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