Legal Considerations

Dutch law states that all Dutch individuals working in The Netherlands should be employees and Dutch tax, where not eliminated under a Double Tax Treaty, will be deducted via monthly withholding and paid across to the Dutch tax authorities at that time. It therefore makes a non-Dutch individual working in The Netherlands as a sole trader or member of a partnership illegal.

Tax Residence in The Netherlands

Dutch tax law provides that the facts and circumstances determine an individual’s tax residence.

In the event of a dispute, the Dutch tax courts will examine the durable ties of a personal nature with The Netherlands on the basis of ownership of residential or other property, duration of the individual’s tenancy agreement, location of bank accounts, location of the individual’s family, where any children are being educated and the centre of an individual’s social interests.

A stay of more than 12 months will be likely to indicate tax residence on a going forward basis.

Non-resident individuals

Non-resident individuals are taxed on certain Dutch-source income only, comprising mainly income from employment, directors’ fees, business income and income from Dutch immovable property.

Regarding salary and benefits from your limited company, the source is considered Dutch since the duties of the employment are being performed in The Netherlands.

However, all dividends from your limited company (assuming this is not deemed to have a permanent establishment in The Netherlands) are regarded as arising from a non-Dutch source regardless of where the dividends are received.

You can think of tax mitigation in the event you do not become a Dutch tax resident (although non-Dutch taxes may also need to be considered).

Double Tax Treaties

If you have been in The Netherlands for less than a relevant 183 day (approximately six months) period and are tax resident (and paying taxes on your salary/benefits) elsewhere, you may claim tax relief under a particular Double Tax Treaty.

The relevant 183 day period implies either 183 days in a calendar year or in any period of 12 months, depending upon the particular treaty involved. The Double Tax Treaty with the UK, for instance, considers a period of 183 days in the Dutch tax (which is a calendar) year as the relevant 183 day.

From a tax standpoint, it will be wise to claim exemption under a Double Tax Treaty, if your other country of tax residence levies much lower taxes. Besides, claiming exemption under a Double Tax Treaty also affords administrative convenience and savings in professional fees (payroll bureau, tax return filing etc).

In the Netherlands, if the criteria of a relevant Double Tax Treaty are fulfilled,  exemption may simply be assumed without calling for submitting a formal claim for relief. You are also expected to satisfy other criteria that include being paid by a non-Dutch company and showing costs of your employment are being borne by a non-Dutch company.

However any dividends you receive from your limited company where you become a Dutch tax resident under either of the provisions outlined above, is subject to tax at a flat rate of 25% which is, in itself, far more beneficial than in many countries.

Furthermore, you can enjoy exemption for dividends received from any company in which you do not hold a ‘substantial interest’ (as defined in Dutch tax law).

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 for you to retain your home country social security scheme for a period of up to five years.

The scheme will cover the contributions of both employer and employee. You are required 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 protect your entitlement, as avail of social security benefits, particularly pensions. You may also simultaneously apply for a certificate to cover you for publicly-available health care in the Netherlands.

If you are an EC National, you obtain certificates E101 and E128. If you are a non-EC National but your country of nationality has an agreement with the Netherlands, a ‘Certificate of Coverage’ will entitle you to both pensions and state medical coverage. In either case, you would do well to seek professional help in making the appropriate application.

Corporate Tax Considerations

Your company will come under the purview of Dutch corporation tax if it has a permanent establishment in the Netherlands. Usually, this is generally an office or branch, but a permanent establishment can also be deemed to exist if the actual operations take place in the Netherlands.

To steer clear of this provision, you should draw up and sign contracts outside of the Netherlands and avoid using Dutch letterhead, business cards, name plate etc. You may also have to meet other obligations as well.

Individual Tax Rates and Allowances

Dutch tax rates are relatively high but may be mitigated if you take succor from the 30% ruling, which allows individuals to have a tax-free allowance amounting to 30% of their taxable regular employment income during the first 120 months of their stay in the Netherlands. However, it must be applied within four months of starting the Dutch employment.

Additionally, individuals classified as tax residents may be treated as non-tax residents. Investment income, capital gains and net assets will be limited to Dutch sources only and thus eliminate any Dutch tax liability on the dividends from their limited company.

Since tax rates and allowances generally change on a calendar year basis, it is best to seek advice from a Dutch accountant or tax lawyer at the appropriate time.