Tax and Compliance — 10 min
Share
Link copied
to clipboard
to clipboard
Imagine your best employee is leaving your country and moving to the Netherlands. She wants to keep working with your company, and your organization is set up for remote work. While you’d like to keep her on staff, this move to the Netherlands concerns you. Is the cost of keeping your employee going to mean payroll taxes in the Netherlands for your company?
Keeping compliant with Dutch tax law can seem overwhelming if your organization is considering employing workers who live in the Netherlands. You may not know where to start.
Trying to manage payroll for Dutch workers when your business isn’t established in the Netherlands is a challenge for any team, even sophisticated enterprise HR departments.
Jump straight to a key chapter
There is a much simpler solution to remove all of this anxiety, confusion, and risk. You can use an Employer of Record (EOR) to legally hire and pay your Dutch employee on your behalf and ensure you stay compliant with local employment regulations at all times.
First, know you’re not alone — plenty of managers want access to the best global talent, and so many growth-focused businesses are looking to employ top remote talent in the Netherlands
We’ve prepared a dedicated guide to help you understand how to pay your Dutch workers while minimizing your risk, but first, it’s critical that you have an understanding of the Netherlands’ specific tax requirements for remote employees and contractors.
Why you must comply with Dutch payroll tax requirements
Tax law in the Netherlands can be confusing. While some parts of the tax code — like permanent establishment requirements – may appear similar to other countries’ laws, other pieces of the tax code are specific to Dutch law.
It’s important to get a full picture of Dutch tax law before jumping into employing a Dutch worker, and avoid mistakes commonly made when companies go remote without all the information they need.
What is permanent establishment?
If you’re employing a worker in another country, you may be concerned about permanent establishment risk – the risk that your company is established enough in that country to be taxed. “Permanent establishment “ (also called “substance requirement”) is a tax term for businesses that have an ongoing presence in a country.
This is something businesses want to avoid, because it means being taxed twice, once by your home country and once by the country you’ve triggered permanent establishment in.
Often permanent establishment is triggered by issues like the following:
Does the company have a fixed place of business in the country?
Does anyone regularly conduct business as an agent of the company in the country?
How much control does the company exercise over its workers in the country?
How does the company generate revenue in the country?
How long has the company been doing business in the country?
Does the company make strategic decisions from within the country?
Our guide to permanent establishment can help you understand more about this risk in general, but it’s important to note that permanent establishment is treated differently in every country. So, are you in danger of permanent establishment in the Netherlands?
What triggers permanent establishment in the Netherlands?
The Netherlands sticks pretty close to the Organisation for Economic Co-operation and Development’s (OECD) guidelines for defining permanent establishment. For one thing, a company’s premises are a major trigger for permanent establishment; particularly if a company is making or selling something in the Netherlands.
For example, if your company’s premises (like retail outlets, points of sale, workshops, factories or outlets) are located in the Netherlands and capable of acting as a fully self-sufficient business, your business is classified as having permanent establishment in the Netherlands.
But permanent establishment can also be triggered simply by a representative of the company working from the country.
If your worker in the Netherlands is in a “contracting state,” meaning that they’re doing business on behalf of the company and in the name of the company, this alone can trigger permanent establishment risk, especially if they’re only working for your organization (although be aware that co-employment won’t necessarily impact your permanent establishment risk).
A designer, engineer, or salesperson, for example, may trigger permanent establishment — even if they’re not working in isolation for your organization.
The penalties for non-compliance are stiff, so you need to take this risk seriously.
If the Netherlands deems that your company has a permanent establishment and you’re not meeting your taxation obligations, this can be considered tax evasion or worse, tax fraud. Both crimes come along with huge fines and even possible jail time, apart from the obvious resulting public relations nightmare.
The lesson is simple. If you’re looking to work with Dutch employees or contractors, you should consult an EOR like Remote who have a team of internal local experts (or another Dutch employment law specialist) if you don’t own a legal entity in the Netherlands. The absolutely safest way to avoid permanent establishment is to work with a global employment solution that can help you understand the specific laws of the country in question.
Corporate income tax in the Netherlands
Let’s talk taxes. In the Netherlands, both public and private companies pay a corporate income tax on their profits. This can also apply to foundation and associations, depending on the scenario. There are some organizations that are exempt from the corporate income tax as well, such as fiscal investment institutions.
The corporate tax rate itself depends on a company’s taxable income: its taxable profit, less its deductible losses.
As of 2021, the corporate tax rate is as follows:
If your taxable income is €245,000 or under, your corporate income tax rate is 15%
If your taxable amount is more than €245,000, your corporate income tax rate is € 36,750, plus 25% for the taxable amount exceeding €245,000
There’s a special consideration for companies that engage in innovative research (this is called the “Innovation box”). Companies covered by the innovation box are taxed at 9%.
Income tax in the Netherlands
Where should your remote employees pay their taxes
To your country or their own?
There’s an easy answer to that if your worker is Dutch and living in the Netherlands. Anyone who lives in the Netherlands or receives income in the Netherlands is subject to income tax, paid to the Dutch Tax and Customs Administrations. This means your Dutch employees have to pay taxes, which they will do by filing a tax return, but because some of their tax is deducted from their paycheck, you’ll also be paying tax on their behalf.
Dutch residents pay taxes on their income, their financial interests, their savings and their investments (these categories are called boxes). They also pay statutory fees out of their paychecks, such as pensions for old age, long term care and a pension for orphans and widows.
How does this affect your payroll?
You’ll be paying out of your employee’s paycheck for specific fees, like insurance and social security payments.
