Tax on income from foreign (Sri Lanka) project
Article ID: 295 | Last Updated: Mon, Dec 9, 2013 at 12:56 PM
If I do a project in Sri Lanka and am paid directly approximately 40k euros, What is the best arrangement? Should I register a company in the Netherlands and then pay into the company? What would be the approximate rate of tax? Or, ask the client to tax at source then pay me?
If the relation between you and the organisation in Sri Lanka is considered to be (fictitious) employment the following part of the tax treaty between the Netherlands and Sri Lanka is applicable.
Salaries, wages and other similar remuneration derived by a resident of one of the States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
This paragraph states that if you live in the Netherlands but work in Sri Lanka as an employee, Sri Lanka has the right to tax the related income since the work is actually done in Sri Lanka.
If you are considered to provide an independent service the following part of the tax treaty is applicable.
Income derived by a resident of one of the States in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base. A resident of one of the States performing such professional services or other activities of an independent character in the other State shall be deemed to have such a fixed base available to him in that other State if he is present in that other State for a period or periods exceeding in the aggregate 183 days in any twelve month period.
Independent services are taxed in the Netherlands unless you have a fixed base in Sri Lanka or work in Sri Lanka for more than 183 days.
Whether you are considered an employee or an independent service provider depends on the actual situation. For more information about this see http://www.expatax.nl/Workingwithfreelancers.
For the tax rates in the Netherlands see http://www.expatax.nl/tax-rates. For the rates in Sri Lanka you will have to contact an advisor in Sri Lanka.
Tax consequences depend on how everything is organized between you and your client in Sri Lanka.
We can always help you with your Dutch tax return.