Full time employee and tax to be paid in income tax return

full time employee and tax

Full time employee and tax to be paid in the income tax return, how is that possible? The employer should have withheld enough tax.

Full time employee and tax

In the Netherlands the system is such that when you are a full time employee, the employer withheld exactly enough tax over your salary. The result is that you can fully spend your net salary. At the end of the year no additional tax is asked by the tax office to be paid.

Sometimes a full time employee is asked to pay additional tax, how is that possible?

Often we see that the employer has not paid enough attention. There is the situation an employee starts during the year employment with this employer. The payroll is done per calendar year. If the payroll is transferred from the one year to the other, the expected annual income needs to be adjusted. Based on that income, tax is calculated.

An employee starting in for instance May only has eight months of income. If that annual salary is used in the next year, where the employee works twelve months, not enough tax is withheld. How is that possible? The lower the salary, the higher the tax credits. If the predicted salary is lower than the actual salary, too much tax credits are used. Those are to be paid back in the income tax return.

Bonuses, RSU, share options, stock options

There are many names for incentives promised to employees. The one thing them have in common: it is all taxed salary. If an employee earns less or around the EUR 70.000 gross (first tax bracket) and is then given an incentive (second bracket is entered with higher tax), the employer should anticipate this. This is done in adjusted in the annual expected salary.

Full time employee and tax

The handbook of the Dutch tax office forbids updating the annual salary during the year. Fortunately the handbook is often seen of the tax office opinion, not a law. And if sometimes the annual salary is not updated during the year, the employee ends up with an unexpected tax bill.

Full time employee tax assessment – court case

A tax payer was charged with tax, even though she was a full time  employee during the tax year. She disagreed with the tax to be paid and went to court. The court dismissed her claim.

The reason for the dismissal is that she had multiple employers in a row during the tax year. Each employer calculated the correct amount of tax. However, if in the tax return the one income is put on top of the other, more tax was to be paid and less tax credits could have been applies.

The court ruled that each employer made no mistake in the payroll calculations, but that it is normal in a year that you have more than one employer at a time, to pay additional tax.

Tax is exciting

We think tax is exciting. We understand you are not excited to pay additional income tax. If we are asked about the cause and we see that the employer created this assessment, it does not feel nice to point to finger. We made no mistake, your employer did. Never a nice message.

The employer does not like us either if our remark is forwarded, we can understand that. We do hope the employer will pay more attention in case of bonus, full year employment or salary increase. Mistakes are made by humans, and process tax is still a job done by humans. Even though software is also not mistake free.

Polish handyman taxed in Poland?

handyman taxed in Poland?

The place where a company is taxed depends on where the owner or managing director of this company is a tax resident. Or is it, thought this handyman taxed in Poland.

Handy man taxed in Poland?

A person is a tax resident in the country where he or she has its central point of life. That is how article 4 of every tax treaty states it, more or less. What is your central point of life? Your central point of life is where you work, sleep, buy your groceries.

However there are some exceptions. One of them is when you own your home in the Netherlands. Your tax partner does stay there but you are working and sleeping in another country. In that case you remained a Dutch tax resident as well.

The Polish handy man taxed in Poland? – court case

A Polish handy man owns a Dutch company registered with the Dutch Chamber of Commerce. The Dutch tax office does an audit with the company. The result of this audit is for the years 2013 and 2014: additional income tax, additional value added tax, penalties and interest is to be paid.

The Polish handy man argued that he is not at all a Dutch tax resident. He lives with his wife and children in Poland.  Actually his coworker, not employed by him, not partner in the company, in this case called Mr Y, is the owner of the company. The Polish handy man is only on paper the owner, but Mr Y is the true owner as he can speak Dutch.

Mr Y has done all the administrative transactions, opened a bank account for the company, obtained the Value Added Tax number, signed the contracts. All things the Polish handy man states he cannot do as he cannot speak, read or write Dutch.

Polsh handyman taxed in Poland?

The court ruled that the Polish handy man was owner of and running the Dutch company. Mr Y was indeed on contracts, but Mr Y should be seen as intermediary, contact person. Not the actual entrepreneur. The court did not believe Mr Y opened a bank account in name of the company of the Polish handy man as the checks and balances in this procedure does not permit that. The same with the application of the VAT number.

