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.

Employment versus self-employment?

A company is a source of income

Employment versus self-employment. The Dutch Government supports employment. Sometimes you think you work with an employee who turns out to be self-employed.

Employment versus self-employment

The ever ongoing battle the Dutch tax office has is about being self-employer or not. The Dutch tax office has the opinion that if you have only one client, you are a deemed employee. The Dutch chambers of commerce supports the Dutch tax office and denies a registration if you expect only to have one client. In international situations we disagree with that Chambers of Commerce view. And the tax office does support us, from an international point of view.

Examples employment versus self-employment

Then we have the Dutch situations. A DHL package person rings your doorbell in a full DHL dress code (jacket, cap) and drives a DHL van. So this must be a DHL employee? Indeed, this person is self-employed.

An employee gets a salary, needs to perform labour under instructions and has to do this in person. You would assume the UBER EAT person at your door bringing a delicious meal is an employee. But is not.

The nurse that is planning his or her own agenda, has temporary assignments to very ill persons. A very uncertain period of time, as the person is so ill and can soon die. No instructions are given. The nurse has to decide on the spot based on experience what is the best method. The own car is the transport. Private clothes are the outfit. You would assume this is the example of a self-employed person, but this person is an employee.

The Postnl person must be clear to you. Postnl, the official postage page. Beautiful van stickered with Postnl logo and name. Postnl dress code. Indeed, not an employee, but self-employed. Isn’t that strange? You see Postnl, it behaves as Postnl so you assume this is Postnl employee, and it is not.

Court case

A woman worked for a TV station ‘Omroep Gelderland’. She announced the programs. That implies clear instructions were given what to say, how to say it, when to say it, for which a reimbursement was paid. A clear employee situation you would thing.

Then Omroep Gelderland no longer needed her services and simply stopped paying  her. She went to court claiming that an unlawful dismissal of employment has taken place. She claim continuance of her salary.

The court ruled that no employment agreement was signed. She did not take part in the company, like not attending meetings. The court acknowlegded the fact that all the employee could say on behalf of Omroep Gelderland was monitored by the editorial board. The court ruled she was independent in her work.

No employment was in place, the Omroep Gelderland has followed correct procedure.

Tax is exciting

We think tax is exciting. We can also get excited about straight rules. Clearly on the subject of employment of being self-employed it is not clear at all. Should anyone, like the Chambers of Commerce, state to you that your one client abroad makes you an employee, please contact us. We disagree with that view.

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.

Minimum salary of an entrepreneur is subject to rules

The minimum salary of an entrepreneur is ruled in the Netherlands, that implies it has been sorted, these rules have been appealed and the rules still stand. What is minimum salary of an entrepreneur?

Minimum salary of an entrepreneur

An entrepreneur that works via a limited liability company such as the UK Ltd, the USA Inc, German GmbH or Dutch BV company is paid a salary. The first remark we in general receive from the entrepreneur is to put the salary on zero, as he prefers dividend.

Why would he prefer dividend over salary? The assumption is that the progressive tax rate is due over the salary income and only 25% dividend withholding tax is due over the dividend. That is a mis assumption.  In order to be able to pay a dividend, there needs to be a profit in the limited liability company. In 2020 the corporate tax rate up to EUR 200.000 is 16,5% (15% in 2021).

Minimum salary of an entrepreneur is subject to rules
Minimum salary of an entrepreneur is subject to rules

Example EUR 200.000 profit is taxed with EUR 33.000 corporate income tax. That implies EUR 167.000 is the profit that can be paid as dividend at 26,25% in 2020 (26,9% in 2021) dividend withholding tax. EUR 43.838 dividend tax is due over this profit. The EUR 200.000 profit is taxed at EUR 76.838. That is a rate of 38%. Not bad.

The same amount paid as salary is taxed in 2020 for roughly EUR 90.675, being 45%. The same amount paid as salary under the 30% ruling is taxed in 2020 for roughly EUR 60.975, being 30% taxation. If you have the 30% ruling, a salary rules over dividend.

Minimum salary of an entrepreneur

The salary cannot be lower than EUR 45.000 and not less than 75% of the profit. If however, the highest paid employee of the group earns more than the EUR 45.000 or 75% minimum, the salary of the entrepreneur needs to match this employee salary as well. The exception to the rule is when the employee has such a specific expertise, then the salary does not need to be met.

What if your company does not make any profit?

In the event the company does not make a profit, hence structural loss making company, the rules of the minimum salary do not apply.  And what if you make a profit, but that is less than EUR 45.000. We have the opinion you cannot be asked to make a loss, hence your salary needs to be identical to the profit made. But at the same time the purpose of keeping on the limited liability company should be addressed.

