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.

Difference employment versus self-employed: disability insurance

Difference employment versus self-employed: disability insurance

The question difference employment versus self-employed is often asked. The tax rates are compared, but not the disability insurance. Compare apples with apples, not with pears.

Difference employment versus self-employed

We have the opinion that this question does not really exist. Either you are an employee or you are a self-employed entrepreneur. It is not a choice.

Having said that, internationals do arrive from abroad. The employer abroad is aware of the Dutch tax rules, very protective for the employees. The employer is a bit hesitant. The international eager to move to the Netherlands does some research and finds that he can also invoice the current employer. The tax is much less, a no brainer you would think.

An employee is not an entrepreneur

The moment the assumed lower taxation is discovered, we are asked about the employment versus self-employed. We are happy to assist, but an employee is not an entrepreneur.

An entrepreneur creates his or her income source, is aware of current clients maybe leaving. The invoice might not get paid. Things like that.

The employee entrepreneur does not have this worry. He or she will have this income, unaware that the income can suddenly stop and no debtor risk. That is not an entrepreneur.

We are proven right the moment the Value Added Tax return had to be done, but was never done, as the employee was not use to file tax returns. In addition the entrepreneurs income tax return is be filed. That is a more complex income tax return, hence more expensive to process income tax return, than the regular one.

Difference employment versus self-employed: disability insurance

The true problem is with the disability insurance

The person making the comparison between being employed in the Netherlands for the foreign employer and being self-employed invoicing this foreign company, only looks at the amount of tax involved.

Indeed, the self-employed person can deduct company costs. This person can claim entrepreneurs deductions such as the entrepreneurs discount, starting entrepreneurs discount and the small business discount. That makes much less income tax is paid being self-employed.

Believe it or not, but even we know life is not only about taxation. If you are employed, the employer pays for the disability insurance and the unemployment insurance. Two insurances you do not have being self-employed. The disability insurance pays for the lack of income you have, when you are for instance hit by a tram. Every day a tourist is hit by a tram in the Netherlands. If you wake up three months later in hospital, who paid for your rent or mortgage?

Disability insurance

The disability insurance provides you with an income during a period you are not able to generate one due to health issues. For instance you have Covid issues, or taken into hospital.

The employer continues your salary payments at least for the first two years. Being self-employed, the client cannot continue to pay you. That would imply is was an employment all along.

Yes, you can take out a disability insurance and here comes the apples and pears correction. To compare being employed versus self-employed, you need to take the costs of a disability insurance into account. An insurance based on EUR 50.000 income per year can easily cost you EUR 10.000 premium per year. That is a tax deductible premium, but still a large amount.

Moreover, an insurance company is an insurance company. The moment the chance arises that a claim can be denied, this will be used. That problem does not arise with employment.

Tax is exciting

We think tax is exciting. Choosing between employment or being self-employed is strange to us. Either you are an employee or you are not. Same for the entrepreneur. The lower amount of tax is often the trigger to the self-employment option.

As much as we think less tax is exciting, there is more to the picture than tax alone. Rights employees have under Dutch rules. The disability insurance the unemployment benefit. All aspects you need to take into account, next to the entrepreneurs obligations. A true comparison will make you choose to be an employee any day.

Self-employed and employees

Self-employed and employees

The self-employed person is often referred to as ZZP entrepreneur. ZZP stands for working on your own without employees. Why no employees we wonder?

Self-employed and employees

You started your own company. You proudly express that you are the ZZP entrepreneur. But what if you expand, grown your business. Maybe employing a person will actually help your grow the business is a good idea. It is not a brilliant idea, as many companies have walked this road before you.

If you start a conversation in the Netherlands about employing an employee, chance is that within seconds very old slogans are stated. Slogans as “I wish my competitor many employees” . It is a negative slogan as if employees only cause you issues.

The question you need to ask yourself is where you would like to be in a five year period.

Employees make your business grow

In the event that the answer to the question where you will be in a five year period is a health running company, probably employees are part of that picture.

We support you taking steps to employee an employee. Maybe baby steps to start with. Baby steps are for instance to hire a part time person to assist you in your company. That will be a huge learning curve for you. Suddenly you need to make the employee actually work for you. That is not as simple as you might have initially thought it was.  Then again, also not rocket science as it is done before by many companies.

Employees are like human beings

Employees are like human beings, none are alike. They all have human issues. This should not stop you from hiring an employee. You probably have similar issues, being the human being yourself.

The task for the entrepreneur who has now become the employer is to find a way in the activities and the person you employed for the job.