The Polish handy man was therefore liable for the results of the audit.

Tax is Exciting

We think tax is exciting. With respect to the court case: you cannot run a company in the Netherlands if you are not a Dutch tax resident.

This question is asked to us so many times per week. I think that is caused by the fact that the Netherlands is labelled as a tax heaven in the world. But everybody that lives, works and pays tax in the Netherlands knows it is not heaven at all.

Can you help me with my BV company?

Can you help me with my BV company?

Can you help me with my BV company is a frequently asked question recently. While this is asked, I raise a red flag. Why?

Can you help me with my BV company

This is a strange question to ask for me, the tax advisor. A BV company is not a company you easily set up like the sole proprietor company. A BV company is not set up by visiting the Chambers of Commerce, answering some questions and you walk out with the company. Not at all.

A BV company is set up via a notary. The notary will ask for the BV name, how much share capital, who will be director, which type of shares, short or long first financial year etc. Questions most people, especially international in the Netherlands, need assistance with.

Accountant and or tax advisor

The person to assist with the setup of a BV company is an accountant, bookkeeper or tax advisor. The logical step is that this accountant then also assist with the books, filing of Value Added Tax return, annual report etc.

Can you help me with my BV company?

Can you help me with my BV company?

That is a strange question. A not strange question is: I would like to change from my accountant. Or, my accountant is too expensive. Or, my accountant cannot communicate very well in English.

The latter remark we also encounter. Often it is not the case of the accountant not communicating in English very well, it is the client not willing to understand the consequences.

In case of change of accountant, we always inquire about the reasons, because if we provide an identical service, there is no reason to switch to us.

Why raising the red flag?

The moment for some reason no accountant is involved. And if you make some inquiries and the BV company is address as something started in the past and neglected, our red flag is up against the ceiling.

Probably no annual reports have been published in time, which make the directors personally liable. Uncomfortable, but doable. More problematic is not filing the corporate income tax returns in time. The penalty for filing too late is EUR 5.514. The tax office is so kind to give you a 50% discount for the first time, but still a huge amount.

What should you do?

The problem of not filing only gets bigger if you continue not to file anything. So the only and rather brave thing to do is face your issues and have the outstanding reporting done.

Tax is Exciting

We think tax is exciting. A EUR 5.514 penalty for too late filing of a corporate income tax return is absolutely not exciting. The longer you wait the more you need to pay in penalties. Do not wait anymore and have your corporate bookkeeping done to get it up to date.

30% ruling and sequence of events

30% ruling

30% ruling and sequence of events, what is that about? That is about making the difference in a successful 30% ruling application.

30% ruling and sequence of events

We often are asked about the impact of the Dutch tax system on the personal life of a potential expat in the Netherlands. This person contacts us already from abroad. Either this person has a substantial wealth or earns a good salary in their own company. Two reasons why they should not come to the Netherlands, tax wise.

The reason for coming to the Netherlands is often the partner who is either Dutch or received a Dutch assignment. Then we are asked about the impact of the Dutch taxation. We try not to horrify them, hence we inform about the 30% ruling.

The 30% ruling

We published many articles already on this subject. In short, the 30% ruling makes that only 70% of your employment income is taxed and non of your world wide assets, during the first five years of your stay in the Netherlands.

That is if the ruling is actually granted to you. The most important criteria is you being attracted from abroad. This implies you cannot start thinking about this setup if you have been in the Netherlands already for a short period of time.

Sequence of events

The sequence of events is that you already set up the BV company while you are still living abroad. We can facilitate this service for you. Then upon arrival you sign the employment agreement with your own BV company.

If you then also meet the criteria of a minimum income of roughly EUR 60.000, you have in the past 25 years not been a Dutch tax resident,  and you were not living closer to the Dutch border than 150 km in the two years before arrival, your chance of you getting the 30% ruling is very good.

It turns out you like the Netherlands

The worst thing that can happen to you is that you actually like staying in the Netherlands, hence the five year period is exceeded by you. That implies you start paying tax over the full amount of your salary. That will be something you need to digest, but then again, everybody does the same.

The challenge is with your world wide assets. If you want to prevent your assets to become subject to the very much disliked wealth tax, you need to act on that when the BV is being set up.

