Thinking beyond borders
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.
An individual’s liability to Dutch personal income tax is determined by residency status. A person can be a resident or a non-resident for Dutch tax purposes.
Based on Dutch tax law, tax residency is determined on the facts of each case. No minimal presence days’ threshold applies. The following facts are taken into account (not limitative):
The tax courts look to whether there are durable ties of a personal nature with the Netherlands. The term durable does not mean permanent; the closeness of the tie is more important. Ties of a personal nature exclude pure business considerations; personal circumstances, such as the maintenance of an abode, play a more defining role. Residence abroad does not, in itself, exclude the possibility of being considered a tax resident in the Netherlands. However, dual residence resulting in double taxation may be resolved under the terms of a particular tax treaty.
Business travelers are usually not 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.
In most tax treaties, the dependent personal services article states that the employee will be taxed in the employee’s home country/territory 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 working day in the Netherlands.
According to the Supreme Court’s ruling, for the application of the tax treaty, the employer:
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. If certain conditions are met, in treaty situations, inter-company assignees can be exempt from Dutch income tax if they do not exceed 60 working days in the Netherlands per twelve month period even though the conditions for economic employership are met.
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.
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 stay outside the home country/territory) may be reimbursed tax-free.
A Dutch expatriate concession, the ’30 percent-ruling’, might be applicable depending on the circumstances of the individual.
Taxable income is subject to graduated tax rates ranging from 9 percent to 51.75 percent for both residents and non-residents.
|Net taxable income
Source: KPMG Meijburg & Co in The Netherlands, 2019.
If the extended business traveler is not covered by Dutch social security, for taxable income up to EUR34,300, the tax rates are 9 percent and 10.45 percent, depending on the income level.
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 may be subject to Dutch social security tax under domestic legislation, but may then be exempt under application of European Union (EU) rules or bilateral totalization agreements. A certificate of coverage/A1 is then required.
Tax returns are due by 1 May following the tax year-end, which is 31 December. An extension is available in most cases where a tax advisor is used. Tax returns must be filed by non-residents who earn Dutch-sourced income and are therefore liable for paying Dutch income tax.
If an extended business traveler’s employment income is subject to Dutch income tax, the employer generally has a withholding obligation.
Prior to traveling to the Netherlands, extended business travelers should consider if they require an entry visa for the Netherlands, how long they are entitled to stay in the Netherlands and if a work permit may be required.
Citizens from EU/EEA countries/territories and Switzerland don’t require an entry visa, work permit or residence permit for the Netherlands. Only in case of a stay exceeding four months, they will need to register in the population register.
Citizens from outside the EU/EEA will need work permission for most of the work activities carried out in the Netherlands. There are a few work permit exemptions, however this needs to be assessed carefully in order to avoid high fines.
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 nationality and the nature and duration of the business traveler’s activities in the Netherlands.
Extended business travelers in need of a Dutch tax and social security number ('BSN') may under conditions register in the population register as a 'non-resident'. Their BSN will be issued after successful registration.
The Netherlands has concluded tax treaties with more than 90 countries/territories.
There is the potential risk 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.
The Netherlands has data privacy laws.
The Netherlands does not restrict the flow of euros or other currency into or out of the country/territory, although certain reporting obligations are imposed to control tax evasion and money laundering.
One of the most important non-deductible costs for assignees include contributions to non-Dutch pension funds. In principle, in case there is a wage tax withholding obligation in the Netherlands, a foreign pension scheme is considered as a non-qualifying scheme. As a result, employer’s contributions are considered taxable and employee’s contributions non-deductible. There are possibilities to obtain deductibility (a corresponding approval procedure). Contributions can then be deductible for a period of 60 months (120 months under certain tax treaties).