Clients demand continuance of the business

Some entrepreneurs prefer to skip the whole employee part of a company and remain the ZZP entrepreneur. No employees and only subcontractors.

The problem in this case is multiple. At the start of the company this is all ok, but once you achieved a good client base, the client base expects a service from you. If you are on holiday, have the flue, or maybe in quarantine due to Covid, the company needs to be able to perform. That is the difference employees make.

Self-employed and employees

Self-employed and employees:

Being an employer is fun

You have started your company, you took baby steps in employing a staff. Now you have a number of employees, a client base who is happy to work with your employees. That is fun. It is exciting to walk into your own office and see your staff working for you. Besides that, you can also celebrate with your staff if the company is doing well or clients are very pleased with the service the team performed.

What is the first step to take?

We think that making a connection with a labour lawyer is helpful. Express you would like to become a client, request some services like an employment agreement and some basics how best to start with the limited period contract and probation period.

The moment you hire an employee, have the contract signed, the wage tax form, copy of the ID etc. You mark your calendar when you need to inform the employee if the contract will be extended or terminated. Step by step you learn if that employee fits with the company, you learn that in an interview a doubt equals a no. You grow as an entrepreneur and you become an employer.

Tax is Exciting

We think tax is exciting. Self-employment and employees, the payroll processing we are excited about to assist you with. We are eager to assist you with the calculations from a gross salary to a net, or a net to a gross salary. Or the employers costs calculation from gross or net. Our team is ready to assist you with either baby steps, puberty steps or grown up steps in the payroll administration.

Stocks options through employment – how does it work tax wise

Difference employment versus self-employed: disability insurance

Stocks options through employment – how does it work tax wise

Some employers provide their employees with the option to purchase stock options in the company. A question we often get is how does this work tax wise?

Stock options and taxation

In the past the stock option tax calculation was a complex calculation that had to take into account all kind of vesting and exercise moments. In 2001 that changes to a simple system.

The simple system works as follows: The moment that the stocks are being paid out is the moment that the stocks are taxed with wagetax. This is done via the regular income tax brackets, so for 37.10% for the income below EUR 68.508 and for 49.5% for the income above EUR 68.508 (2021 rates).

Employers are audited once in a while by the Dutch tax office. Then sometimes a correction is made on the tax withheld on stock option. As that cannot be charged to the employees anymore, this extra tax is a company costs. To avoid that, nearly all employers simply withhold the maximum tax rate of 49,5% (2021). If that is too much, the employee can claim back the too much part in the income tax return.

Which country can tax the stock options?

The income is taxed in the country where you have obtained the stocks. If you for instance are working and living in the Netherlands and the stocks are from a Dutch employer, then they will be taxed in the Netherlands according to the Dutch tax rules.

If you for instance lived and worked abroad, accumulated the stocks during this time and you receive income from the stocks whilst being a Dutch resident, this would have to be taxed in the country where you worked when you accumulated the stocks.

Stocks options through employment – how does it work tax wise
Stocks options through employment – how does it work tax wise

A mix of foreign tax and Dutch tax over the stock options is possible. A question we receive often is:

Where is for me tax wise the best to be taxed

We understand the question, but you have no choice or influence in the matter. The employer is responsible for collecting the correct tax on the stock options. That implies the employer has gained taxed advice where the options are to be taxed. What is best for you, the employee, is not relevant for the employer. The employer needs to withhold the correct amount of tax.

Keeping the shares, not cashing

Some employees decide not to cash the stock options but to keep the shares. This is a bit of a tricky situation.

Example

You exercise your stocks with a value of EUR 900.000. EUR 500.000 you receive as shares and EUR 400.000 will be paid out to you.

The tax rate is 49.5%.

49,5% over EUR 900.000 is EUR 445.500. However, you only cash EUR 400.000, which implies you need to pay the employer EUR 45.500 to settle the tax over the exercise. This could be a problem

Simple plan becomes complex

The above example was in case of a choice not to exercise. But what if you are not permitted to exercise as long as you are employed, or till the company goes to the stock exchange. The situation could result in you needing to exercise due to the stock option rules. This exercise is taxed, but you have no cash.

For the employees who are in the above mentioned situation the Dutch Government has announced a simple plan last month: provide a delay in payment. The first moment the shares can be sold is the moment the employee is obliged to pay the tax over the stock option exercise.

Where does this simple plan become complex: in Parliament. We have 19 political parties of which nearly none have tax experts, but they all want to have a say in the simple proposal.