Startups – exception for startups

The startup limited liability company does not need to comply with the minimum salary rules if:

  • The start up has a so called S&O statement (Search and Development)
  • The company qualifies for the increased starter deduction

Still then the entrepreneur cannot earn less than 75% of what a similar person would earn, the difference is that the minimum of EUR 45.000 is not applicable.

Director position dormant company

We do not know dormant companies in the Netherlands. However, if you are the director of a BV company that is not doing anything, an annual minimum salary of EUR 5.000 is applicable, unless the company is constant loss making company.

Minimum salary of an entrepreneur – why?

The Dutch Government does not want the high dividend earning entrepreneur who receives no or nearly no salary to  be labelled poor in the Dutch system. Poor by lack of salary. But this person is not poor.

If you are “poor” in the Netherlands you can get a tax credit for renting, health care, day care costs. By implementing the minimum salary requirements, the tax credits are not or much less open for this non poor entrepreneur.

Orange Tax Services – tax is exciting

Meeting the minimum income requirement is part of being the salary earning entrepreneur. This calculation is done at the very end of the financial year and we are happy to assist you. If you prefer to have the 25% part not used for salary, but to be used as dividend payment. We can arrange that for your too.

30% ruling cut is partly postponed

The Government announced a rather rigid cut in the 30% ruling period last month. Now this rigid cut is softened for a part of the 30% ruling holders.

30% ruling cut

The 30% ruling makes that your 100% gross salary is taxed for 70% and 30% is paid out to the employee tax free. This is a ruling that does not cost the employer anything and it makes the employee chose to work in the Netherlands over the United Kingdom.

Part of the tax measures for the future was to cut the maximum period that the 30% ruling could be used from 8 years to 5 years regardless.

The Dutch Government works with budgets, and to pay for the dividend tax to be abolished, certain measures were taken, one of them this cut in applicable years.

30% ruling cut
30% ruling cut

No deal multinationals

The reason for the dividend tax to be abolished was to keep the headquarters of multinationals such as Unilever and Shell in the Netherlands. This was a deal made many years ago. Only a few weeks after the Government has met their part of the deal, abolishing the dividend tax, the multinationals announced that they do not keep their part of the deal. Unilever is moving their headquarters to the United Kingdom and soon Shell is expected to follow.

That made our Government lose face as they say in China. Part of losing face is apparently acting quick on the new information, hence the dividend tax is not being abolished. As this measure is not taken, we have 2 billion a year more budget to spend. This will be spend on the corporate part of the Netherlands.

30% ruling cut is partly postponed

Due to the multinational deal falling through there is budget to be less rigid on the 30% ruling cut, hence the ruling partly postponed. What does that imply?

That implies that the persons who would have been affected by the ruling no longer be applied in the years 2019 and 2020 can still continue to use their ruling in these years.

Who are these persons? That are the persons whom 30% ruling was used for more than 5 years in 2019 and or 2020. So the persons in their 6th, 7th or 8th year.

30% ruling cut not postponed

That implies that others, the persons whom ruling would not be affected in the years 2019 and 2020 still are entitled to use the ruling for a maximum period of 5 years. For instance an employee that obtained the ruling in 2017 for an 8 year period is indeed cut to a max 5 year period.

Orange Tax Services

We have the opinion that the Government has not been the trustworthy Government you would expect from the Dutch Government in this aspect, the 30% ruling issue. We, tax advisors, knew already a year ahead that the ruling would be cut to 5 years. But as the Government was not taking this stand point till late September, all expats trusted the change would shield existing holders from being cut. Only last week it started to sink in that this was never going to happen. Hence some expats took action and are soon moving away.

Now this week suddenly there is for some of the existing expats a softening in the rigid change, but so late in time this is being communicated, that for some expats who already took action to leave, or who shuffled their Box 3 assets, taking a loss, only to minimize taxation, are already affected.

Casualties of tax war? Maybe so, but no good showcase for the Government in place. Regardless of the change announced this week, such a rigid change to 5 years as announced before is never a good deal.

 

183 day rule is no rule

The famous 183 day rule is more often abused in assumptions that actually used in real life. How is that possible? The answer is really simple, the 183 day rule has two more rules that make it can hardly be used at all.

183 day rule – what is that about?

Some people spend time in the Netherlands for work, are horrified by our 52% tax rate and try to find solutions to the Dutch tax rates. One of them is to avoid becoming subject to the Dutch tax system by applying the 183 day rule.

What 183 day rule criteria do you need to meet?

