Contracting in the Netherlands
Many of you have enjoyed contracting in the Netherlands. Others would like to, despite Brexit.
Dutch law states that all non-Dutch individuals working in the Netherlands must be employees and. Furthermore, Dutch tax, where not eliminated under a Double Tax Treaty (see below), has to be deducted via monthly withholding.
You must pay it across to the Dutch tax authorities at that time. It is, therefore, not legal for a non-Dutch individual to work in the Netherlands as a sole trader or member of a partnership. Although some individuals continue to operate in this way.
Tax Residence in the Netherlands
They tax all resident individuals on their worldwide income, regardless of the source. Although there are different rates applicable to different sources (see below).
Dutch tax law provides that the facts and circumstances determine an individual’s tax residence. In the case of a dispute, the courts will examine the durable ties of a personal nature with the Netherlands.
Factors Taken into Account
Factors to take into account would include:-
1. the ownership of residential or other property,
2. the duration of the individualâ€™s tenancy agreement,
3. the location of bank accounts,
4. the location of the individual’s family,
5. where any children are being educated and
6. centre of an individual’s social interests.
However, a stay of more than 12 months would be likely to indicate tax residence on a going forward basis.
Non-resident individuals are taxed on certain Dutch-source income only. This is mainly income from employment, directors’ fees, business income and income from Dutch immovable property.
In the case of salary and benefits from your limited company, the source is Dutch since the duties of the employment are being performed in the Netherlands. However, dividends from your limited company (assuming this is not deemed to have a permanent establishment in The Netherlands – see below) would be from a non-Dutch source regardless of where the dividends are received.
There is, therefore, scope for tax mitigation here in the event you do not become a Dutch tax resident. Although non-Dutch taxes may also need to be considered.
Double Tax Treaties
If you are in The Netherlands for less than a relevant 183 day (approximately six months) period and are tax resident (and paying taxes on your salary/benefits) elsewhere then it may be possible and desirable for you to claim tax relief under a particular Double Tax Treaty.
The relevant 183 day period is either 183 days in a calendar year or any period of 12 months. This depends upon the particular treaty involved.
The Double Tax Treaty with the UK, for example, looks at a period of 183 days in the Dutch tax. That is in a calendar year.
Exempt From Dutch Tax
So, for example, you could work in the Netherlands from 1 August through to the following 31 May. You would ordinarily be taxable on your salary and benefits in the Netherlands for this period by performing your duties there. However, you could claim to be exempt from Dutch tax under a Double Tax Treaty for the entire period.
This is on the understanding that, during the period, you were tax resident in another country. You would pay taxes on your salary and benefits there.
In some cases, it would be beneficial, from a tax standpoint, to claim exemption under a Double Tax Treaty. That is if your other country of tax residence levies much lower taxes.
However, in other cases, whilst the tax liability may be broadly similar (e.g., as with the UK and Germany assuming the 30% ruling is applicable – see below), claiming exemption under a Double Tax Treaty offers administrative convenience and savings in professional fees (payroll bureau, tax return filing etc).
In the Netherlands, if the criteria of a relevant Double Tax Treaty are satisfied then there is no requirement to submit a formal claim for relief. Rather, you may simply assume exemption.
The other criteria are that:
- a non-Dutch company pays you and that
- the costs of your employment are borne by a non-Dutch company.
You should not, generally, have a problem satisfying these criteria.
The same approach will not work with regard to any dividends you receive from your limited company where you become a Dutch tax resident under either of the provisions outlined above.
However, this dividend income is taxable at a flat rate of 25%. This is, in itself, far more beneficial than in many countries.
Furthermore, dividends received from any company in which you do not hold a ‘substantial interest’ (as defined in Dutch tax law) is exempt from Dutch tax.
As mentioned at the outset, if you are receiving a salary for working in the Netherlands and that salary is subject to Dutch tax, i.e., relief under a Double Tax Treaty is not available or desirable.
You (as a company) or your employer must deduct a Dutch withholding tax. Moreover, you should pay this over to the Dutch tax authorities on a monthly basis.
You will need to seek professional advice in the Netherlands as to the calculation and transmission of these payments.
As an employee of a non-Dutch limited company seconded to the Netherlands, depending upon the country of residence of your company and your own nationality, it may be possible to remain within your home country social security scheme for a period of up to five years.
This will cover the contributions of both employer and employee. It will be necessary for you to apply for the appropriate certificate from the organisation dealing with social security in your home country.
This will enable you (as employer and employee) to continue to pay into your home social security scheme. It thereby protects your entitlement, as an individual, to social security benefits, particularly pensions.
At the same time, you would normally apply for a certificate to cover you for publicly-available health care in the Netherlands.
Being an EU National
If you are an EU National, the certificates are the E101 and E128.
If you are a non-EU National but your country of nationality has an agreement with the Netherlands, you would obtain a ‘Certificate of Coverage’ for both pensions and state medical coverage.
In either case, you should seek professional help in making the appropriate application.
If your home country contributions are higher than in the Netherlands, e.g., as in France and, on some income levels, the UK, it could be that you would prefer to pay social security in the Netherlands instead.
In this case, you would not make an application for a certificate to keep you in your home country scheme. However, you would withhold Dutch social security contributions together with the tax withholding.
Corporate Tax Considerations
Your company will only be liable to Dutch corporation tax if it has a permanent establishment in the Netherlands.
Whilst this is generally an office or branch, a permanent establishment can also be deemed to exist if the actual operations take place in the Netherlands.
To avoid this deeming provision, you should draw up and sign contracts outside of the Netherlands. Also avoid having Dutch letterhead, business cards, name plate etc.
Aside from the fact that Dutch corporation tax may be more than in your home country, there are a number of other obligations you would have to meet as a Dutch company. You would wish to avoid these if at all possible.
Individual Tax Rates and Allowances
Since tax rates and allowances generally change on a calendar year basis, it is best to obtain specific advice from a Dutch accountant or tax lawyer at the appropriate time.
This also affects the tax-deductibility of expenses and offset of tax levies (credits). This may be more or less generous than what you have been used to.
In addition to the usual income tax, there is also a wealth tax charged, calculated at 4% of net income-producing assets. This is limited to Dutch assets only for non tax residents.
Dutch Tax Rates
Dutch tax rates are relatively high but you can mitigat them if you, as an individual, qualify for the 30% ruling.
This ruling allows the individual to have a tax-free allowance amounting to 30% of their taxable regular employment income during the first 120 months of their stay in the Netherlands.
In addition, individuals classified as tax residents may elect to be treated as non tax residents.
This would limit their investment income, capital gains and net assets to Dutch sources only. It would thereby eliminate any Dutch tax liability on the dividends from their limited company.
The 30% ruling must be applied for within four months of starting the Dutch employment and the ruling cannot be granted retroactively to the beginning of the employment period.
It is essential that you seek advice from a Dutch accountant or tax lawyer in this respect.
With the 30% ruling, the average rate, for income of around £80K, would be around the same as in UK and less than in France.
Social security contribution levels vary according to the personal circumstances of an individual.
However, for an above average salary, are likely to be around double the UK liability for an employee but substantially less for an employer and certainly less than in France.
You will probably want to have detailed calculations carried out before deciding into which scheme you wish to contribute.
It’s also worth checking how up to date this advice is.
Contracting in he Netherlands can be lucrative and a lot of fun. Make sure you get your tax situation right first, though.