Payroll Work for Foreign Employers in the Netherlands is a hot topic, as many employees move to the Netherlands for many reasons. The weather is not one of them, nor the Dutch income tax rates. Still the Netherlands is a desired place to life. How about working remote?
How does payroll work for foreign employers in the Netherlands?
This is a global question, hence the tax treaty, the Netherlands has with most countries in the world, provides the answer. The tax treaty is a structured set up. It starts in article 4 with where is your place of tax residence. Your place of tax residence is the place where you sleep, eat and stay with the people that are important to you.
Determining where a tax residence is, is important in this matter because of this:
183 day rule
There is not a person in this world that is not able to lecture us about the 183 day rule. In all cases the rule is fully misunderstood. The possible outcome is so hopeful for the employee (no Dutch tax), that it is addressed so often.
The 183 day rule is a rule that is more than only counting days up to 183. So what is it?
The moment your employer sends you to another country to work for less than 183 days, and has no permanent establishment in that other country nor a related branch in that country, your salary remains taxed in the country of the employer.
Example 183 day rule
You work for a UK company that sends you to Japan, France and Germany. If this rule would not exist, Japan, France and Germany would ask the employee to file a tax return for the period of time worked in their country. The next time the employer asks the employee to go, the employee replies that the employer can go himself if he or she likes filing tax returns so much.
To prevent the employee becoming a tax resident in Japan, France and Germany in this example the 183 day rule solves that. If less than 183 days are worked in Japan and in Germany and in France no tax residency is taken up in those countries.
Hence we can say that the 183 day rule prevents the employee becoming a tax resident. Now we can continue:
Dutch tax residency
As states above, in article 4 of the tax treaty is stated when a person becomes a tax resident. The moment a person moves his or her central point of life to the Netherlands, this person is a Dutch resident tax payer.
Based on the example above I hope that it is now understood that when facts and circumstance determine someone being a tax resident, the 183 day rule is no longer applicable. This rule prevents the employee from being a Dutch tax resident. But that is no longer possible based on article 4.
Remote employment
How Does Payroll Work for Foreign Employers in the Netherlands? We have established that the employee is a tax resident in the Netherlands, the 183 day rule is not applicable. In that case the foreign employers need to set up a payroll in the Netherlands, with Dutch wage tax and Dutch social premiums.
No entity in the Netherlands
The first thing countered to us often is that the employer has no entity in the Netherlands. That we understand. Hence we provide a service to the foreign employer that does not require an entity in the Netherlands, only a registration with the Dutch tax office for wage tax purposes.
This registration does not trigger corporate income tax, no Value Added Tax, nothing other than wage tax and social premium.
Invoicing instead of employment
The foreign employer could experience the payroll in the Netherlands too exciting and asks you to invoice them instead. We would like to warn you for this.
If you compare gross salary taxed and profit taxed, you learn that you pay slightly less tax on profit income. But then you compared apples with pears. If you compare apples with apples or pears with pears you also take into account the disability insurance, and the health care premium you pay as entrepreneur. You then quickly learn the self employment is not tax efficient.
Another important aspect is your loan capacity. If you are an employee like any other, working remote, you have the same loan possibilities. If you are self employed, you have basically none. And maybe you do not instantly want to purchase a home for which you need a mortgage. But soon you learn that there is nothing reasonable to rent for housing, and you do want to purchase a home.
.Last, but not least, the Dutch tax office does not accept companies with one client only. That is regarded deemed employment.
Tax is exciting.
We think tax is exciting. We are excited to assist your foreign employer to run a payroll for you working remote. A dedicated team in our office is very experienced in this process and in making it as easy as possible for your remote employer. Please reach out to our payroll team.
