Living in the Netherlands and being employed abroad presents the situation of double taxation. How to cope with this in the Dutch income tax system.
Where are you a tax resident?
Before we can start about double taxation, we need to determine the place where you are a tax resident. You are a tax resident in the country where you have your central point of life. Your central point of life is determined on facts and circumstances, not based on your choice.
Clients often state in their initial contact with us that they are a tax resident in the United Kingdom, but work and life in the Netherlands. We refer to this as their choice, but it is not correct.
Facts and circumstances are for instance your partner, your work, the place where you actually have your domicile in the effect where you receive your mail and have your friends.
You might understand that if you do not have a partner, your fiscal residency is more flexible in the sense that it can shift more easily. For instance, if you take up a job opportunity abroad, and the work is also done there, you have become a tax resident there. No double taxation with the Netherlands.
Basic rule tax on employment
The basic rule on income tax on employment is that employment is taxed in the country where the employment is being executed. This is often the country where the employer is situated, but not necessarily always the case.
We are frequently contacted by employers from abroad who hired a Dutch resident tax payer to become employed, but work from their home address. In that case the employment income is taxed in the Netherlands. The employer often does not have a registration in Holland, so we arrange for a non resident employer registration. The employee is then paid a Dutch taxed salary and Dutch social premiums. Also Dutch labour law applies and the 30% ruling can be continued. Continued under the assumption this employee already had the 30% ruling. As the employee has not been attracted from abroad, this employee cannot qualify for the first time under this rule, but the 30% rule can be continue.
Tax treaty double taxation prevention
The tax treaties the Netherlands has with a lot of countries throughout the world determines that the work done in the one country is subject to taxation in that country. At the same time the tax resident of the Netherlands needs to file his or her world wide income in the Netherlands. In the Dutch income tax return a double taxation for income tax can be claimed. We do not know a double taxation treaty for social premiums.
A Dutch tax treaty only applies when you are a tax resident in the Netherlands. Sounds obvious, but if your fiscal residency has shifted, but you have the opinion that you are still a Dutch tax resident for some reason, you are without tax treaty protection.
183 day rule
Part of the Dutch double taxation treaties under the employment income article is the famous 183 day rule. The rule is famous as for some reason nearly all tax residents we encounter are busy counting the days they were physically in the other country or physically in the Netherlands and then ask us to claim for the 183 day rule.
However, the 183 day rule is a rule that applies when three conditions have been met.
- You need to have been physically less than 183 days in the concerning country;
- Your salary income cannot have been paid by a company that has its fiscal presence in the country where you stayed less than 183 days.
- Your salary cannot have been allocated to the permanent establishment of the employer in the country where you have been employed.
This implies that besides you counting the days, there is an accountant working for the company who’s job it is to put everything in the correct perspective. For example, you could ask a group company to pay you in for instance your home country. By doing this you think you have met the 183 day rule. However, within the group the companies need to act between each other at arms’ length. This is a principle that you have to act between each other as if you are strangers. So why should one company pay for costs of the other company? A normal company would never do this, unless they are being reimbursed, plus a small margin on top. And this is the number 3 condition of the 183 day rule.
We therefore have the opinion that the 183 day rule never applies, even though we have had one client that could apply for this 183 day rule. So we are open to look at the situation, but to prevent any hope, we state up front that we doubt the employee can qualify.
The 183 day rule is not always the desired situation, even though we experience most employees have a different opinion. You should see the 183 day rule in the bigger perspective with the social premiums, the mortgage deduction and the 30% ruling in this perspective. The outcome can very well be that the 183 day rule is not to your advantage.
Split payroll does not happen often and the one important condition the Dutch tax office sets is that it is a genuine split payroll. Genuine implies the employee physically travels every week to the company in that other country.
If that condition is met, the employee can have a split payroll. This implies a payroll for a part of his or her salary abroad and a part in the Netherlands. The advantage of a split payroll is that in both country the tax benefits are being used and in both countries the salaries are taxed in the lower tax brackets. In the Netherlands a pro rata double taxation relief is provided. This could imply some addition income tax might be due, but overall you are better off.
For the social premiums it depends if you have met the criteria to qualify for paying social premiums in your home country. That is the easiest from a practical perspective opposite the other country being cheaper.
Orange Tax Services team
The Orange Tax Services team its core business is always to have an eye for where the client or the employee is a tax resident. That is one of the key differences Orange Tax Services makes with other tax advising companies that are more domestically focused.