Guide to payroll taxes in the Netherlands

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.

Managing payroll for Dutch workers when your business isn’t established in the Netherlands is challenging for any team, even sophisticated enterprise HR departments.

There's a much simpler solution to remove all of this stress, confusion, and risk. You can use an Employer of Record (EOR) to hire and pay your Dutch employee on your behalf and ensure you always comply with local employment regulations.

First, know you’re not alone — plenty of managers want access to the best global talent, and 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 risk. First, you must understand the Netherlands’ tax requirements for remote employees and contractors.

Tax rates in the Netherlands

The Netherlands taxes its residents on their worldwide income, including the following: 

• Employment income 

• Homeownership of the principal residence 

• Periodic receipts and payments

Other benefits related to income provisions

So, what exactly is the income tax your employees will be paying out of their paycheck? Here’s how much tax they’ll be paying depending on their wage bracket:

• Between €0 and €38,098: 9.32%

• Between €38,098 and €75,518: 36.97%

• More than €75,518: 49.5%

Employees are entitled to a general tax credit (heffingskorting) tax deduction, calculated as follows: 

• Between €0 to €24,813 income: €1,735

• Between €24,813 to €75,518 income: €1,735 - 3.421% x (taxable income - €24,813)

• More than €75,518 income: €0

These amounts are to be deducted from income taxes.

Employees are entitled to a “labor tax credit” (arbeidskorting) tax deduction, calculated as follows:

• Between €0 to €11,491: 8.425% x income

• Between €11,491 to €24,821: €968 + 31.433% x (income - €11,490)

• Between €24,821 - €39,958: €5,158 + 2.471% x (income - €24,820)

• Between €39,958 - €124,935: €5,532 - 6.510% x (income - €39,857)

• More than €124,935: €0

These amounts are also to be deducted from income taxes.

Some other special tax issues should be mentioned. Employees’ holiday allowance pay is taxed, just as their salary is.

The exact amount of tax depends on the employer's salary, but it’s higher than the regular tax rate.

Learn more about your payroll and benefit obligations on our Dutch country explorer page.

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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 different countries’ laws, other pieces of the tax code are unique and specific to Dutch law.

It’s important to get a full picture of Dutch tax law before employing a Dutch worker and avoid mistakes commonly made when companies go remote without all the necessary information.

What is a permanent establishment?

Suppose you’re employing a worker in another country. In that case, 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 used for comapnies that have an ongoing presence in a country.

Businesses want to avoid this because it means being taxed twice: once by their home country and once by the country where they’ve triggered a permanent establishment.

Often, a 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, suppose 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. In that case, your business is classified as having a 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).

For example, a designer, engineer, or salesperson 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 carry huge fines and even possible jail time, in addition to the obvious public relations nightmare they result in.

The lesson is simple. If you’re looking to work with Dutch employees or contractors, you should consult an EOR like Remote, who has a team of internal local experts (or another Dutch employment law specialist) if you don’t own a legal entity in the Netherlands. 

The safest way to avoid permanent establishment is to work with a global employment solution that can help you understand the country's specific laws.

Business income tax in the Netherlands

Let’s talk taxes for employers. Public and private companies in the Netherlands pay a corporate income tax on their actual profits. 

Depending on the situation, this can also apply to foundations and associations. Some organizations, such as fiscal investment institutions, are exempt from corporate income taxes.

The corporate tax rate depends on a company’s taxable income: its taxable profit, less its deductible losses.

As of 2024, the corporate income tax rates are as follows:

The standard corporate income tax (CIT) rate is 25.8%. That being said, there are two taxable income brackets. 

• If your taxable income is €200,000 or under, your corporate income tax is 19%. 

• If your taxable amount is more than €200,000, the standard CIT rate of 25.8% applies. 

Companies that engage in innovative research receive special consideration (called the “Innovation box”). Companies covered by the innovation box are taxed at 9%. This applies only if at least 30% of the profits originate from the patent. 

Income tax in the Netherlands

Where should your remote employees pay their taxes? To your country or their own?

There’s an easy answer if your worker is Dutch and living in the Netherlands. 

Anyone living in the Netherlands or receiving compensation in the Netherlands is liable to income tax, paid to the Dutch Tax and Customs Administration. 

This means your Dutch employees must pay taxes, which they’ll do by filing a tax return. However, because some of their taxes are deducted from their paychecks, employers will also be paying taxes on their behalf.

Dutch residents pay taxes on their income, financial interests, savings, and 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 pensions 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 tax rates in the Netherlands

• Occupational Disability Insurance Act (WIA/WAO): 7.11%

• Dutch Health Insurance (Heffings ZVW premie): 6.57% on an income from €4,705 to €71,628.

• Differentiated Premium Invalidity Insurance Fund (Aof): The high Aof premium is 7.54%, and the low Aof premium is 6.18%.

• Uniform Childcare Allowance (Uniforme opslag kinderopvang): 0.50% on a maximum taxable base of €59.607.

General Unemployment Fund (AWF Hoog): 2.64% applies to employees with fixed employee agreements and 7.64% for indefinite employment agreements.

