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Details

  • Service: Tax, International Executive Services
  • Type: Business and industry issue, Regulatory update
  • Date: 1/1/2014

Netherlands 

An individual’s liability to Dutch personal income tax is determined by residency status for taxation purposes and the source of income derived by the individual. Personal income tax is levied at graduated rates on an individual’s taxable income for the calendar year, which is calculated by subtracting allowable deductions from the total assessable income.


Extended business travelers can be taxed on employment income relating to their Dutch workdays. Dutch personal income tax can be triggered from the first day of arrival in the Netherlands, since the Netherlands has adopted the economic employer approach in interpreting the term employer in the dependent personal services paragraph in the tax treaties.


Key message

A person who is a resident of the Netherlands is assessable on worldwide income. Non-residents are generally assessable on income derived directly or indirectly from Dutch sources.


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Income tax

Liability for income tax

An individual’s liability to Dutch personal income tax is determined by residence status. A person can be a resident or a non-resident for Dutch tax purposes. Residency is determined by applying a closer connection test, in other words, a taxpayer is considered as a resident if the center of the taxpayer’s vital interests is in the Netherlands, and if the closest social and economic ties the taxpayer has are with the Netherlands. Physical presence itself is not decisive. Business travelers will probably not be considered a resident for Dutch tax purposes.


The general rule is that a person who is a resident of the Netherlands is assessable on worldwide income. Non-residents are generally assessable on income derived directly or indirectly from Dutch sources.


Employment income is treated as Dutch-sourced income to the extent attributable to duties physically performed in the Netherlands.


Tax trigger points

In most tax treaties, the dependent personal services article states that the employee will be taxed in the employee’s home country if the employee’s stay in the Netherlands does not exceed 183 days (in a calendar year or 12-month period). Other conditions are that the salary is not paid by, or on behalf of, a Dutch employer during that period, and that the employment costs should not be borne by the foreign employer’s Dutch permanent establishment (PE) during the period of assignment based on transfer pricing regulations. Because the Netherlands has adopted the economic employer approach in interpreting the term employer, the employee could be taxable from their first day of presence in the Netherlands.


According to the Supreme Court’s ruling, for the application of the tax treaty, the employer:


  • has the authority to instruct the assignee
  • bears the risk and expense of the duties performed, including a specific and individually traceable recharge of the employment expenses.

There is, in principle, no threshold/minimum number of days that exempts the employee from the requirements to file and pay tax in the Netherlands.


To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability.

Types of taxable income

For extended non-resident business travelers, only employment income attributable to Dutch duties is generally subject to Dutch income tax.


Extraterritorial costs (i.e. incremental expenses effectively connected with the performance of employment duties in the Netherlands) may be reimbursed tax-free.


A Dutch expatriate concession, the ’30 percent-ruling’, might be applicable depending on the circumstances of the assignment.

Tax rates

Taxable income is subject to graduated tax rates ranging from 5.85 percent to 52 percent for both residents and non-residents.


Net taxable income
(euros (EUR))
Income tax
(percent)
National insurance
(percent)
Total
(percent)
EUR0–EUR19,645 5.10% 31.15% 36.25%
EUR19,646–EUR33,363 10.85% 31.15% 42.00%
EUR33,364–EUR56,531 42.00% Nil 42.00%
EUR56,532–higher 52.00% Nil 52.00%

Source: KPMG in The Netherlands, 2013


If the extended business traveler is not covered by Dutch social security, for taxable income up to EUR33,363, the tax rates are 5.10 percent and 10.85 percent, depending on the income level.


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Liability for social security

The Dutch social security system comprises of the national insurance programs, the national healthcare insurance, and the employee insurance programs. Extended non-resident business travelers generally are subject to Dutch social security tax under domestic legislation, but may be exempt under application of European Union (EU) rules or bilateral totalization agreements. A certificate of coverage is then required.


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Compliance obligations

Employee compliance

Tax returns are due by 1 April following the tax year-end, which is 31 December. An extension is available in most cases where a tax agent is used. Tax returns must be filed by non-residents who earn Dutch-sourced income and are therefore liable for paying Dutch income tax.

Employer reporting and withholding

If an extended business traveler’s employment income is subject to Dutch income tax, the employer has a withholding obligation.


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Other issues

Work permit / Visa requirements

Prior to traveling to the Netherlands, extended business travelers should consider the following immigration aspects: entry to the Netherlands, staying in the Netherlands and access to the Dutch labor market.


Depending on their citizenship, length of stay and nature of the activities, various immigration requirements may apply such as the need to possess an entry visa, work permit and/or residence permit.


Immigration compliance

Citizens from EU/EEA countries (except for Croatia) and Switzerland don’t require an entry visa, work permit or residence permit for the Netherlands. Only in case of a stay exceeding three months, they will need to register in the population register.


Citizens from outside the EU/EEA will need a work permit for most of the work activities carried out in the Netherlands. Often an entry visa is required as well, and in case of a stay exceeding three months they will also need to obtain a Dutch residence permit.


The category of visa/permits that should be applied for is determined based on the nature and duration of the business traveler’s activities in the Netherlands.

Other immigration considerations

Extended business travelers in need of a Dutch tax and social security number (‘BS-number) may under conditions register in the population register as a ‘non-resident’. Their BS number will be issued after successful registration.

Double taxation treaties

The Netherlands has concluded tax treaties with more than 85 countries.

Permanent establishment implications

There is the potential that a PE could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has. When the foreign employer has a PE in the Netherlands, the employee is subject to Dutch income tax if the remuneration is attributable to the PE. In this respect, it is not relevant whether or not the costs are actually borne by the PE.

Indirect taxes

The Netherlands has adopted the (pan-European) value-added tax (VAT) system. Goods and services will trigger a VAT tax rate of 0 percent, 6 percent, or 21 percent. Special rules apply if services or goods are provided or shipped internationally.

Transfer pricing

The Netherlands has a transfer pricing regime. A transfer pricing issue could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.

Local data privacy requirements

The Netherlands has data privacy laws.

Exchange control

The Netherlands does not restrict the flow of euros or other currency into or out of the country, although certain reporting obligations are imposed to control tax evasion and money laundering.

Non-deductible costs for assignees

Non-deductible costs for assignees include contributions by an employer to non-Dutch pension funds. There are several possibilities to obtain deductibility (such as a corresponding approval procedure), and contributions can be deductible for a period of 60 months.

 

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Contact

Ruben Froger

SeniorTax Manager

KPMG in Netherlands

+31 76 5237516

Thinking Beyond Borders