Employer taxes in the Netherlands
5.49% - AOF laag (Disability insurance contribution) on a maximum of 59.607 EUR of taxable base
6.75% - Heffings ZVW premie (Dutch health insurance contributions) on a maximum of 59.607 EUR of taxable base
1,11% - Premie Whk gediff (Differentiated Premium Work Resumption Fund) on a maximum of 59.607 EUR of taxable base
0.50% - Uniforme opslag kinderopvang (Uniform Childcare Allowance) on a maximum of 59.607 EUR of taxable base
2.70 to 7.70% - AWF hoog (depending on contract) on a maximum of 59.607 EUR of taxable base
Tax rates in the Netherlands
So, what exactly is the income tax your employees will be paying out of their paycheck?
How much tax you’ll be paying depends on their wage bracket:
Between €0 and 69.398: 37,03%
More than €69.398: 49,5%
up to 2888 EUR credit - Employees are entitled to a "general tax credit" (heffingskorting) of -6.007% per euro extra gained between 21,317 EUR stopping and 69,398 EUR annually. This is to be deducted from the income taxes.
up to 4260 EUR credit - Employees are entitled to a "labor tax credit" (arbeidskorting), this is to be deducted from the income taxes, of:Labour income Labour tax creditUntil € 10.351 4,541% x labour incomeFrom € 10.351 to € 22.357 € 470 + 28,461% x (labour income - € 10.351)From € 22.357 to € 36.650 € 3.887 + 2,610% x (labour income - € 22.357)From € 36.650 to € 109.347 € 4.260 - 5,860% x (labour income - € 36.650)As of € 109.347 € 0
There are some other special tax issues that should be mentioned.
Employees’ holiday allowance pay is taxed, just as their salary is.
The exact amount of tax depends on the salary of the employer, but it is higher than the regular tax rate.
You can learn more about your payroll and benefit obligations on our Dutch country explorer page.
Get your Global Payroll Guide for expert advice on outsourcing
Learn how to manage global payroll for your team and keep your company compliant with international labor laws.
Special rules for employees moving to the Netherlands
Taxes can get a little tricky when your workers have recently moved.
Below are a couple of rules that will help you and your employees navigate a recent move and taxation.
The 30% special tax rate
The Netherlands offers a special tax rate for certain expats who have been recruited to work in the Netherlands for a specific role. It’s intended to compensate the employee for the expense of their move and the cost of living in the Netherlands. When certain conditions are met, the 30% reimbursement ruling allows an employer to grant a tax-free allowance equivalent to 30% of the gross salary, subject to Dutch payroll tax.
This benefit is available for up to five years and entitles them to partial non-resident taxpayer status. If your employee qualifies, it’s up to you to help them apply for the benefit.
The 183 day rule
What if your employee hasn’t been living in the Netherlands for a full year?
The 183 day rule, so named because the 183 days is the larger “half” of a 365-day year, means that if a worker has spent 183 days or more in a country, they are considered a tax resident for that year.
14 min
How payroll tax compliance software benefits your business
Learn about payroll tax compliance software, including the benefits and challenges, common consequences of noncompliance, and how to select a provider.
Tax considerations for Dutch contractors
Contractors in the Netherlands — classified as employees with flexible contracts – are entitled to more benefits than those in other countries. As of 2020, for example, you will pay less of an unemployment benefit contribution for employees with fixed-term contracts, and a higher unemployment contribution for employees with a flexible contract.
On-call workers also should be offered a permanent contract after a year of working for your company, and if you terminate the contract you’ll be required to pay a transition fee to help temporary workers move to a new job.
Determining employees vs contractors
As with traditional employees, remote workers can either be employees or contractors.
Contractors are hired to provide specific services for a client or business on a freelance, often short-term, basis. They often sign a contract with a client, promising to provide a specific service or product at an agreed upon rate in a specific amount of time. How and when they perform the work is up to them.
Employees are a different story. You set their hours, you tell them how to do their job, and can require them to manage other employees. In return, you provide employees with a steady paycheck and benefits, like insurance. You also pay some of their income taxes, as we discussed earlier.
The Netherlands classifies these employees as workers with permanent contracts and flexible contractors, and in some cases, requires some contractors to be offered permanent positions after a year with their current employer.
For more information about the difference between employees and contractors, check out our guide about contractors and employees.
Penalties for misclassifying employees as contractors
Thinking that you can get around some of the above taxation issues by hiring employees as contractors? Please don’t! There are significant dangers to misclassifying your employees as contractors. While the Netherlands did protect companies who mistakenly misclassified employees, those protections have now ended with The Balanced Employment Market Act. This act offers more protections to contractors and you can also be subject to fines for misclassification.
The easy way to minimise risk and stay compliant
All of this can seem tricky and complicated, but it doesn’t need to be. The best way to keep yourself compliant with tax law is to have an expert on your side, a partner with roots in the Netherlands who can help you understand the tax code, its changes, and how you can make sure you’re doing everything right by both your employees and the Dutch government.
Remote can help your business hire international contractors legally, easily, and quickly.
The Netherlands is unique, but employing Dutch workers is simple
The Netherlands are a part of the European Union, but the country has always done its own thing: canals instead of roads, inventing its own painting style during the Renaissance, legalizing certain controlled substances.
It’s no surprise that the Netherlands also takes a different approach to some labor laws. Its approach to contractors is just one difference from other countries’ stance on freelance workers.
Trust G2’s multi-country payroll leader to stay globally compliant
Hire and pay your global team with Remote and get access to our team of global taxation experts.
Subscribe to receive the latest
Remote blog posts and updates in your inbox.