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 recruited to work in the country for a specific role. This rate is intended to compensate the employee for the expense of their move and the cost of living in the country. 

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 employees to partial non-resident taxpayer status. If your employees qualify, you must help them apply for the benefit.

The 183-day rule

What if your employee hasn’t lived in the Netherlands for a year?

The 183-day rule, so named because the 183 days are 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.

Tax considerations for Dutch contractors

Contractors in the Netherlands — employees with flexible contracts — are entitled to more benefits than those in other countries. 

For example, you pay less unemployment benefit contribution for employees with fixed-term contracts and a higher contribution for employees with flexible contracts.

On-call workers should also be offered a permanent contract after a year of working for your company. If you terminate the contract, you’ll be required to pay a transition fee to help temporary workers move to a new job.

As for independent contractors and freelancers, these are considered self-employed professionals, and you aren’t responsible for their taxes. Instead, they’re responsible for paying their own business taxes. 

Determining contractors and employees

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, tell them how to do their jobs, 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 past some of the above-mentioned taxation issues by hiring employees as contractors? Please don’t! 

There are massive dangers to misclassifying your employees as contractors. While the Netherlands used to protect companies who mistakenly misclassified employees, those protections have ended with The Balanced Employment Market Act. 

This act provides more protections to contractors, and comapnies can also be subject to fines for misclassification.

What are some of the other kinds of taxes in the Netherlands you should be aware of?

In the Netherlands, the government collects several types of taxes to help fund public services. Businesses need to be aware of and comply with the following taxes. 

VAT sales tax (omzetbelasting)

The standard VAT rate in the Netherlands is 21%. However, this rate is reduced to 9% for selling essential goods such as foods and medicines. Other services, like education and medical care, have a zero tax rate. 

While employers do not charge VAT on salaries, you must register for it if your business provides goods or services in the Netherlands to comply with regulations. This includes charging and remitting VAT. 

Annual income tax return (aangifte inkomstenbelasting) 

Dutch residents are required to file an annual tax income return. If they work for an international business, the employer must withhold income tax from their salaries and send it to the Dutch tax authorities. 

The income tax system in the Netherlands is progressive, with different rates depending on income levels — meaning the more an employee earns, the higher their tax rate will be.    

Property taxes

• Real estate transfer tax: A transfer tax applies if businesses purchase property in the Netherlands. The rate is typically 2% for residential properties and 10.8% for non-residential properties. 

• Property tax: This is an annual tax based on the assessed value of the property. Homeowners and businesses who own a property in the Netherlands are required to pay this tax. 

• Landlord tax: This tax applies to rental properties with more than 50 units. 

Dividend, interest, and royalties

If a business pays dividends, interest, or royalties to individuals or companies in the Netherlands, it may need to withhold these payments before they are distributed. The exact rate of withholding tax will depend on tax treaties and other factors.  

The easy way to minimize risk and stay compliant

This can seem tricky and complicated, but it doesn’t need to be. 

Having an expert on your side is the best way to stay compliant with tax law if you want to hire or relocate employees to the Netherlands. 

A partner with roots in the Netherlands who can help you understand the tax code, its changes, and how you can ensure you’re doing everything right by your employees and the Dutch government, is the safest option.

Remote can help your business hire international contractors legally, easily, and quickly.

The Netherlands is unique, but employing Dutch workers is simple

The Netherlands is 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, and legalizing certain controlled substances.

It’s no surprise that the Netherlands also takes a different approach to some labor laws, such as leave, family responsibilities, and paid time off. Its approach to contractors is also just one difference from other countries’ stance on freelance workers.

FAQs for Netherlands’ tax rate

When is the deadline for the Dutch tax return?

The standard deadline for individuals filing taxes in the Netherlands is May 1st. On the other hand, businesses must file their taxes before June 1st each year. Taxes can be filed online, using software applications, or by getting a tax service provider. 

Is the Netherlands a high-tax country?

The Netherlands is considered a high-tax country because of its progressive income tax rates (increasing rates with higher income brackets) and indirect taxes. 

Depending on whether you’re an individual or a business, Netherlands taxes have several unique considerations, including social security contributions, VAT, wealth and property taxes, 30% ruling, and more. 

While taxes in the Netherlands are relatively high, it also offers several benefits and incentives for businesses that mitigate the overall tax burden. 

What is the 30 rule for expats in the Netherlands?

The 30% ruling is a tax advantage for expatriates working in the Netherlands, allowing employers to pay up to 30% of the employee’s salary as tax-free. The eligibility criteria are as follows: 

• The worker must be recruited or transferred from abroad

• The employee must have skills or expertise that is scarce or unavailable in the Dutch workforce

• The worker must've lived more than 150 kilometers away from the Dutch border

• The ruling is only applicable if it’s stated in the employee’s contract

Does the Netherlands tax overtime so much that it is not worth doing?

Overtime is taxed in the same way as regular income — according to the progressive tax system. These tax rates can be relatively high for people in higher-income brackets, making overtime less attractive. 

However, whether it’s worth it will ultimately depend on the circumstances and financial needs of the individual.

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