Contracting versus employment, a daily returning question and every day the same response. But is that response correct?
Contracting versus employment
Internationals that move to the Netherlands often had a good relationship with the employer in that other country. The move to the Netherlands was not work related. Hence the employer in the other country offers to continue to work.
This remote job is then investigated and the result is that the salary of this remote job is taxed in the Netherlands. A regular employer is very hesitant to start a payroll abroad. Hence contracting is suggested.
You investigate contracting and you read that one client is no client, but on my blog posts you read that this is different in international situations.
Contracting versus employment and taxation
The question we are asked is about the difference in taxation. So we created an example salary specification. For the contracting part you are regarded an entrepreneur with the entrepreneurs tax credits. We also make that calculation. Then we get the everyday same response: contract is very attractive tax wise!
Apples and pears
Now we get to the base of this article: apples and pears. You cannot compare contracting and employment. Ofcourse that is done, but you cannot. Fundamental differences between these two.
The apple is the employment, where you are protected by Dutch labour law. The employer pays the tax for you, but also the unemployment insurance, disability insurance and health care insurance. You are nursed tax wise, while working.
The pear is contracting. No protective law for this situation and if you signed without reading, the rules of the country of your former employer apply to this work situation. Being a contractor implies you are an entrepreneur. So you need to file a Value Added Tax return, even if no VAT is charged to your one client. You need to file an entrepreneur income tax return correctly. Actually you should take out a disability insurance with an insurance company that will do everything not to pay out to you. And you need to take care of your pension.
If the apple is then compared with the pear, you see a huge difference. Maybe the net salary of the employment is lower than the after tax profit. But the net salary covers it all, unemployment, disability and even health care is partly taken care of.
When we are asked what is the best option, without a doubt employment. Not everybody is an entrepreneur. And only if things take a turn for the worse, you learn how convenient employment is over self-employed. If the employer would like to terminate the contract, you are protected by Dutch labour law. When employment is actually terminated, you receive unemployment benefit.
Self-employed implies you need to take care of tax obligations. We are already excited to assist you, but once in a while you could be audited. Or if you would like to purchase a home, you need to produce a ton of paperwork to the mortgage lender.
Tax is exciting
We think tax is exciting. Understandably you think that a lower net salary implies higher taxation than self-employment. Not only tax reduces the net salary, it can also be affected by insurances taken out, that are very convenient to have. Hence we recommend employment over self-employment. That said, we will be pleased to assist both the employment and self-employment situation with our tax services.