat can seem straightforward — until U.S. tax law gets involved. What looks like a normal Dutch BV to your accountant may be viewed by the IRS as a Passive Foreign Investment Company (PFIC), triggering unexpected reporting and tax obligations. Understanding this hidden difference can save you from serious compliance issues and double taxation.
Running your own company in the Netherlands can feel like you’ve found the perfect setup: a successful Dutch BV, solid income, and a happy accountant.
But as an American expat, your business structure might look very different to the IRS than it does to the Dutch Tax Authority.
In the U.S., a Dutch BV is not automatically treated as an ordinary company. In many cases, it can be classified as a PFIC (Passive Foreign Investment Company) — with serious tax consequences.
Why the IRS Might Treat Your BV as a PFIC
Under U.S. tax law, a foreign company qualifies as a PFIC if:
At least 75% of its income is considered passive (interest, dividends, or capital gains), or
At least 50% of its assets produce passive income.
Many Dutch holding or investment BVs meet this definition, especially if they primarily hold investments or receive dividends from subsidiaries.
Once classified as a PFIC, the BV’s profits are treated like those from a foreign investment fund, not an active business. That means:
When a BV Is Not a PFIC: Key Exceptions
Not every BV automatically falls under PFIC rules. There are several exceptions and nuances that can change how the IRS sees your structure.
1. The 25% “Look-Through” Rule
If your Dutch holding owns more than 25% of an operating company with staff, active revenue, and ongoing business, the IRS may “look through” the holding.
In that case, the activities of the subsidiary determine the outcome — and if they are active, your BV is generally nottreated as a PFIC.
2. The CFC (Controlled Foreign Corporation) Rule
If you own at least 10% of a BV, and U.S. persons together hold more than 50%, it may qualify as a CFC.
The CFC rules take precedence over PFIC rules and are often easier to manage, offering more options for tax planning for U.S. expats.
3. Active Holdings
If your BV is not just a passive investor but plays an active management or operational role, it may qualify as an active business, even if part of its profit comes from subsidiaries.
That difference can save you from complex PFIC reporting and extra taxes.
Dutch Tax Credits and U.S. Double Taxation
Some expat entrepreneurs hope that Dutch taxes such as the Box 3 tax on savings and investments) can be offset in the U.S. as a foreign tax credit.
In practice, however, the IRS only accepts taxes that are “in lieu of income tax.”
Without solid documentation or legal backing, your credit claim may be denied — resulting in double taxation of the same income.
What Every American Expat Should Check
Determine whether your BV qualifies as a PFIC or if an exception applies.
Consider adjusting your structure so it qualifies as an active business.
Confirm whether Dutch taxes can be credited against your U.S. tax.
Be aware of Dutch tax changes, such as the end of the partial foreign tax exemption.
Work with advisors experienced in both U.S. and Dutch tax systems.
The Bigger Picture: Two Systems, Two Logics
The Dutch and U.S. tax systems are built on different principles.
The Netherlands taxes entities and income categories (“boxes”), while the U.S. taxes the worldwide income of individuals.
That means a structure that looks perfect to your Dutch accountant can still cause major U.S. tax issues.
At Expats Overseas, we help Americans in the Netherlands navigate that gap. Our team connects you with cross-border tax professionals who understand PFIC and CFC rules – and how to prevent double taxation before it happens.
Get a Review of Your BV Structure
Unsure whether your BV might qualify as a PFIC or CFC? Start with an initial assessment from Expats Overseas to see how U.S. rules apply to your business. With the right structure, you can focus on growth- not paperwork.
Expats Overseas
Navigating U.S. tax obligations as an American expatriate in Portugal can feel overwhelming—but you don’t have to do it alone. Expats Overseas is your trusted partner for U.S. expat tax filing. We help you stay compliant with IRS rules while also coordinating with local tax systems like Portugal’s, so you avoid double taxation and costly mistakes.
Whether you’re filing for the first time abroad or catching up after years of missed returns, our expert team simplifies the process and ensures you’re claiming the deductions and exclusions you’re entitled to—like the Foreign Earned Income Exclusion or Foreign Tax Credit.
Make your expat life easier. Contact Expats Overseas today to get started with a secure, stress-free U.S. tax return.
