An employee living and working in the Netherlands is subject to Dutch wage tax and social premiums. In case of a non resident employer there is no difference in this aspect. A difference becomes clear when the non resident employer would like to arrange a pension insurance for the employee. This turns out to be rather difficult. What alternative solution is available?
A non resident employer is an employer situated abroad that does not have an office or a fixed representative in the Netherlands. This non resident employer can have employees in the Netherlands, for those employees Dutch wage tax and social premiums are due.
Pension agreement
In case the employer has agreed with the employee to arrange for a pension insurance, then the employer needs to take out such an insurance. Only pension insurances with Dutch insurance companies qualify for the premium to be deducted from the taxable salary. However, if the non resident employer would like to take out such insurance, then the first question asked is the Dutch Chambers of Commerce number of this employer.
Lack of Dutch chambers of commerce number
Being a non resident employer implies you have no residence in the Netherlands, hence also no Dutch chambers of commerce number. The result is that the Dutch insurance company cannot process the application. We recently came across a solution for this issue, but that is only one solution, implying no choice.
Continue foreign pension arrangement
If the employee arrived from abroad in the Netherlands, and if this employee had already in place abroad a pension insurance that this employee would like to continue, this is possible. This pension insurance company is not a Dutch pension insurance company, hence in order to make the contributions to this pension insurance tax deductible an agreement needs to be made with the Dutch tax office. This agreement can only last for a maximum period of 5 years. Our tax advisors both in Haarlem and Amsterdam will be able to assist you and the application is done at a fixed fee.
Banksparen – fiscal friendly savings
Another solution would be that the employment agreement is adjusted. The employer is not providing a pension, but pays a reimbursement for pension insurance. This is a rather crucial difference. If the employer provides a pension, then this includes also an old age pension for the partner, or in case of early death of the employee, for the widow. If the employment agreement is not updated and Banksparen is initiated, the employee or the widow can make a claim for pension benefits when the time is there as a pension was agreed upon, even though other payments were made.
When the employment agreement is updated then the employee can make a deposit into the Bankspaar account. This is a fiscal arrangement where this deposit is a tax deductible event within rules. Rules that limit the tax deduction based on existing pension arrangements.
That implies the employer cannot make direct tax free payments to a Bankspaar bank account, as the employer cannot know what is the maximum amount this employee can save on such a bank account. This depends on the tax return of this employee. Hence the bankspaar contribution is paid subject to wage tax and social premiums, the employee can make a claim for the wage tax in the income tax return.
Taxable salary indicated as pension contribution
The final and easiest arrangement for the employer is to state in the employment agreement that no pension facility is provided to the employee, but that in stead an amount is paid to compensate the lack of pension facility. The rule is that all the employee receives from the employer is subject to tax, unless an exception applies. There is no exception in this field, but the employee can claim a tax deduction if the employee purchases an accepted pension facility him or herself.
Pension is no obligation
Even though it is commonly accepted, a pension is not an obligation, unless a collective labour agreement applies in which a pension is dictated.
Orange Tax Services
To learn more about setting up a non resident employer payroll, please do not hesitate to contact us. We can arrange for all aspects, including the money transfers arranging for the payment of the wage tax, social premiums, net salary and other obligations.