Exercised stock options but not cashed

If you exercised the stock options and you kept the shares. What happens after the tax was paid over this transaction? If the shares you hold are less than 5% in the company, the shares have become part of your Box 3 assets. That  implies you pay roughly 1.4% tax over the value if you still own the shares on January 1 of a year.

In case you sell the shares and make a capital gain, this gain is not taxed. For private individuals we do not know capital gain tax in the Netherlands.

Tax is exciting

We think tax is exciting. The current simple rules we are very much excited about. We also understand some have timing issues with the exercising moment and moment the shares can be sold. For that new rules are created.

We fear the political influence on the proposals that soon will be send to Parliament. Then again, most politicians are not interested in tax at all, even though it pays all their bills. The new rule could be accepted without any glance taken by the politician. Which is not uncommon with tax regulations.

My name is Kelly Postema and I will be pleased to assist you with your stock options questions.

Stocks options through employment – how does it work tax wise

One client entrepreneur issue

Entrepreneurs deduction (zelfstandigen aftrek)

The one client entrepreneur issue is about one client is no client logic the Dutch Government applies. What is that about? Is that a problem? It depends, but we think it does not need to be a problem.

One client entrepreneur

You found an employer abroad who is willing to hire you, but is not willing to employ you. In other words, the foreign employer is willing to accept you as an employee, but very hesitant to become exposed to or subject of a foreign country tax regime.

The most common reply in this case by the foreign employer is: invoice us. Instead of being an employee, you become a contractor. I am rather certain that if we look at the agreement made, we will see an employment agreement. In that agreement the word employee has simply been replaced by contractor.

You are now a contractor with one client only. Is that a problem?

That depends who you ask. If you ask the Dutch Chamber of Commerce (KVK) it is indeed a problem. Such a problem, the KVK is not willing to register your company if you present one client only.

You need to ask us, before you ask the Dutch Chamber of Commerce. Most likely then you do not have a problem and a company registration.

One client entrepreneur issue
One client entrepreneur issue

What could be the problem?

The problem is a domestic problem, not international problem. The domestic problem is as follows.

You are employed by a Dutch employer. You terminate your employment on let us say on a Friday and you return to the same office the following Monday. On that Monday you perform the same job, same clients, but now you send an invoice for your services instead of being paid a salary.

Your former employer who now contracts you is very happy, as much less social premiums are to be paid for you. You are very happy as you pay both less income tax and less social premiums.

Solidarity of social premiums

The problem is with the social premium system based on solidarity. If we all do like explained above, not enough social contribution will be paid to fund the system we have in place. A system very much appreciated by the Dutch population. Protecting this system is key, hence the Chamber of Commerce and the Dutch tax office is keen to terminate a deemed employment.

International contracting

As I stated above, a domestic problem. The foreign employer did not employ the Dutch tax resident before a contract was offered. The foreign employer is not willing to become part of the Dutch tax system. This is a very common fear under foreign companies.

The next best thing is the following: The Dutch tax resident prefers employment. The foreign ‘employer’ is not willing to comply to that. The suggestion is to invoice the ‘employer’. For the Dutch tax resident this is the next best thing to do to contribute to the Dutch system.

One client is no client

Is the phrase ‘one client is no client’ true? Of course that is true. If you only have one client, the moment this one client terminates the agreement, you have no more income. Hence we always motivate the one client companies to find more clients. To think outside the box they are currently thinking in. To go for it. Just do it, as Nike states.

Nonresident employment payroll

Before we assist these type of so called one client companies, we suggest them that we can process a payroll. A payroll where there is no exposure to anything else than this employment only.

A one client company may look like fantastic at the start, less tax, more to spend. Over the years people become aware of possible unemployment, maybe getting disabled or not able to work due to hobby’s like skiing or cycling.

Is the old age pension set in place? These worries are not for the employee. An employee working in the Netherlands for a foreign employer falls under Dutch rules and regulations. This employee is socially insured for unemployment and disability. The pension contributions is something that needs to be negotiated.

Tax is exciting

We think tax is exciting. Running the Dutch payroll of a foreign employer is exciting. We also get excited about a company with one client only. As long as Dutch rules and regulations are accepted and executed, we will be pleased to assist.

Contact us for our fixed fee quotes. Our quotes are the same for everybody.

Start a remote work place

deductible costs

Start a remote work place or start employment with a foreign employer is something  we see happen more and more. How is a remote work place taxed?

A remote work place

Internet makes the world smaller and we see that foreign employer like to keep employed their employee that moved to the Netherlands. The move to the Netherlands is often initiated by the partner. The partner is offered a position in the Netherlands, or wants to return to the Netherlands or has another reason to move.

