Dutch law prefers that all (non-resident) individuals working in the Netherlands are employees and that Dutch tax has to be deducted via monthly withholding and paid across to the Dutch tax authorities at that time.
It is possible to work as a freelancer, under a sole proprietorship or through your own limited company but this may lead to discussions with the tax authorities if you only have one client in the Netherlands, especially if you are working for this client full time.
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.
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.
If you will not have an employer in the Netherlands you may need a contracting agency (or umbrella company) which can act as your employer. Expatax doesn't offer contracting services but we can assist agencies with the payroll administration for their contractors.
If you are employed in the Netherlands you will fall under the Dutch social security scheme. If you are employed as a contractor the applicable premiums will be withheld by your Dutch withholding agency.
If you are employed by your foreign limited company, 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 to continue to pay into your home social security scheme and thereby protects your entitlement, as an individual, to social security benefits. 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, an A1 certificate is applicable. 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.
Your company (or employer) 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.
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 96 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.