Foreign employer with an employee working in the Netherlands? Make sure you are aware of the implications!
Are you an employer based outside the Netherlands with an employee who also performs duties in the Netherlands? If the implications of this situation have not been considered carefully, the consequences can be significant. Below we look at a number of aspects that could be relevant in this context.
Choice of law/legislation
In the employment contract that you enter into with the employee you can choose the law that you want to apply. You can opt to have the contract governed by English employment law, for example.
However, despite making this choice you still need to comply with certain Dutch obligations, insofar as these relate to duties performed in the Netherlands. These include, for example, the compulsory minimum wage, the Working Hours Act, the Working Conditions Act and the Placement of Personnel by Intermediaries Act (WAADI). Collective labour agreements (CLAs) also contain compulsory, universally binding provisions and the Terms of Employment (Cross-Border Work) Act (WAGA) has to be observed.
Failure to comply with these laws and regulations can result in significant penalties!
National insurance (based on EU-rules)
If the employee spends more than 75% of his/her working hours in the Netherlands, he/she comes under the Dutch national insurance system. The fact that the employee does not live in the Netherlands is irrelevant. As a consequence, the foreign employer is obliged to pay Dutch national insurance contributions on the employee’s entire salary, including the salary received for work performed outside the Netherlands. The employer must register with the tax authorities in the Netherlands and pay the national insurance contributions in accordance with Dutch legislation. The employee is entitled to benefits under the Dutch national insurance system and builds up an entitlement to a Dutch state pension (AOW).
If you are an employer based outside the Netherlands and take on an employee who resides in the Netherlands and spends 25% of his/her working hours in the Netherlands, the requirements outlined above apply in full and the employee comes under the Dutch national insurance system. If, for example, the employee works a 4-day week and spends one of these days in the Netherlands, there is an obligation to pay Dutch national insurance contributions.
This may be different in case your employee does not live in the EU.
Wage tax/income tax
If you are an employer based abroad with an employee who works in the Netherlands, an obligation to pay Dutch taxes generally arises if this employee spends more than 183 days a year in the Netherlands, even if he/she does not live here.
In the case of an employee who lives in the Netherlands, the obligation to pay Dutch taxes applies immediately (from day one)!
Even if you send an employee on secondment to a Dutch group company, in principle there is an obligation to pay Dutch (wage) tax from day one. Under certain conditions, however, you may not have to pay this tax if the work in the Netherlands amounts to less than 60 days a year. However, this must not result in a double exemption. If it does, you consequently have an obligation to pay Dutch wage and/or income tax. On request, the foreign employer can transfer the withholding obligation to the Dutch group company, which then takes over responsibility for complying with the tax obligations from the foreign employer.
Permanent establishment/permanent representative
If you have a permanent establishment or permanent representative in the Netherlands there are further implications. Dutch wage tax has to be deducted for the employee, there is an obligation to pay Dutch income or corporation tax and Dutch turnover tax has to be charged on the portion of the salary/profit that can be attributed to the permanent establishment/permanent representative!
A permanent establishment can be deemed to exist even if you merely rent a room in the Netherlands that is used for your Dutch activities. You may be considered to have a permanent representative if your representative in the Netherlands is authorised to conclude contracts with your suppliers or customers.
In the paragraphs above we have covered a number of issues that, based on our practical experience, regularly lead to problems or, at the very least, are not recognised sufficiently. As well as having significant financial and fiscal consequences, this can also be extremely irritating for the employee – simply because, in some cases, the employee suddenly finds that he/she is obliged to contribute to the Dutch national insurance system and builds up entitlements under this system instead of the familiar entitlements he/she wishes to build up in his/her country of residence. In short, it can lead to an uncertain and undesirable situation.
We would like to emphasise that identifying issues promptly and taking the appropriate steps can not only help prevent such a situation, but can also lead to a number of advantages.
If, as an employer, you find that you have an obligation to pay Dutch taxes, we will be pleased to assist you in this area. We can take care of your income tax, corporation tax, turnover tax and/or wage tax returns for you.
Our office can also advise you on your legal obligations in relation to your staff, e.g. the support an employee must receive in the event of sickness. We can also go one step further and take all payroll activities for your employees off your hands, while assuming responsibility for the associated employer’s risks. This allows you, as an employer, to concentrate on what is most important: your business.
If you require any further information or have any questions, please contact:
R.W.M. te Kaat
06 – 11274485