Can you have a remote work place?

Yes you can.

The rule is that you pay tax in the country where the work is actually being done. That implies you need to pay Dutch wage tax over your salary from the foreign employer. The foreign employer therefore needs to set up a Dutch payroll. In order to be able to set up a Dutch payroll a Dutch registration needs to be made.

The moment the Dutch registration is made, the foreign employer has become a Dutch employer for the remote work place. That implies the employee in the Netherlands is subject to Dutch social premiums. In case the employee prefers to remain socially insured under the foreign employer country system, this needs to be applied for via the proper institutes.

a remote work place

Will the foreign employer become exposed to taxation in the Netherlands?

It depends on how the employer will be registered, but if exposure is not desired, then the employer can be registered at a very low exposed manner. Low implies only exposed for the tax to pay over the salary of the remote employee.

Is a remote work place different from a regular Dutch employment?

Not at all.

  • Dutch labour law applies, even if the employment contract is based on foreign rules and regulations.
  • Dutch tax is to be paid.
  • Dutch incentives such as the so called 30% ruling can be applied for.
    If the employee purchases a house in the Netherlands, the mortgage inters can be deducted. The remote worker is like a domestic Dutch employee.

Tax-is-exciting – set up

We are very much excited to assist you to persuade, if necessary, to have your foreign employer comply with the Dutch rules and regulations. At the same time we understand the foreign employer being hesitant to enter a country, especially the Netherlands, with its own rules of taxation.

Hence we offer a low exposed tax registration for the foreign employer, where the foreign employer does not need to be afraid to become exposed to any other tax than the tax related to the employment of the remote worker. This is possible when certain conditions are being met, and we will be glad to share these with you the moment you inquire about a set up.

At the same time we need to inform the foreign employer that Dutch rules and regulations with respect to labour law apply, hence we suggest to set up a Dutch contract for the remote worker. Or at least have contact with a Dutch labour lawyer.

Are you as employee interested, contact us and we provide you with information you can show your foreign employer. This will help making the decision.

Are you the foreign employer, contact us and we can set up quickly the nonresident employer payroll for you.

Most frequently asked questions about Dutch payroll

My name is Laura Melzer-Boon and I am the payroll manager with Orange Tax Services. We provide Dutch payroll services to small and medium sized companies. My team and me are often asked the same questions, below I will address some of them.

Most frequently asked questions about Dutch payroll

What is holiday pay?

In the Netherlands we have besides the holidays an employee can take up, also holiday pay. Even though the name is almost similar, these two aspects of the salary administration is not the same. The holidays is obvious. The holiday pay is less obvious.

In the past Dutch employees had barely enough net salary to pay for the rent and groceries. The Dutch Government wanted to improve the living conditions and introduced an compulsory holiday pay benefit so the Dutch  can actually go on holiday.

This benefit amounts to 8% over the salary earned in the previous 12 months and is paid in either May or June. The general rule is that this benefit is paid in May over the salary of June (previous year) up to and including May (this year).

Is this holiday pay compulsory? Yes it is, as it is part of our labour law. Can you decide not to pay holiday pay? Yes you can, but then you need to put in the employment agreement explicitly that the salary is including holiday pay. Then every month you see the holiday pay shown as being paid out.

Can you pay the holiday pay in another month than May or June? No, you cannot. In another month it is not regarded holiday pay, so the employer might think he has complied, but the employee can still successfully demand in addition holiday pay to be paid in May or June.

The holiday pay can be spend on anything, like a LED TV, washmachine, but also on an actual holiday. Maybe this explains why you see throughout the world Dutch travelling.

Is my salary high enough for the 30% ruling?

The 30% ruling we explained in another article. Part of the requirements is the minimum salary. Our law maker was not so clever in his communication with respect to the minimum salary requirement, but then again, maybe due to legal aspects he had no choice.

Hence the minimum salary in the Dutch payroll after the ruling has already been applied is mentioned in the legislation. If you earn a fiscal (!) salary of at least EUR 37.743 (2019) or when you are younger than and you hold a master degree, then the minimum fiscal salary is EUR 28.690 (2019).

But please understand these amounts are after the 30% ruling has already been applied. That implies this is already 70% of your gross salary. Hence the actual gross salary minimum is EUR 53.918 and EUR 40.985.

Then if you qualified for the lower salary and you do turn 30, you need to immediately that month qualify for the higher amount. As that hardly ever happens, you need to fear turning 30.

If you work for a Dutch University, no minimum income requirement applies.

Is pension compulsory?