Again sequence of events

The moment the BV is set up you can indicate the share capital. The minimum is EUR 0,01 which is that silly it is often forgotten to be actually paid. That implies the limited liability never started. We recommend to put a significant proportion of your worldwide assets as payment on share capital.

Your salary income is taxed in Box 1 with the progressive tax rate up to 49,5%, the dividend income from your company is taxed in Box 2 currently with a 26,9% tax rate and in Box 3 are taxed your world wide assets with a maximum tax yearly of roughly 1,6%. By making a large deposit in share capital in your BV company, that money moves from Box 3 to Box 2. No more wealth tax. On top of that, if you repay yourself the share capital, this is a tax free procedure.

Tax is exciting

We think tax is exciting. Working with the rules and regulations gets us excited as well. Currently we see opportunities to have you enjoy the Netherlands, tax wise as well. Contact us for more information.

Housing provided by employer

Housing provided by employer implies that old times have returned on us. In the past the blue colour worker could not afford housing themselves, now it is the white colour worker.

Housing provided by employer

Everything an employee receives from the employer is taxed income. There are some exceptions to this rule. Paying for the costs of housing is not one of them.

In 1989 an employee purchased his own home. The employer reimbursed the employee with EUR 100 per month for reimbursement of extra mortgage interest costs. The necessity of this employee moving closer to his work, did not make the EUR 100 reimbursement tax free according to the court.

Maximum rental fee

The moment that the employer makes housing available for the employee, the maximum rent is limited. The maximum rent cannot exceed 18% of the annual income of that employee.

Example

You attract from abroad a EUR 60.000 gross annual salary costing employee. For that employee the company purchases an EUR 400.000 house at 4% mortgage interest loan. We assume the full amount of the purchase could be loaned and that there are no purchase costs. This is for the ease of the example.

The company pays EUR 400.000 times 4% is EUR 16.000 interest per year. We assume EUR 4.000 more additional costs are involved with the housing. Costs like city tax, small maintenance.

The annual costs is EUR 20.000. The maximum rent that can be charged based on the salary is EUR 10.800. This implies it costs the company EUR 9.200 to gain an employee. Is that a problem? With the current housing market (2022) where the house value increase roughly 15% per year, we think it is a good investment. Even if the housing market is neutral, with the current lack of employees, it is still a good investment.

30% ruling and housing

The 30% ruling is the best tax benefit we have in the Netherlands. That is not the same as the employer being able to pay 30% of the salary tax free and provide free housing. In other words, regardless if you have the 30% ruling, for the housing rent is to be paid.

Employer benefit

The benefit for the employer to arrange for the employee housing, either rent or purchase, is multiple. In the current housing market, both rent and purchase, it is very difficult to find suitable housing. Or only less suitable housing is found.

The employer that offers a job with suitable housing is king. King in the sense that this is an attractive offer for employees. Also King with respect to continuity of the employment, if the housing is connected to the employee being employed.

Tax is exciting

We think tax is exciting. This exciting possibility of the employer providing housing with the maximum 18% years’ salary rent, is not being used. We process for a significant number of employers the payroll and only one employer recently inquired about this option. We think this is a great opportunity for the employee. And possibly a good investment for the employer. Whether that is a good investment in the employee or housing market, future will tell.

The process towards filing of the corporate income tax return

The process towards filing of the corporate income tax return

The process towards the filing of the corporate income tax return in the Netherlands you might wonder about. We explain the steps to be taken.

The process towards filing of the corporate income tax return

If you are the shareholder and or director of a BV company, you are the person in charge of the procedure. It all starts with the bookkeeping. The BV company needs to run a bookkeeping like a bubble.

The bubble cannot let escape money to the shareholder, without it being labelled. It is labelled either salary or dividend. When neither is the case, the money flowing to the shareholder in cash or costs is a loan the shareholder needs to pay back.

We are often confronted with new clients who keep an excel bookkeeping for the BV company. Excell is not ideal for a one man company, but really not possible for a BV company. You cannot keep track of the outstanding debts and receivables in excel.

Annual report

The result of the bookkeeping is in the annual report. The annual report is a requirement set by the Dutch law. Some find the annual report obsolete, expensive or irrelevant. It is super relevant.

