Dutch law states that all non-resident individuals working in the Netherlands must be employees and, furthermore, that Dutch tax, where not eliminated under a Double Tax Treaty (see below), has to be deducted via monthly withholding and paid across to the Dutch tax authorities at that time. It is therefore not legal for a non-resident individual to work in the Netherlands as a sole trader or member of a partnership although some individuals continue to operate in this way.

Tax Residence in the Netherlands

All tax resident individuals are taxed on their worldwide income, regardless of the source, although there are different rates applicable to different sources.

Dutch tax law provides that the facts and circumstances determine an individual’s tax residence. In the case of a dispute, the Dutch tax courts will examine the durable ties of a personal nature with the Netherlands. Factors to be taken into account would include the ownership of residential or other property, the duration of the individual’s tenancy agreement, the location of bank accounts, the location of the individual’s family, where any children are being educated and centre of an individual’s social interests. However, it is also thought that a stay of more than 12 months would be likely to indicate tax residence on a going forward basis.

Non-resident individuals are taxed on certain Dutch-source income only, mainly income from employment, directors’ fees, business income and income from Dutch immovable property. In the case of salary and benefits from your limited company, the source is Dutch since the duties of the employment are being performed in the Netherlands. However, dividends from your limited company (assuming this is not deemed to have a permanent establishment in The Netherlands) would be from a non-Dutch source regardless of where the dividends are received. There is therefore scope for tax mitigation here in the event you do not become a Dutch tax resident (although non-Dutch taxes may also need to be considered).

Withholding Obligations

As mentioned above, if you are receiving a salary for working in the Netherlands and that salary is subject to Dutch tax, i.e., relief under a Double Tax Treaty is not available or desirable, you (as a company) or your employer is obliged to deduct a Dutch withholding tax and pay this over to the Dutch tax authorities on a monthly basis. A payroll administration must be setup with which Expatax can assist you.

Social Security

As an employee of a non-Dutch limited company seconded to the Netherlands, depending upon the country of residence of your company and your own nationality, it may be possible to remain within your home country social security scheme for a period of up to five years. This will cover the contributions of both employer and employee. It will be necessary for you to apply for the appropriate certificate from the organisation dealing with social security in your home country. This will enable you (as employer and employee) to continue to pay into your home social security scheme and thereby protects your entitlement, as an individual, to social security benefits, particularly pensions. At the same time, you would normally apply for a certificate to cover you for publicly-available health care in the Netherlands.

If you are an EU citizen, the certificates are the E101 and E128. If you are a non-EU citizen but your country of nationality has an agreement with the Netherlands, you would obtain a ‘Certificate of Coverage’ for both pensions and state medical coverage. If your home country contributions are higher than in the Netherlands, it could be that you would prefer to pay social security in the Netherlands instead. In this case, you would not make an application for a certificate to keep you in your home country scheme but would withhold Dutch social security contributions together with the tax withholding.

Corporate Tax Considerations

Your company will only be liable to Dutch corporation tax if it has a permanent establishment in the Netherlands. Whilst this is generally an office or branch, a permanent establishment can also be deemed to exist if the actual operations take place in the Netherlands. To avoid this deeming provision, you should draw up and sign contracts outside of the Netherlands and also avoid having Dutch letterhead, business cards, name plate etc. Aside from the fact that Dutch corporation tax may be more than in your home country, there are a number of other obligations you would have to meet as a Dutch company and you would wish to avoid these if at all possible.

Individual Tax Rates and Allowances

Tax rates and allowances generally change on a calendar year basis. This also affects the tax-deductibility of expenses and offset of tax levies (credits).

Dutch tax rates are relatively high but may be mitigated if you, as an individual, qualify for the 30% ruling. This ruling allows the individual to have a tax-free allowance amounting to 30% of his taxable regular employment income during the first 120 months of his stay in the Netherlands. In addition, individuals classified as tax residents may elect to be treated as non tax residents. This would limit their investment income, capital gains and net assets to Dutch sources only and would thereby eliminate any Dutch tax liability on the dividends from their limited company.