That depends in what sector the employer is in. The tax office allocates an employer based on the core or actual work done in the company, in a sector. Some sectors like employees working in a shop, cleaners, metalworkers have compulsory collective labour agreements and those agreements have an compulsory pension contribution.

If you are not in such a sector, then you are not obliged to have a pension for your employees. If you do have a pension installed for your employees, all employees need to take part in this pension benefit.

Should you take out a pension insurance? If you have no Chambers of Commerce registration, you simply cannot take one out, as the first question on the application form is your KVK number. And yes, you can run a payroll without presence in the Netherlands.

If you can take out a pension, you should think twice if that is indeed in favor of the employees. Our system has become a dinosaur system that knows no flexibility. That implies you cannot switch pension insurance companies and take with you the buildup capital. You cannot leave the Netherland and take with you the buildup capital. If you somehow insist, then the tax is 52% plus 20% penalty tax, plus 25% penalty is a 97% tax rate. A so called show stopper. Most expats stay between 5 to 10 years in the Netherlands and then they leave, but the pension stays behind forever.

I worked less than 183 days in the Netherlands, can I claim back my tax?

No you cannot. The 183 day rule is in the tax treaties the Netherlands has with most countries. A tax treaty is an agreement between countries if there is a dispute over which country can tax what.

With employment in the Netherlands, even if you have a foreign company like a Ltd company and you work in the Netherlands, it is regarded domestic employment, hence no dispute, it is taxed in the Netherlands. If there is no discussion which country can tax what, the tax treaty is not applicable and then the 183 cannot be used. But even if the 183 day rule is called for, the three conditions are nearly never met. So if you worked in the Netherlands, you have paid your dues, but cannot claim all of it back.

We do recommend you to check with us after the calendar year has finished and you moved away, if you can have a refund via the migration income tax return.

If you have a Dutch payroll question we have not addressed above, feel free to contact me.

How not to use your UK Ltd in the Netherlands

The Ltd is the United Kingdom equivalent of the Dutch BV company. This UK Ltd is often used in the Netherlands and sometimes mis-used by lack of understanding the rules.

How to use your UK LTD in the Netherlands?

The moment you start to use your UK Ltd in the Netherlands for your activities either by starting a contract in the Netherlands via the UK Ltd or you set up an office in the Netherlands and you, the director of the UK LTD operate in the Netherlands, the UK Ltd becomes subject to corporate income tax and value added tax rules in the Netherlands.

The UK Ltd becomes a Dutch resident company and therefore subject to Dutch corporate income tax the moment the director is a tax resident in the Netherlands. When that is the case, the Dutch rules towards the minimum salary requirements etc apply. This is not often fully understood.

How not to use your UK Ltd in the Netherlands
How not to use your UK Ltd in the Netherlands

How not to use your UK Ltd in the Netherlands? Court case

The court ruled recently over a British couple that operated in the Netherlands through their UK Ltd company. The company was registered in the year 2007 with the UK companies house at the address of the UK accountant. The employment agreement was based on a Dutch address and that employment contract was also the basis of the 30% ruling application.

Both the husband and wife were granted the 30% ruling. The 30% ruling is to cover the extra costs expats have for moving to the Netherlands. The 30% is the maximum and an employer should not reimburse the employee besides the 30% ruling more extra territorial costs. And that is exactly what the couple did do. They enjoyed the 30% ruling and they reimbursed themselves double housing costs, living allowances and a fixed amount of general costs reimbursement. None of these reimbursements are legal, but they were processed for the period of 2009 to 2013. At least, the audit was for this period and hence noticed.

Moreover the husband and wife granted themselves a directors fee from their UK registered Ltd to themselves that was not included in the Dutch wage tax return. As it was clear they were residing in the Netherlands, the rules is that all they earn is subject to Dutch tax. There is a tax treaty article about directors fees, but that does not apply either, as the company was a tax resident in the Netherlands.

The Dutch tax office calculated the wage tax due over the non-reported income and wrongly deducted reimbursements for EUR 125.000 and increased that amount with 25% penalty.

The couple made a complaint in court against the assessment and penalty issued by the tax office. They claimed to be a UK resident company. But the court was clear on the case. The couple owned the house they lived in in the Netherlands, that makes them having their central point of life in the Netherlands. As they are the director of the company and the tax residence of the company is determined by the tax residence of the directors, the company was a tax resident in the Netherlands.