Obviously you cannot be physically more than 183 days in the Netherlands. The day you take the airplane out is a physical day in the Netherlands. The 183 days apply to one calendar year, or if the tax year is not equal to the calendar year, like in the United Kingdom, the 183 day period is counted in the 12 months of that other calendar year.

During the period that you stayed less than 183 days physically in the Netherlands, you are paid by an employer that is not resident in the Netherlands.

And your salary cannot be allocated to a permanent establishment your non Dutch employer has in the Netherlands.

The two last paragraphs are making the rule no rule in most cases.

How not to use the 183 day rule?

Most simple situation is that you stay longer than 183 days. Some focus on the working days, some forget the travel days.

More often it is a person from abroad that worked less than 6 months in the Netherlands, who thinks that no Dutch tax should be applied then. But that employee was not send from abroad by a foreign employer, was working for a Dutch company, hence the rule does not apply.

Subcontractors think they can use the 183 day rule if the contract only lasts for 6 months. But subcontracting can only be done in the Netherlands if the company for whom they are working, nearly always their own UK Ltd, if that UK Ltd is registered in the Netherlands as so called WAADI employment agency. Once that registration is done, the Dutch rules with respect to payment in the Netherlands apply. Hence Dutch tax rates apply.

Single persons staying a while in the Netherlands who forget that they have become a Dutch resident tax payer the first day they arrived, regardless how long they stay, as their fiscal residence is based on facts and circumstances. And those make them subject to Dutch tax immediately.

183 day rule

How to use the 183 day rule?

Your company sends you as employee out to the Netherlands to attend a fair, visit clients, do research, find clients. This can be a short stay, a longer stay, but would make doing business for a foreign company very complex if for every day spend in NL, or any other country in the world, a local payroll needs to be set up for the days spend in those countries. So it is a very practical solution.

Orange Tax Services

We are often contacted by subcontractors that want to use this 183 day rule, or even worse, have the opinion that as they work in NL for a UK company, their own UK Ltd, they should not need to pay any Dutch tax. Fortunately we have tax treaties that are very clear on the subject. Work done in a country is taxed in that country.

We prefer potential clients to contact us and simply ask how it works, then we can explain that with the 30% ruling in place, you pay in NL less tax than in for instance the United Kingdom. That always is a good selling point, unless you do not qualify for some reason for the ruling, then I hope the day rate you can earn in NL compared to abroad makes it still worth while moving over.

 

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

branch setup in the Netherlands

One of the frequently asked questions in a regular work week by potential clients is for a branch setup in the Netherlands, However, nearly all of them ask for a so called BV company to be setup. Why however? When we ask if the director of that BV will be residing in the Netherlands, the answer is nearly always No. Then we have a problem.

Branch setup in the Netherlands

A branch is basically opening a shop or office for a company outside the Netherlands. The reasons can be various. Some have an import and export company and like to have a Dutch VAT number, some would like to hire an employee and think a branch makes that easier, some would like to defer income to the Netherlands.

The import export company with no presence whatsoever in the Netherlands we recommend to contact a freight forwarder that can act as fiscal representative and have the VAT collected much more efficient.

The foreign employer who thinks making the employee in charge of the VAT filings, wage tax filings, publishing annual report with the Chambers of Commerce, filing the corporate income tax return and be liable for the action of the branch, actually is an efficient way to employ a person, that foreign employer we inform about the possibility of the non-resident employer. Then the employee is a genuine employee and the company is not exposed to any other tax in the Netherlands, than tax on the employment. There are some restrictions. Read more about that in our articles.

Deferring income to the Netherlands for avoiding tax is basically the wrong way around. Most Dutch companies like to get money out of their Dutch limited liability company to a lower taxed country.

Branch setup in the Netherlands

Branch setup in the Netherlands – 2 flavors

BV company

You have basically two flavors for setting up a branch. One is the so called BV company. That is the Dutch equivalent of the Ltd company. And you can set up an identical registration of your foreign limited liability company.

The BV company is strong from a commercial perspective, but if the director of that BV company is not residing in the Netherlands, then it has no point setting up a BV company.

The director his private address determines where the BV company is a tax resident. The thought is that the director is in charge of the BV and where that is, is where the BV should be taxed. This is immediate effective with for instance Value Added Tax. VAT is paid in the Netherlands over costs like housing, advisors etc. That VAT the BV would like to claim back, but cannot claim this back if the company is not resident in NL. The VAT legislation is made in such a manner that if the BV company sends out an invoice with Dutch VAT, that, regardless of the BV being a resident in the Netherlands, this amount of VAT is to be paid to the Dutch tax office.

