The current global possibilities to work for any company has become so easy, that you could easily work for instance for an US registered company from your home in the Netherlands.
What are the consequences tax wise?
Tax wise you are depending on the local legislation and the tax treaties. In the case of a US company and Dutch employee the tax treaty between the USA and the Netherlands.
Because this is a dual country issue, the first place to look is the tax treaty. In the tax treaty is stated which country can tax what. In case of employment the tax treaty is very clear. Employment is taxed in the country where the employment is actually done. The exception to this rule is the employment of a managing director. That is always ought to have been done in the country the legal entity has its seat.
In the above example of the employee working from home in Holland for a US company, the employment can only be taxed in the Netherlands. Is that a problem?
In our opinion this is not a problem, as the employee wants to be paying tax locally as he is using local facilities for which some are connected to paying Dutch tax.
From experience we learn that some US companies are difficult to be convinced that the only correct thing to do is pay wage tax in the Netherlands, as the tax treaty instructs.
Why are foreign companies hesitant to report in the Netherlands?
The most common fear is that the company becomes subject to the Dutch tax system for more than they would like to contribute. But that does not need to be the case.
- As long as the company does not have an office in the Netherlands, nor reimburses the employee for paying for an office;
- As long as the employee is not authorized to sign on behalf of the company
then the company will not become exposed to anything else than the wage tax and social premiums due for the employee.
Non resident employer
The non resident employer is a company that employs a person living and working in or from the Netherlands. This can be from home, but this can also be a sales representative starting his day from home. For the employee there will be tax wise no difference between a regular Dutch employer and a nonresident employer. The same tax and social premiums are due.
The moment the employment terminates, the registration can be terminated. The moment the non resident employer becomes more successful and decides to open office in the Netherlands, then the non resident employer registration is replaced by a resident employer registration.
The concern of the Dutch employee is often if he can continue to deduct his mortgage interest, when employed by a foreign company. If the foreign company pays him foreign salary and withheld foreign tax, he cannot deduct the mortgage interest. The foreign company will then soon learn a big complaint from this employee, as his financial money flow has been negatively influenced.
That is often the moment the employee starts to investigate if his foreign salary is the right thing to receive. And no, that is not correct. If the registration is done correctly, the employee can continue to deduct his mortgage interest in his income tax return. Or receive a rent tax credit, or a health care tax credit etc.
The expat employee might also have the mortgage deduction issue, but also another more important issue: the 30% ruling. Will this expat employee lose the much needed so called 30% ruling if he changes jobs from a local Dutch company to this foreign company?
No. If the foreign company is registered correctly, the 30% ruling can be reapplied and continued for the remaining period of time, under the condition the salary requirements are met and the employee was not unemployed between jobs for a longer period than three months.
Work permit employee
Does the non resident employer registration also provide a solution for employees that can only work in the Netherlands based on a work visa?
No. That is not possible. A Dutch employer who would like to employ a work visa employee needs to have a certain registration with the IND. This registration requires certain criteria the non resident employer cannot meet. In that case we suggest the foreign company finds an umbrella payrolling company that has this IND registration and can take this employee on their payroll. The foreign employer will then be invoiced for the umbrella company services.
Orange Tax Services
Our core business is to assist non Dutch nationals and foreign companies with their tax obligations. Part of that is processing payrolling accounts, such as that of the non resident employer. We provide a full service and if desired, including making the payments. We can even offer a cheaper international payment method than the one your local bank offers. That implies no bank charges and a better conversion rate. Feel free to inquire about the service we can provide you with.