Moreover, the court noticed that the employment agreements which were the basis of the 30% ruling applications showed a Dutch address as the employee/director home address. Then, the employment agreement mentioned a Dutch address as the UK Ltd company address. In the UK Companies House the Dutch address was reported as their home address.  In their UK income tax return they reported living in the Netherlands and claimed not to be due any UK income tax over the directors fees paid from the UK company, as this was income earned while living abroad. In the Dutch income tax return the Dutch address was reported as their home, hence mortgage deduction was possible. Their children went to a Dutch school, which makes the statement of them being a Dutch resident stronger.

None of the arguments of the couple was valid.

Orange Tax Services

You can use your UK Ltd in the Netherlands, but you need to understand some of the basics. If you as shareholder director of a foreign company become a resident in the Netherlands, or you have a job via your company in the Netherlands, then not only you but also your foreign company have become a tax resident in the Netherlands.

The rules we have in the Netherlands are not only for the Dutch, that would be discrimination. They are for all tax residents in the Netherlands. You and or your company are more quick a tax resident that you would think. Then it is key to comply and if you are not sure how to comply or if you should comply, you need to contact an expert. We are such an expert. On a daily basis we ask ourselves in client contact where is the fiscal residence of the client or his or her company. If that question is skipped, then you get court cases as you could read above.

Mind also the timeline please. The audit was over the period 2009-2013 and only now, late 2018, this case was decided. Nearly a decade has passed when you are charged with the correct amount of tax. You might not expect that at all, hence a good setup is crucial for your future financial planning.

Employment and social insurances

If you are employed in a country, then in that country of your employer you are socially insured. What if you are temporarily send abroad?

Employment and social insurances

The moment you are send from for instance the United States of America (USA) to the Netherlands to work with a company that is registered in the Netherlands, then you are socially insured in the Netherlands.

Socially insured implies that you contribute via your employer in the costs of our health care system, you are insured for unemployment and disability. Most of these premiums are not shown on the salary specification. Even though your employer contributes already to the health care system, you need to take out yourself an individual health care insurance. If you lack to do this, the Dutch justice department will send you monthly penalties for more or less the same amount as the most expensive health care insurance, until you take out a health care insurance.

Employment and social premiums
Employment and social premiums

Employment and social insurances – you do not want to pay for social insurances

If you are temporarily send to the Netherlands, and the period does not exceed two years, then you can ask the country from where you are send, to continue contributing social premiums to them. That country then needs to issue a statement. In the EU such a statement is referred to as a A1 or formerly known as E101 statement. The USA can issue a US social coverage certificate.

You might think it is cheaper for you not to contribute to the Dutch social system, but sometimes the social system in the country you are send from is even more expensive.

Employment and social insurances  – employers in more than one country

The moment you work for one company in two countries or for two companies in more than one country, the main rule would imply that you are socially insured in each country where you are employed. You are then double insured for social premiums and that needs to be prevented.

The rule is then that you are socially insured in the country where you live and where you work for at least 25% of your time. The moment your situation becomes more complex, like you work in three countries 33% of your time and in none of these countries you actually are a tax resident, so you are not living in these countries. Then the book of exceptions has solutions for that as well, but those then need to be studied as this changes from time to time.

What if your temporary period becomes longer?

The situation that you are send to the Netherlands for a short period of max two years, you intend to return, hence you keep on being socially insured abroad. Then you meet the love of your life, or you actually like it more in the Netherlands than you would have expected. After the two year period there is no possibility to extend that period and you become subject to the Dutch social system.

Why would you like to continue your foreign social status?

The reason for not being socially insured in the Netherlands can be the costs of our system. However, it can also have a more fundamental reason. If you live in the Netherlands, then you are paid an old age pension if you reach the age of 67 years old. Under the condition that you worked at least 46 years in the Netherlands, you get 100% old age pension. For every year you were not socially insured in the Netherlands, the old age pension is cut by 2%. If you then work a couple of years in one country and then a couple of years in the other country it can affect this old age pension. The A1 statement prevents this cut.

Orange Tax Services

We can run a payroll for you where you are socially insured abroad. For that we do need the A1 or other certificate from the other country. In case of doubt we check with the Dutch institute in charge for the social premiums if the provided document is indeed the correct document as experience has learned that employees can be very creative.

30% ruling – minimum salary requirement

The minimum salary requirement is one of the four requirements you need to meet to qualify for the 30% ruling. What is the minimum salary.

30%  ruling – minimum salary requirement

The minimum salary requirement is EUR 37.296. This is the 70% part of the salary. So the gross salary needs to be at least EUR 53.280.

The exception to this rule is that when you are younger than 30 years old and you hold a master degree, then your salary can be EUR 28.350 instead. Again this is the 70% part of the salary. The gross salary needs to be at least EUR 40.500.