The same applies for corporate income tax. The corporate tax law does have an article that a Dutch BV company is always regarded to be subject to Dutch corporate income tax, but if the director lives abroad, in that other country the result is to be taxed.

Branch setup in the Netherlands

The difference with a branch in the manner of an identical registration with the Dutch Chambers of Commerce of the foreign company is that the director does not need to be resident in the Netherlands for the branch to be fully taxed in the Netherlands.

The logic is of course that if the director of the foreign company moves to the Netherlands, the vehicle of that other country will have issues, as the director left the country.

Such a registration solves the tax issue, but is maybe not so strong from a commercial point of view. However, it gives the company time to investigate the market, get a team of employees and then one of them could become the director of the new to be incorporated BV company.

Branch setup and accounting

Till about the year 2012 the at arms length principle what understood not the be applicable to the branch that is an identical registration. But since then it is understood that these rules do apply. Therefore from a tax point of view there is no difference between a BV company and an identical registration of a foreign company.

Tax treaty wise the BV company stands stronger.

Orange Tax Services

If you would like a branch setup in the Netherlands, Orange Tax Services can set this up for you. The setup of a BV company is charged at EUR 1800 ex VAT and we pay for the notary costs. The setup of a branch as identical registration of foreign company is charged at EUR 950 ex VAT. The latter is not a quick process and patience with the client is very much appreciated. The BV can be set up rather quickly if all the documents are in place.

Orange Tax Services can also fully support with the accounting, tax filing and questions the client has about processes in the Netherlands.

 

 

 

Airline pilot taxed abroad

An airline pilot taxed abroad is possible even if the pilot is residing in the Netherlands. For pilots and crew of a ship special rules apply where the income is taxed. This rule even varies per tax treaty.

Main rule taxation employment income

Employment income is taxed in the country where the employment is being executed. In case an employee works in more than one country, the salary is split in proportion to the countries where the job is being done. As a salary split could be fiscal beneficial, the Dutch tax office is very keen to determine whether it is a true salary split. I stress the words ‘could’ in the previous sentence as in our opinion the double taxation relief is not so much a relief as more a burden.

Exception to the rule – 183 day rule

If an employee is physically less than 183 days in another country and he works in that country AND the salary is not paid by an employer in that other country AND the costs of the employee cannot be allocated to a permanent establishment of the employer in that other country, only then the income of the employee is not taxed in that other country.

We are often asked by subcontractors with their company abroad about the 183 day rule in the Netherlands. They perform a job on site and under instructions of the client for which they are paid. In the Netherlands that is referred to as employment. If there is no discussion about what the source of income is, the tax treaty is not applicable. The 183 day rule is in the tax treaty. Therefore often the 183 day rule does not apply.

Airline pilot taxed abroad

Exception to the rule – Airline pilot taxed abroad

An airline pilot is separately mentioned in the tax treaty and in the one treaty the pilot is taxed in his home country, in the other treaty he is taxed in the country where the airline company has it main office.

Airline pilot taxed abroad – court case

A Dutch resident tax payer is working as pilot with EasyJet Airline Company Ltd. Until May 2014 he was stationed at the Malpensa Milan airport. He spend 73 days in Italy and on his Italian income Italian income tax was withheld.

In his 2014 Dutch income tax return he claimed to have earned an Italian income that is only taxed in Italy, not in the Netherlands. The Dutch tax office disagreed and taxed the income with Dutch income tax.

The pilot went to court. The court disagreed with the Dutch tax office. Not in Italy the main office is situated of EasyJet but in the United Kingdom. All main decisions are taken in the United Kingdom and the board of directors is situated in the United Kingdom. However, that said, the branch of EasyJet in Malpensa Milan was a so called permanent establishment of EasyJet. In the Italian office there was a staff of in total 31 persons, that instructed 891 employees in Italy.

The accounts of the head office in the United Kingdom showed a separate chapter for the Italian permanent establishment. In this chapter were allocated the salary costs, the Italian office had its own budgets and profit and loss overview.

The court also had to determine whether this chapter of costs is to be allocated to the Italian permanent establishment. The conclusion was yes. That implies that even though the pilot worked less than 183 days in Italy, the costs can be allocated to the Italian permanent establishment, hence the 183 day rule does not apply. Therefore the main rule applies and that is that the employment income is subject to tax in the country where the employer is situated. In this case Italy.

Orange Tax Service

We are focused on international clients. The result is that in the initial conversation we have, we touch immediately the topic of the fiscal residence. Often it is thought of as being a choice. It is not a choice. Then there are exceptions to the rules we are familiar with, among which the airline pilot. If you feel a similar topic applies to you and you would like to be informed, please contact us.