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.

The expat housing seminar – Buying a house and tax

The current situation in the Netherlands is that you can loan money at a historic low interest percentage to purchase a house that will become your main residence. The expat housing seminar is there to help you.

We experience that the monthly costs for a mortgage loan set off against the monthly rent an expat pays is enormous. Why is this enormous? Renting in the Netherlands is not this easy. Dutch are registered on a so called social housing waiting list and if you have waited for about 15 years, you might be able to qualify for a house at low rental costs.

Expats suddenly arrive in the Netherlands, hence cannot use the low renting houses. That explains why they are charged with the rents they pay. This also makes expats look at alternatives and in a market with low interest rates and rising house prices, purchasing property for personal use, even for a couple of years, can be very beneficially.

Expat housing seminar

How to purchase a house?

That said where to start? Even for Dutch, highly educated or not, the process of purchasing a house is a path seldom walked, constantly under construction.

That is why the Expat Housing Seminar is introduced. At no costs we welcome you to take part. We hope to provide you with an enjoyable evening where we inform you about the aspects of purchasing a house.

Mortgage expert
That implies a mortgage expert will inform you about loaning money.

Real estate agent
A housing expert informs you about aspects involving in purchasing a house.

Notary and tax advisor
The notary informs you about the legal aspect and the tax advisor (Orange Tax) updates you on the tax benefits of purchasing a house.

May we recommend you to register yourself for this seminar. Next upcoming seminar is September 6 in Amsterdam.

Tax paradise in the Netherlands?

For some reason we receive a lot of requests from abroad to assist setting up a BV company for persons or companies that are active abroad, are not and will not be active in the Netherlands, but would like to invoice from the Netherlands.

Tax paradise

The reason for these requests I can understand, as in the financial news the Netherlands is described as a fiscal paradise for Starbuck and Rolling Stone type of businesses. If you ask the regular Dutch company or Dutch fiscal resident whether they experience the Netherlands as a fiscal paradise, they might become very confused. You will learn immediately about the 52% tax rate we have in the Netherlands for income tax.

tax paradise BV

Licensee firms

The Starbuck and Rolling Stone type of companies make use of Dutch legislation and jurisprudence. The structure is not that complex. You incorporate on a tropical island a limited liability company and in that company you put the owning rights of the for instance the portrets of the pop group or the owning rights of the coffee chain franchise. This tropical Island provides a license to the Dutch BV company and the BV company provides this license to any country in the world.

As the Dutch BV company is regarded a surreal company, as the money comes in and goes out immediately, the Dutch tax office has ruled that there needs to be a margin left in that BV company to be taxed with corporate income tax. That implies that the incoming and outgoing flow is exempted from taxation. So more or less tax free the money flows to the tropical island with its 2% tax regime.

EU commission

The EU commission has investigated the matter and came to the conclusion that this product is in fact a support the Dutch Government provides to those businesses. As that is illegal, this type of structures should be illegal. The Netherlands finds it difficult to understand how such a structure can be illegal, when it is based on legislation we have maintained already for many years.

Set up tax evasion

Due to the above we are requested by companies located all over the world to set such a structure up. For the set up your Dutch BV company needs to have a presence in the Netherlands, and only renting an office will not do the trick. You need substance and substance matters are dealt with by so called Trust companies. These trust companies could assist you in the set up and arrangements you need to make with the Dutch tax office. That said, with the EU commission being very much aware of this structure, we doubt it is still possible.

Orange Tax services

Tax evasion and tropical islands are not among the services we provide. We provide services to genuine Dutch resident companies or to individuals that need assistance with their tax affairs.

Why should EUR 100.000 pension be enough?

The Dutch Government decided last year to introduce a cut off at EUR 100.000 salary for the basis of a pension calculation. For those who think this is already too much, then this is not your article, for those who are indeed concerned about this cut off, please continue.

AOW, how did it start?

The general old age pension you receive at your pension age, for most of us currently at the age of 67 years old, was introduced shortly after the second world war. The big question was how such an pension scheme can be introduced when nobody has made any contribution yet.