The ultimate exception to the rule is when you work for a Dutch university, then no minimum salary is required. If that would be different, with the budgets of the universities no employee would qualify anymore, but we do need the researchers.

minimum salary requirement
minimum salary requirement

When do you need to meet the minimum income requirement?

There are more answers to this one question. The most important answer is on the moment you were attracted from abroad by the Dutch employer, you should earn the minimum required salary.  In other words, if you get a raise later that makes you meet, then this raise is too late.

The multiple answer to the question is in the minimum income constantly being monitored. You need to keep earning this salary, otherwise you still lose the ruling the moment you no longer meet the minimum income requirement. This is checked in the income tax return and wage tax returns.

Example minimum income requirement:

  • You have been attracted by a Dutch employer from abroad that offers you a EUR 60.000 gross salary.
  • You meet all the requirements, so the ruling is applied for and granted.

But nearly immediately you make less hours than the hours agreed in the employment agreement. Hence your salary drops in line with the lower amount of hours and suddenly you no longer meet the minimum income requirement. From that moment you have lost the ruling forever.

Example 2 minimum income requirement:

  • You were attracted by a Dutch employer when you are 28 years old.
  • You hold a master degree, hence the lower EUR 40.500 income requirement was applicable to you.
  • You were offered a EUR 50.000 salary, hence the 30% ruling was issued to you.

Then you turned 30 years old without a significant salary increase and you are under the EUR 53.280. That implies you have lost the ruling forever.

No more ruling – how is that communicated?

That is not communicated. It is the obligation of the employer to apply the correct rules to the salary. If that implies the 30% ruling needs to be examined if still applicable, then this is part of running the payroll.

No more ruling but ruling is still applied

If the employee no longer meets the requirements. Either the employee’s salary was too low or the employee took a garden leave exceeding 3 months, then the ruling no longer applies. If the employer does not acknowledge this and continues processing a salary with applying the ruling, the employer has a problem.

The problem is that not enough tax was calculated, hence the employer is to pay the difference plus a penalty of at least 25%. Then the employer needs to collect from the employee the too much salary paid. Any employer that ever tried to collect too much salary with the employee knows that the money is no longer available, so to say. Hence the employer waives that amount. But waiving the amount is in fact salary as well, that needs to be grossed up, plus social premiums and if not done correctly, with a penalty of at least 25%.

Orange Tax Services

We do come across these situations where the employee holds in their hand the 30% ruling statement issued by the tax office, but less hours were worked, hence the ruling is void. That is often difficult to digest by the employee.

Or the employer that finds out too late that the employee was not entitled anymore or the ruling lapsed. The question asked is often, what is the chance on an audit. The answer is: really small. But that is not the correct question to ask. The question is: will the tax office find out in the coming 12 years. The answer is then: probably. Do you then have issues? Indeed you have.

Now the period of the 30% ruling is shortened to max 5 years, you can expect that the tax office will make this a pin point investigation for next year. Plus due to all the news about this change, no employer can shield a mistake with the words: we did not know.

Non resident employer – what does that imply?

When your company has an employee working for you that is doing the work in the Netherlands, you are a Dutch employer. In the event you have no office or registration in the Netherlands, you are a non resident employer. What does that imply?

Employment taxed in the Netherlands

Tax treaties determine where a taxable event is indeed taxed. All tax treaties are clear on the subject, work done in a country is taxed in that country. That same article has also an exception, the so called 183 day rule. This rule nearly never applies and for this article it is not relevant as well. The employee that is employed in this article, is a resident of the Netherlands. The 183 day rule exception is for an employee that is not a resident and an employee that also has no desire to be taxed in the Netherlands.

The tax treaty makes that employment done in the Netherlands is taxed in the Netherlands.

Non resident employer – when does this apply?

You are a non-resident employer when you have no office or registration in the Netherlands, but you do have an employee working for you in the Netherlands.

If that employee

  • does not use a company office,
  • is not allocated to work on site of a client as if he was an employee of that client,
  • nor can the employee sign on behalf of the company,

the company can be registered as non-resident employer.

non resident employer
Non resident employer

Non resident employer – What employees qualify?

Employees such as the software programmer, he or she can do their work anywhere, why not in the country that is among the top of the world if it is about internet connections. Or you employ a Dutch software programmer, to offer your US client an overnight service. We do the work, while you are asleep. The most common employee is the sales representative. He or she leaves the house in the morning to sell your product.

Recently Brexit employees are among our clients as well. Employees with no British passport who are uncertain about the future and do not want to be searching for housing the moment all other non United Kingdom nationals jump ship to the Netherlands.

