I would like to share something with you that for me is funnily strange, but I can imagine for non tax experts not funny at all. First I have to explain what is the situation.
It concerns Payrolling
In the Netherlands we use the English word payrolling for two very different definitions. Payroll is the calculation and processing the regular salary administration of any given company with employees. However, we also refer to payrolling in the sense that one company takes over the employees from the actual executing company. The correct phrase in this respect is umbrella company.
This article is about umbrella payrolling and not about the regular payroll being processed. Umbrella payrolling has a negative sound in the Netherlands. Negative in the sense that low income generators like the in general referred to as the Polish employees working in the fields of farmers, people working in the bar and restaurant business or as recent event shows, employees working for the Dutch Government building bridges and roads under subcontractors. These employees are being exploited in the sense that they are paid not enough or not in accordance with Dutch legislation.
In order to set a stop to these practices the Waadi legislation has been implemented. Umbrella payroll companies need to meet these regulations. The fines for not been compliant are EUR 12.000 per employee and goes up to EUR 48.000 per employee not being employed under the Waadi regulations. All legislation you need to take into account, but this one you need to be seriously certain from you have done it correctly.
Waadi instructs payroll companies to be registered with the Dutch Chamber of Commerce and have indicated to the Chambers of Commerce that they are indeed an employment agency. Furthermore, the payroll should be inline with ABU regulations. These dictate reservations for pensions, holidays and illness days.
Currently we are working on the registration of some foreign umbrella companies that have started activities in the Netherlands. This is done by registering a branch of their foreign limited liability company with the Dutch Chambers of Commerce, indicate it concerns a Waadi company and set up the umbrella payroll under ABU regulations. The employees working for this umbrella company can still qualify for the 30% ruling and other aspects a Dutch employee can be entitled to.
What was the funnily strange thing?
An employee of one of the new clients thought to be clever. Initially this employee would be employed via umbrella payroll. Then this employee received the salary specification and most likely must have thought that too much tax was being collected. Based on this salary specification this employee decided no longer to be an employee, but to start contracting. This employee already had a foreign limited liability company and stated that a Dutch umbrella payroll was not required. This person was going to invoice the client directly instead.
For us this is strangely funny, as basically this employee is creating its own umbrella company that is invoicing the client for an employee working on site of the clients. The same Waadi and ABU rules apply and Dutch wage tax and social premiums are due. Waadi registration also applies to managing directors sole shareholders of a limited liability company.
The initial so called clever thought of this employee will result in EUR 12.000 fine, the company this person works for will be fined as well, as they employ an employee without a payroll being processed for this employee in the Netherlands. Dutch tax is due and we have strong indications that this is not going to be paid and we have the opinion that this person thinks not to be a Dutch tax resident.
Being clever without taking into account any of the tax rules there are in place is very hazardous.
Orange Tax Services team
In the event you have the idea that you pay too much tax and social premiums and you came up with a brilliant idea how to avoid this, please contact us first. The Dutch are rather creative, so your brilliant idea might very well have been used in the past already. Most likely the tax office has taken counter measures and counter measures are always enforced with penalties. Penalties in our business can break you, so it is worth while keeping an eye on the consequences. Orange Tax Services will be glad to assist. You do not need to agree with what we inform you about, however, it will prepare you for what is coming.