The answer was based on a collective thought. The employees working now, are paying for the old age pensioners now. This implies that the system is based on the willingness of the current employees to make contributions to the pension of the current old age pensioners living now.

No rights for AOW

That system also implies you are not building rights for AOW while you are working. You have to hope the system still exists when you are the pension age. Also if you have not worked in your live, the AOW still applies to you as this pension applies to all tax residents.

That said, if you have not been a tax resident for over 40 years time, your AOW payment is pro rata reduced.

What will be the AOW age?

At the time of the introduction of the old age pension the general age people died was 67 years old. So the thought was to enjoy the after working live for two years before you die. Currently the average age we become is 80 years old, but the Government was too afraid to scale up the old age since the second world war, as that is political suicide. The 2008 crisis made this age change to 67 and the age of 68 is already set ready. For sound governance of the old age pension this age should be increased even more.

How does the AOW affect your pension?

Two fold. One minor issue is that your pension is starting to be build up from the assumed AOW amount you receive at your pension date. The other affect which is more significant is the fact that your pension payout date is the moment you have reached your pension age and that is determined by the AOW date.pension funds by orangetax

Pension build up

The old style pension build up was with one employer where you worked your 40, some 42 years of your life. Philips is a good example of such a situation. Now you still have 40 years time to build up your pension, but that will not be with one employer, and you might have gaps in the build up due to unemployment, sabbatical, you even might not have worked in the Netherlands this long.

Maximizing the pension build up to EUR 100.000

Introducing this maximum amount over which you can build up pension was done for budgetary reasons among one of them. By being able to deduct from your taxable salary less contribution to the pension fund because the total amount to be build up is less, makes your taxable salary higher, hence more tax to be expected by the tax office.

Alternative solution

Being in control over your own life is by most of us very much appreciated. So why can you not be in control over your pension? If you read this, you are most likely not a native Dutch person living his entire life in the Netherlands. You have arrived at a certain point in time in the Netherlands, certainly not 40 years ago, hence you cannot build up enough pension rights to safely retire.

You might even have assets or pension rights build up abroad and you cannot connect those with your Dutch build up. If you leave the Netherlands, you cannot take with you, without 72% penalty, the Dutch pension value abroad to make it of better use for you.

What if you create your own pension outside the system? It is common knowledge these days that your money is not save in the bank. Then again, if you do think it is save in the bank, you receive nearly no interest over this amount. You could investigate alternatives. If you have knowledge about shares, stocks and options, you can go to the stock exchange in the hope you will have as good a result as the Oerangatang did with his bananas.

You can repay the mortgage over the house you live in. You pay immediately less interest to the bank, please keep an eye on the maximum amount you can repay to avoid a penalty from the bank. It will make the renegotiating the loan over time easier if you already repaid a part. Of course your tax refund will be lower, but if you paid less, the refund can also be less.

Investing in real estate could be an option or in a start up company. All risk involved choices, choices your pension company makes for you every day all day. They have fun with your money, why should you not have a bit of fun. At the same time these alternatives are outside the scope of measures to make you work till your pension date, which could go up to 78 years old. That is the average age we currently become of 80 minus two years of enjoyment of the after work life.

Orange Tax Services

We are not pension advisors, but we do have opinions about pensions. We can help you with your questions, but you always need to keep in mind the risks involved. The risk of making pension premiums while not meeting the pension age in the end and the risk of making alternative solutions which might not work out.

Entrepreneurs discount or no entrepreneurs discount

That is the question.

Doing business in the Netherlands while using the legal structure of a so called one man company is very much lucrative from a tax perspective due to the entrepreneurs discounts. However, do these discounts apply always? That is the question the tax office likes to challenge.

Zelfstandigenaftrek – entrepreneurs discount

If you are an entrepreneur registered with the Dutch Chambers of Commerce as being a one man company, then you can benefit from a EUR 7.280 (2015) deduction on your profit before taxation. The minimum requirement is that you need to have spend at least 1225 hours working for this company and you need to have earned the majority of your income with this company.