Above I mention the shareholder and director in one line. Actually it is the director of the BV company responsible and in charge of the tax filings and the bookkeeping. However, the moment the annual report is finished, it is the meeting of the shareholders to approve or dismiss the annual report.

This formality is of great influence of the director. In the shareholders meeting the director is given discharge for his or her actions during that year. This legal phrase implies the director is set free from liability with respect to the day to day activities of that concerning year.

The process towards filing of the corporate income tax return

Publication

The moment the shareholders meeting has agreed upon the annual report, the annual report can be published with the Chamber of Commerce. Again this publication is an obligation set by Dutch law. The annual report is to be published within max 12 months from the end of the financial bookyear.

The penalty for not sending in publication of the annual report with the Chambers of Commerce can be EUR 900 fine. That said, we have not seen many of these fines over the years. The true penalty is in the board of the BV being held responsible in person the moment the BV company goes bankrupt.

Corporate income tax return

The moment the annual report is approved, the corporate income tax return can be filed. This is the moment the heart of a tax advisor starts to pump more vividly. In the corporate income tax return the commercial fiscal differences aspects of the annual report come to light. Or balancing out the fiscal unity of several BV companies is finalized in this tax return. All very exciting.

Tax is exciting

We think tax is exciting. Assisting you with running your BV company from an accounting and tax filing perspective is getting us excited. A simple BV company is already exciting.

That said, some in our office really get excited when the BV company is far from simple and challenging. Within the rules that is. One of them is Hans. Hans is a very experienced international tax advisor that is eager to sort out your international fiscal unity. The questions  you might have about how to set up best your structure. Hans is also experienced enough to inform you up front already what is possible and what is certainly not possible.

Hans

A company is a source of income, not loss

A company is a source of income

A company is a source of income, not loss. If the company is a source of loss the phrase company should be replaced by hobby.

A company is a source of income

It does happen that a new client arrives at our office. This client is proud to state they have a company. A healing company, part time piano teacher, yoga enterprise, homework assistant, doggy doggy walky walky and more creative types of companies.

With the aforementioned examples of companies the previous income tax returns contain cost deductions that exceed what is possible. Part of the home rent costs, electricity, new stairs, house extension. Strangely enough, the tax office never inquired about that.

The explanation for the tax office not to respond was also at hand. The income of the company was far exceeded by all the costs of the company. Actually, if all the costs would have been deleted that are not accepted, the company still had a loss. This was the case for a couple of years already.

Response tax office to company that is in fact a hobby

Upon our findings the new client always responds that this is how they have done it for many years. No issues with the tax office. That is true, but that is not the same as a correct income tax return. The fact that the tax office did not respond had to do with no other source of income.

The moment you have employment income next to this hobby, then the hobby creates a loss. This loss is set off against the positive employment income resulting in a tax refund. Then the Dutch tax office is going to respond quickly.

Most clients with a hobby have no other source of income, it is the partner who funds it basically.

What is the difference between a hobby and a company?

An activity is a company when it participates in the economic traffic. In other words, there are sales and purchases. Commitments. The activity is a company when the aim is to make an income, a profit. And finally, from an objective standpoint a profit is likely to be made.

The moment these three criteria are met, you have a company. And ofcourse nobody expect you to be profitable instantly. That said, if from an objective standpoint no profit is to be expected. Then the activity is labelled as hobby. An hobby is often an activity with costs and pleasure, where the income is often less important than the pleasure.

What to do when you are told your company is a hobby

The moment the conclusion is drawn that your activity is a hobby. The first step is to terminate the registration of the company with the KVK (Chamber of Commerce). That will also stop the request to file an entrepreneurs income tax return.

Explain to the tax office that the VAT numbers should be cancelled.

A company is a source of income
A company is a source of income

Hobby – court case

A nail polish BV company has not made a profit since 2013. Due to a transfer of shares the tax payer claimed a loss in his income tax return. This loss was denied by the Dutch tax office.

The case went to court and in court it was determined that the BV company did take part in the economic traffic. A profit was the goal of the company. But the objective eye quickly came to the conclusion a profit was never going to be possible. Hence the court ruled indeed that the BV company loss was not to be deducted in the income tax return.

