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New tax treaty between the Netherlands and Germany

On November 6, 2015 by Dutch Umbrella Company

Prevent payment of double taxation

Do you live in the Netherlands and work in Germany? Or vice versa? Where do you pay your taxes then? And how do you prevent paying tax twice? To solve this issue, the Netherlands and Germany have made some agreements. These agreements have been established in a new tax treaty and include, among others, rules governing the exchange of personal data. These agreements provide guidelines for determining which country has the right to levy taxes on your income. The new tax treaty with Germany will come into force on 1 January 2016.

183-day rule

In general, the country in which the salary is earned has the right to levy tax on the income earned there. This is how it is regulated in most tax treaties, and it is also the same in the treaty between the Netherlands and Germany. However, there is an exception: the country where the employee is resident may levy tax if, within a period of 12 months, the employee resides for less than 183 days in the country of employment and the employer who pays the wages is not established in the country of employment and wages are not paid by or on behalf of an employer in the country of employment and the salary does not come at the expense of the profits of an establishment of the employer in the country of employment.

Together, these three conditions form the 183-day rule. If you want to benefit from this rule, you must meet all three conditions

Detached expatriates

If you plan to detach workers within a group of Dutch companies to countries outside the Netherlands, the employer in the Netherlands must levy taxes if the employee stays abroad less than 183 days in a given period. The length of this period varies from country to country with which a tax treaty has been entered into. It can also be the case that the country where the employment takes place may also choose to levy a tax on the salary as well. This is called double taxation.

Reverse charge mechanism

If you come to the Netherlands to work as a foreign worker and the foreign company group acts as the withholding agent, then the Dutch part of the group may levy the tax.

Living in Germany, while working in the Netherlands

Are you an employee and do you work for an employer in the Netherlands? Then this means you must also pay tax in the Netherlands. There are exceptions which result in you having to pay tax in Germany. The general exceptions have already been discussed in the previous sections, there are, however, two exceptions that are important.
Are you going to work in the Netherlands in education, as a professor or teacher, and will you be teaching in the Netherlands or do your research at an accredited educational institution? If you will be staying for a maximum period of two years, and you will continue to live in Germany, then you will pay tax in Germany. This, however, only applies if you are or will be doing research for the public good.
If you live in Germany, and you are in paid employment with a company on a cross-border business park, then you will pay tax in the country where you are obliged to pay social insurance.

Living in the Netherlands, while working in Germany

The same rules apply as in the previous situation. You will, in general, pay tax in Germany.

Compensation scheme

Do you work in Germany and are you liable to pay tax there, but you pay more tax than if you were to work in the Netherlands? A compensation scheme for such a situation has been established in the treaty between the Netherlands and Germany. Because when you pay tax in Germany, you are usually also covered by social insurance there. You do not pay any national insurance contributions in the Netherlands, and allowances such as mortgage interest payments and personal deductions do not apply to you. This also means that refunds of income tax and national insurance contributions will not be relevant to you.

Transitional law

Officially, the new treaty will enter into force on 1 January 2016, but the old legislation will continue throughout 2016. This means, and make sure to pay attention here: that if it is more advantageous for you to do your tax return under the old treaty, you can do so for one more year.
The Dutch Umbrella Company processes a number of German employees on a monthly basis. Therefore we have the necessary knowhow to provide advice about the situations described above. Furthermore, the Dutch Umbrella Company works with a good tax partner that processes the tax returns for the majority of the population employed by the Dutch Umbrella Company. For a flat fee, this can prevent a lot of red tape, but it can also make some money through potential compensation and other benefits.

Questions?

If you are about to start a new job in the Netherlands, please do not hesitate to contact us at [email protected], we will be happy to help. If you need any assistance regarding the 183-rule you might consider hiring a tax advisor. It might seem a bit costly at first, but the financial benefits make it all worth in the end. We have a network of partners and relevant contacts who can help you out, so feel free to contact us on +31 (0)20 820 1560 or [email protected] for more information.