Can you skip registration and simply pay your home country tax over the salary of the Dutch resident employee?

This is a common situation for especially US companies that are a bit hesitant to enter into a foreign system. Of course it is incorrect, but the pain is with the Dutch employee. Because the Dutch employee is not earning any income for the Dutch system. The foreign income is not shown. The employee cannot get a mortgage to purchase a home, is not socially insured correctly.

Especially the mortgage part, that is how we pay for a house in the Netherlands, will make the employee demand you to comply, otherwise they simply cannot continue to work for you.

What is the impact for the employee, working for a non resident employer?

None.

There is no impact. Because the employer is registered as employer in the Netherlands, but without a Dutch address, does not make a difference in the tax rate or social premiums to be paid. So the employee is socially insured like any other employee, and the employee pays the correct and normal amount of income tax.

Orange Tax Services

We can help the foreign company setting up a payroll in the Netherlands without having a presence in the Netherlands. We have over a decade in experience working with non-Dutch companies and that is also our trade.  Based on that experience we know how to communicated with you in a sense that you do not feel this Dutch employee or Dutch employees being a burden on you. At the same time we are able to feed your accounting department with the bookkeeping details you need to show the Dutch employment costs in your overall result.

Our payroll department works on a three day turn around method which implies that if you provide us with the details, three working  days later you have the required information to pay the employee.

We also noticed that making payments from abroad can be costly, hence we offer a bank transfer free service. Besides we offer to transfer a one amount fund with which we pay the employee, the tax office, the social premiums, our invoice and any other cost related to the payroll. Feel free to contact us. Our payroll manager her email address is laura@orangetax.nl

Salary of the shareholder of the branch registration

Your company might have a branch in the form of a BV company in the Netherlands or an identical registration of your foreign legal entity. The issue that might arise then is the salary of the shareholder of the branch registration.

Salary versus dividend

The fun for most managing directors sole shareholders is to earn a lot of money, not get paid a salary at high progressive rate, but only enjoy a dividend payment. That fun was spoiled many years ago in the Netherlands.

In the Netherlands we have social benefits for poor people. Poor people are people with no or nearly no income. Such as the managing director sole shareholder who earned no salary income, but did cash a million in dividend. He is poor as he has not salary income.

The consequence is that this poor managing director sole shareholder can take out a rent benefit, should he rent, a health care insurance benefit or a day care center benefit.

But is he poor with the one million in dividend? I doubt that is the case. So why have him benefit from social benefits for the true poor?

Salary of the shareholder of the branch registration

Salary of the shareholder of the branch registration – Minimum salary requirement

That made the Dutch Government make that the salary of a shareholder employee cannot be less than EUR 45.000 or less than the highest paid employee other than himself in the company or less than 75% of a person in a similar position.

That rules out the salary of the shareholder of the branch registration to be used to obtain social benefits, as the minimum of EUR 45.000 makes that most benefits cannot be applied for anymore.

How to determine what is the salary of a person in a similar position in a country like the Netherlands where nobody tells anybody their true salary, but with loans and open curtains at night showing off their latest TV screen. On the other hand, the tax office knows the salaries of all persons, but they will not share their information. Bottom line is then that you simply take 75% of the result of the company from which the salary of the managing director shareholder has been deleted from.

But does this rule apply to me, I have a UK Ltd registered in the Netherlands. The UK does not have this rule.

The UK, or any other country, might not have this rule. But for Dutch tax purposes you are a managing director sole shareholder. The company is subject to corporate income tax in the Netherlands, your salary is subject to Dutch wage tax, hence you are under the Dutch rules.

How will they ever know about the correct salary of the shareholder of the branch registration taken out?

This is a simple answer. The Dutch tax office only works with digitally filed tax returns. So in their control room they tick the box result company, tick the box salary of the shareholder and the computer calculates if it is correct. The 2011 court cases show that if not correct, the tax office will make corrections going back 5 years, which made each company in those court cases go bankrupt, as the amount is increased with penalties. The court cases also show that minor shortages in salary are equally harshly adjusted, which made us wonder if it really should be this harsh.

How can Orange Tax Services help out?

That is easily answered. If your company is our client we do our best to have done the fourth quarter VAT return in early January, so we know the result of the full previous tax year. Based on that result we calculate what the salary should be. Under the 30% ruling a salary using 100% of the result, so no taxable result left over, is most efficient. Non 30% rulers we will set at 75% salary of the result. That implies in January we update the previous December salary to match the criteria of this legislation.