The tax payer did proof the turnover was increasing, but the turnover could not keep up with the costs. Also the argument that companies such as Rituals, McDonalds and Amazon were loss making in the startup years did not stand. This argument did not stand as it was not made clear how the situation of those companies reflected on this case.

A BV company can ofcourse not be allocated as a hobby company. That said, the execution of the tax return is done as if it were a hobby. No tax base, no tax deduction.

Tax is exciting

We think tax is exciting. Challenging is to explain to a new client that their activity is in fact not a company, but a hobby. This is never digested well and takes some time for the client to accept.  Plus, the client finds it very strange no longer to report the company tax wise. Despite we are excited about tax, a hobby is a hobby.

Capital gain selling your home – tax free with conditions

Capital gain selling your home – tax free with conditions

These days it is common to make a capital gain selling your home. One of the upsides of the Dutch tax system: no capital gain tax. But there are conditions.

Capital gain selling your home

Selling your home is a fortunate event these days, purchasing a home is a nightmare. Both are very much in balance. The fortunate part: the asking price is being overbid. The nightmare part: you need to overbid the asking price in order to be able to purchase.

At our home we have the best constructor for setting the tiles. He told me he sold his house with the same profit he had to overbid the house he purchased. Basically he has a bigger house for the same monthly costs.

Capital gain selling your home – tax free with conditions

No capital gain tax?

Indeed, in the Netherlands there is no capital gain tax for private individuals. That is also the reason why nearly no company purchases a home. A company selling such a home is subject to capital gain tax. In some countries there is a tax advantage to purchase property in a vehicle, not in the Netherlands.

That said, in this housing market where the employee cannot afford the purchase of the house, the employer helps. We now see employers actually purchasing a property in the name of the company to house the employee. The advantage for the employee is that the rent being charged by the employer cannot exceed 18% of the annual salary. Free tax advising bonus material!

What are the conditions?

The Dutch Government learned from their mistakes. In the past there were no conditions, so you had your house financed for 100%. Actually 120%, as in those days you could finance also the purchase costs.

You sold the house, made a gain, purchased the Porsche with the gain and financed the next house for the full amount again.

Now there are rules. The rule is that you need to invest the gain made in your next house, that is your main residence. The penalty for not doing so, is that you cannot deduct the mortgage interest for the part of the mortgage you took out too much.

Example

You purchased for EUR 350.000 your home 10 years ago, 100% financed. Paid back on this loan EUR 120.000, hence today the loan on the house is EUR 230.000.

The house is sold for EUR 550.000 and you purchased the next house for EUR 650.000. You took out a EUR 650.000 loan for the next house.

The capital gain is EUR 550.000 minus EUR 230.000 remainder loan is EUR 320.000. That implies that for the next house costing EUR 650.000, you can only take out a tax deductible loan of EUR 650.000 minus EUR 320.000 gain is EUR 330.000.

In your tax return EUR 330.000 loan for the house is tax deductible and EUR 320.000 is not.

Fine tuning

The above example is a rough example. Some non-deductible costs influence the capital gain in a lower amount. Plus most people want a new bathroom and kitchen in the next home, these refurbishments are taken from the capital gain amount if no loan was taken out for these costs.

You need a professional mortgage advisor, as you can find with expat mortgages. During the intake they explain you how the possible gain of your current home is taken into account in the finance report of the house you would like to purchase.

It is good or bad, this condition?

It depends who you ask. My experience is that the man is eager to purchase the Porsche while the woman is more relaxed with less mortgage debt. I can related to both the man and the woman. The Porsche as you do not know how long your life will last, not sure if a fast car influences this period. On the other hand, if economics get worse, a low debt is handy.

Tax is exciting

We think tax is exciting. Accurately calculating the capital gain to be invested in the next home is what our team get excited about. This is a service that is part of the tax return filing service.

US tax return requires a Dutch tax return!

US tax return requires a Dutch tax return!

US tax return requires a Dutch tax return, that is the sequence of events if you need to file a US income tax return. We can assist.

US tax return requires a Dutch tax return

A US national or US green card holders needs to file a US tax return. Even if you have never lived in the USA, or only had income outside the USA. The price of being a US national is that you need to file a US income tax return. Even if you live on the moon.

