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International employment of your staff

On February 15, 2016 by Dutch Umbrella Company

Withholding wage taxes and employers’ national insurance contributions

Do you have staff living or working abroad? Or are you an employer living or with offices abroad? You will fall under a different set of rules and conventions governing the withholding of payroll taxes: wage taxes and employers’ national insurance contributions.

Working abroad: wage taxes

These rules are part of tax conventions between countries, stipulating which country may impose taxes at a certain time. This prevents an employee having to pay wage taxes twice, in his country of residence as well as in the country of employment.

Your employee lives in the Netherlands and works abroad

In the absence of a (tax) convention with the country of employment the unilateral regulation still applies to those employees living in the Netherlands. With respect to the foreign component of wages, no taxes have to be withheld in case the employee works fewer than 30 consecutive days in the non-treaty country and is able to prove that he pays wage taxes in the country of employment. You do not have to withhold wage taxes in the event that an employee works 30 consecutive days or longer in the non-treaty country and can demonstrate that the country of employment is taxing his wages. In case this period is longer than 3 months it is automatically considered plausible that your employee is paying taxes abroad on wages earned in that foreign country.

183-day rule

Usually, the country of employment will be entitled to levy taxes on wages earned by the employee in that country. However, there is an exception in which case the country of residence is entitled to levy taxes. In this case the following three conditions have to be met:

  • The employee resides in the country of employment fewer than 183 days. These days can belong to different periods depending on the treaty country.
  • The employer paying the wages does not have (registered) offices in the country of employment nor are wages paid by or on behalf of an employer in the country of employment.
  • The wages are not charged to the profits of an organisational unit of the employer in the country of employment, such as a branch establishment or sales outlet.

These 3 conditions make up the 183-day rule. If all conditions are met, the employee or employer may apply this rule.

The second condition is difficult to assess in case of temporary staffing, temporary hiring or secondment. An employer will be legally and fiscally considered as such in case of an unequal power relationship between the employee and the employer, and when the work is carried out at the risk and for the account of the employer in the country of employment, while wage taxation is also charged on the country of employment.

The 183-day rule will generally not be applicable in case of (board) directors, commissioners or governors of companies, professional athletes, artists, university professors, teachers and government officials.

Most tax treaties contain a 183-rule clause. For more information please refer to www.rijksoverheid.nl and start your search using the term “belastingverdragen”.

What if the employee lives abroad while working in the Netherlands?

In order to determine whether wage taxes should be withheld on the salary of an employee living abroad you will first need to make sure in which country the work for your organisation is performed. In case the employee is working exclusively in the Netherlands, wage taxes should be withheld on his entire salary. In case his work for your organisation is done for 90% or more abroad while residing in a treaty country, you should not withhold any wage taxes. If he does not live in a treaty country, the country of employment where the employee lives will determine in which country taxes need to be paid.

Should the employee live in a treaty country while partly working in the Netherlands and partly abroad, his employer in the Netherlands must withhold taxes on the part (of his wages) that is earned in the Netherlands. This employer may only withhold taxes on the part earned abroad when this is stipulated in an applicable tax convention.

In case the employee lives in a non-treaty country while working for less than 90% abroad, his Dutch employer must withhold taxes on all his wages, but not in case the non-treaty country withholds taxes on his wages.

Working abroad: social security

The general rule is that your employee is insured for social insurance in the country of employment. This involves national insurance, health insurance and employee insurance. When determining the insurance obligation different rules exist for:

  • EU countries (member states, governed by EU regulations);
  • countries part of a social security convention concluded with the Netherlands;
  • and all other countries.

An A1/E101 certificate may provide a solution for employees who find themselves in a similar situation. All EU member countries use the A1/E101 form. When working abroad (i.e. not in the Netherlands), you can prove that you are insured in the Netherlands using this form. For more information on the A1/E101 form, click here.

Member states (Verordeningslanden)

In case the employee lives in the Netherlands while working for 100% in one single member state, he will be insured in that country, in principle. If he works in several member states (verordeningslanden) your employee will be insured in the Netherlands.

Should the employee have a temporary secondment posting in a member state his Dutch insurance scheme can be continued when certain conditions are met.

Social security convention states and other states

If one of your employees has a secondment posting in a social security convention state, he can keep his insurance in the Netherlands. In any other country, Dutch national legislation and the country of employment will determine the country of national (social) insurance. The general rule is that the employee will be insured in the Netherlands.

  • When you, as an employer, do not have any offices in the Netherlands
  • If you are not domiciled in the Netherlands while (part of) your staff lives or works in the Netherlands, you will need to withhold payroll taxes and/or pay national insurance contributions in the Netherlands in certain cases.
  • Tax conventions stipulate whether your employee must pay taxes in the Netherlands and Dutch legislation whether you have a withholding obligation (or whether you must withhold taxes on wages).

Further questions?

Any further questions or in need of any advice regarding a specific situation, please feel free to contact us at [email protected].