Resident payroll versus non-resident payroll, is this actually a choice? We think it is, in an international situation.
Resident payroll versus non-resident payroll
In an international situation we have the opinion that there is a choice between a resident payroll or a non-resident payroll. That said there are limits to this choice.
Often we are informed that an foreign employer is reluctant to set up a payroll in the Netherlands as that results in all kind of other obligations. In a resident payroll situation that can indeed be the situation.
What is a resident payroll?
A resident payroll is that of an employer who has an address in the Netherlands also referred to as permanent establishment. Such an address requires the company to register itself with the Dutch Chamber of Commerce. Assuming no Dutch legal entity was set up, this is regarded a branch office. This branch office has identical obligations to a Dutch legal entity.
The above is also triggered when the employee rents in the name of the employer a desk at a place like wework, spaces or similar work place providers.
The result is indeed the foreign employer not only needs to file wage tax returns for the employment. Also Value Added Tax returns and a corporate income tax return is required.
Moreover, to comply with international accounting rules, the Dutch branch only employing a staff, needs to invoice the head office. An invoice for the costs of the payroll plus a margin on top. This is in line with the at arms’ length principle.
What is a non-resident payroll?
A non-resident payroll is that of an employer that has no address in the Netherlands. No permanent establishment. Hence no Chamber of Commerce registration, no Value Added Tax obligations, no corporate income tax obligations. Only the obligation to pay the correct amount of Dutch wage tax to the Dutch tax office.
A person being the permanent establishment
In the event the foreign employer has no address in the Netherlands, it can still require an obligatory resident payroll administration. That is the situation when the director of the company turns out to be the employee in the Netherlands.
A director who is authorized to represent the company is in person the permanent establishment. This requires the employer to register and file Dutch tax returns. If that is causing too much hassle, maybe it is an idea to resign as director?
We think tax is exciting. Assisting you with the best type of payroll for your organization is what gets our payroll team excited. Interested in our full service portfolio. Contact the team at email@example.com