Dutch tax resident and US tax return

The moment you are a Dutch tax resident. Or you have become a Dutch tax resident as you arrived in 2021, or left the Netherlands. In order to be able to file a US tax return, you first need to have filed the Dutch income tax return.

The Dutch income tax return is the base of the US income tax return.

US tax return requires a Dutch tax return!

Only Dutch income – US tax to be paid?

In the situation you only have Dutch income, it is possible that you are to pay US income tax. There are tax credits in the US. If you would like to meet the experts in the Netherlands to assist you filing your US income tax return we recommend you to connect to BNC Tax. BNC tax is a Dutch resident company that is specialized in filing US income tax return.

US tax deadline

The US tax deadline. In general the deadline is April 15 for filing the federal income tax return each year. That date is not carved in stone. The deadline moves to the next business day when April 15 falls on a Saturday, a Sunday, or a legal holiday, and other national events can shift it as well.

How can we help you?

We have the capacity to assist you filing your Dutch income tax return before April 15. That said, we can do miracles, but only so much. You cannot arrive with us a few days before April 15 expecting we can make your deadline.

The Dutch situation is right now (February 17) that all overviews you need are available. Your employer provided your income statement. If not, your last salary spec could do the trick. The bank provided their overviews, please log on and check. Insurance companies issued overviews you might need. No reason not to contact us now already.

The regular income tax return is charged at EUR 390 incl VAT including tax partner.

Tax is exciting

We think tax is exciting. Excited we are already to file your income tax return now!

Box 3 debacle – Dutch asset tax contrary to EU-law – Explained for dummies

Box 3 debacle

Box 3 debacle

As most of you most likely heard, the Dutch box 3 assets tax is currently being debated.  Last year, on 24-12-2021 the High council ruled their decision regarding the Box 3 asset tax. The High council ruled that the Dutch box 3 asset tax is contrary to the EU-law, the right to enjoy your assets. This has never happened before and therefore raises a lot of questions and concerns. What will happen to solve it, how will my assets get taxed, what do I need to do. All questions we fully understand, but not all of them can be answered just yet.

Why is Dutch box 3 asset tax contrary to the EU law?

In order to further understand the issue, it is first important to note the current way of taxing assets in the Netherlands.

Currently, this is done over the value per 01-01-of the relating year, so for 2020, per 01-01-2020. Over the value per 01-01-relating year, the notional income has to be calculated. This is done via the following brackets (2020 rates):  

BracketYour (part of) taxable assets(Savings)
Percentage
0,07%
(Investors)
Percentage
5,28%
1to € 72.79867%33%
2from € 72.798 to € 1.005.57321%79%
3from € 1.005.5730%100%
Box 3 debacle

The result of this bracket is called the notional box 3 income. This income is taxed for 30% (2020 rate).

As you can see, there are 2 percentages in box 3, the lower savings percentage and the higher investors percentage. However, you cannot state how much you save and how much you invest, this is decided by the Tax authority.

This means, that if you for instance have EUR 1.000.000 in savings but EUR 0 in investments, you will be taxed over 33% of EUR 72.798, 79% over EUR 932.775 and over 100% of  EUR 5.573 as an investor. However on savings, you are not expected to have the same gains as an investor, hence it would not be fair if you are taxed as an investor, without the related gains.

This is now deemed unfair.

Box 3 debacle

What will happen now?

Currently, the Dutch government and the Dutch Tax authority are trying to find a solution. A permanent solution is expected to take place in 2025. This means that the years 2017-2024 do not have a solution yet. For these years, the Tax authority expects that a regular tax return is filed, so with assets valued per 01-01- of the relating year. In order to correct the current box 3 asset tax, an objection needs to be filed. This objection is not a regular tax objection, but this is a class action objection. This means that all objections will be considered at once, instead of each separately.

How will I be taxed in the years 2017-2024?

At the moment of writing this article (11-02-2022), this is not known yet. It is expected to receive a final say in May, 2022.

We do already know that the gains will be taxed. It is not sure yet whether realised gains or unrealised gains will be considered.

What happens if I do not object?