That implies that if you worked less, or if you have employment where you earn more income or when you are not able to make plausible you worked 1225 at least for the company, then you cannot have this discount. This discount makes the one man company interesting from a tax perspective.

Eenmanszaak – one man company

An eenmanszaak also referred to as one man company is the name of a registration with the Dutch Chambers of Commerce used for private companies not being a legal entity. The name one man company does not imply that no women can set up this company, neither does it imply you cannot employ staff. The one man stands for one man holding the capital of the company. This one man company can have as many employees as the company likes to have, men and or women.

Startersaftrek – starting entrepreneurs discount

Having qualified for the entrepreneurs discount makes it possible to use the starting entrepreneurs discount. During the first five years of you qualifying for the zelfstandigenaftrek, you can add to the EUR 7.280 entrepreneurs discount EUR 2.123 (2015) starting entrepreneurs discount.

Most startup companies do not have an immediate profit, so it is key to monitor in what year of the first five years it is wise to actually use this starting entrepreneurs discount. If randomly used it could evaporate without having had any effect.

MKB vrijstelling – small business discount

After the profit has been reduced with the zelfstandigenaftrek and the startersaftrek, the profit that is left behind is reduced with 14% small business discount to the taxable profit. The small business discount always applies even if you do not qualify for the zelfstandigenaftrek and even if you do not make a profit.

That implies when you make a loss, your loss which can be set off against other income of the current of previous years, is reduced with the 14% small business discount. This effect was foreseen when this MKB vrijstelling was introduced. Companies making a loss should not be subsidized with additional discounts. Instead an upcount has been created by this MKB vrijstelling.

Zelfstandigenaftrek Orange Tax Services

Tax office challenging zelfstandigenaftrek

The tax office is keen to challenge the zelfstandigenaftrek when the situation that is being presented to the tax office might not meet the requirements of this discount.

Not being an entrepreneur

The tax office often claims that a person is in fact not a company, even though registered ad the Chambers of Commerce, as this company only has one client. This is a solid challenge, however, the tax office has also committed itself to a three year holiday from the start of the company. This implies that an entrepreneur has three years the time to proof he or she is indeed an entrepreneur and is able to raise the minimum of three clients to proof being an independent entrepreneur.

The reason for this challenge is to eliminate quasi entrepreneurs who in fact are employees. An employee is a person that works during an agreed upon time, for an agreed upon amount under the instructions of another person/company. Additional clauses such as continuance of payment during holiday or illness strengthen the employment ship.

Then again, if any starting entrepreneur was able to obtain three clients from the day the company was registered, anybody can start its own company, hence a three year holiday has been introduced.

The tax office does make house calls soon after you registered the company. This is a friendly visit during which the tax office helps you understand your obligations of filing the value added tax return in time, to take care of the bookkeeping and to meet your income tax return obligations. During such visits the entrepreneur discount is often discussed and we learn that often the tax office has already immediately the opinion that this discount does not apply. This is in conflict with the three year holiday and, as most clients are taken by surprise because the visits are not announced, the client had no time to prepare him or herself for such questions. We will be glad to assist you in challenging denied zelfstandigenaftrek discounts if that was an unfair denial.

Not meeting 1225 hour requirement

The tax office can challenge the number of hours you spend on the company. The tax office will then contact you with the request to provide them with an overview of the hours spend for the company.

Such an overview does not only include the actual number of hours you worked for your clients. It involves much more. Also the time you spend on developing your service/product, the time you spend on meeting potential clients, investigating the market, setting up your administration. This and any other time you spend on your company does qualify for the number of hours spend on your company.

Orange Tax Services

We will be able to assist you with setting up the administration of the one man company, we can assist you with creating your invoice layout. This is one of the more important aspects of your administration because the penalties on drawing invoices which are no inline with the invoice requirements set in the VAT legislation are enormous.

Furthermore we can assist you with the VAT filing, setting up a payroll if you hire employees and filing your income tax return. This income tax return filing is charged at EUR 500 ex VAT including your tax partner (2015 rates). Your tax partner is the person with whom you are married, registered partner, with whom you own a house or have children.

Contact us to set up a meeting to see what we can do for you.