This is also not know yet. This is currently being debated by the Dutch government and Tax authority. For now, only if you object, the result of the tax return will be adjusted. In May, 2022, it is also expected to know more details regarding what happens if you do not object!  

A very strange period for us as Tax advisors, but most likely even more confusing for you as an Expat.

We understand that the box 3 asset tax is something that you have questions about. We currently unfortunately, do not know more than above.

Tax is exciting

We think tax is exciting. My name is Kelly and I think tax is exciting.  

If you would like us to investigate whether filing objection would be beneficial for you, feel free to reach out and we will investigate once the final rules are in place!

If you have other questions, feel free to reach out!

Box 3 debacle

How does payroll work in the Netherlands?

Payroll in the Netherlands and labor law

How does payroll work in the Netherlands you might wonder. You are aware we have a solid social system, how does that affect the execution of the payroll?

How does payroll work in the Netherlands?

An employer starting to employ employees in the Netherlands first needs to obtain a Dutch wage tax number. Such a number is never issued automatically, always needs to be applied for with the Dutch tax office.

During this application procedure the Dutch tax office also inquires about the activities of the company. If there are multiple, then the main activity is of interest. Based on the activities a sector code is issued with the Dutch wage tax number. The sector code determines the social premium percentages.

Running the payroll

The payroll provider will ask the employer for the employment contracts. The employment contract is the basis of the Dutch payroll. In the Netherlands it is indeed possible to have verbal employment agreements, however, we think that is not a good base for business. I think the labor lawyer will like you less for that. Only the managing director shareholder is obliged to have a written employment agreement.

In the Netherlands the gross salary is the basis. On top of the gross salary is paid out in May or June the 8% obligatory holiday pay. That is different from the holidays an employee can enjoy.

The gross salary will result in a net salary and that needs to be paid not later than the last day of the month. Normal in the Netherlands is to pay on the 25th of the month. Even with Christmas banks will process this.

Are employers’ costs a fixed percentage?

This is a frequently asked question. No, they are not. Some social premiums are maxed at EUR 59.706 (2022) gross salary. When the salary exceeds this amount, over the excess no more social premiums are calculated.

The tax credits, general and labor, decrease the moment the gross salary increases. Pension contributions have a maximum amount per year over which they are calculated. This maximum amount is different from the social premium amount.

The wage tax rate is 37,07 from zero to EUR 69.398 (2022). From that amount the 49,5% wage tax amount applies.

Payroll in the Netherlands and labor law
Payroll in the Netherlands and labor law

Exercising stock options

Exercising stock options, very popular now, involves the experts. The employer first has to determine during which period in which country the value of the stock options was build up. Then per country the exercising will be taxed.

Employers are once in a while audited by the Dutch tax office. To avoid that not enough wage tax was withheld over the stock option exercising, the employer simply take the maximum percentage, 49,5%. Then in an audit they are not accused of not having withheld enough, with the question to pay up the difference. The employee can claim back too much withheld wage tax in the income tax return.

That said, the moment the employee leaves the Netherlands and exercises its right while being abroad. Dutch tax is to be paid over the exercising of the option.

Mind you, under the 30% ruling only 70% of the value is taxed. The moment the 30% ruling employee leaves the Netherlands, there is no more 30% ruling. Timing could make a difference.

Our payroll team

Running a payroll is not rocket science but neither a walk in the park. The system of the Dutch tax office makes the digital reporting already an obstacle for foreign employers. A crash course running a payroll could take many months, making it no crash course at all.

You need a team that is eager to assist you and we happen to have such a team! Our team ran by Laura is focused on the non-Dutch employer that needs assistance with running a Dutch payroll. A Dutch payroll is not like a Dutch treat, as the employer is paying for the employees tax. That implies the employer has questions. Either questions the employer has itself or questions the employees ask the employer.

Our team base language is English. Most questions you still need to think of, are standard for our team. Please connect to the payroll team with your payroll need.

Tax is exciting

We think tax is exciting. Exciting is hiring employees. That implies your business is growing and you need support. We very much appreciate it if we can assist you with this service need.

Resident payroll versus non-resident payroll

Resident payroll versus non-resident payroll

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.

Resident payroll versus non-resident payroll

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?

Tax is exciting

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 payroll@orangetax.nl

Laura is the OrangeTax payroll manager