It often happens that employees are carrying out cross-border work, whether or not at the request of the employer. If there wouldn’t be any arrangements between states the employees that carry out cross-border work would have to pay double taxation; income tax in the state where they live, and payroll tax in the state where they work. To avoid these situations certain conventions were formulated, which prescribe which state may levy taxes and in which cases.
The common rule in tax treaties is that you, being a foreign employee, have to pay tax on your salary in the Netherlands if the actual work is done in the Netherlands. There is one exception however, that is when the 183-day rule is applicable. This rule states that you are taxed in the country you live if the following conditions are met:
1. Your stay in the Netherlands does not exceed 183 days during a given period. Depending on the tax convention that applies this may be a calendar year, a consecutive period of 12 months, or a tax year. All days on which you were in the Netherlands count, including weekends and holidays.
2. You’re being paid by or on behalf of an employer that is not established in the Netherlands.
3. The employment costs are not borne by a Dutch permanent establishment of the foreign employer during your assignment.
These conditions are referred to as the 183-day rule. If not all conditions are met, Dutch legislation will determine whether you have to pay tax in The Netherlands.
There can be discussion regarding the term employer as stated in the second condition. The Netherlands has adopted the economic employer approach in interpreting the term employer for the 183-day rule, instead of the formal employer approach. This means that, according to the Dutch Supreme Court, the employer is the company that has the authority to instruct the assignee, and bears the risk and expense of the duties performed, including a specific and individually traceable recharge of the employment expenses.
So, if you’re working according to the instructions of the Dutch employer or the Dutch employer bears all the risks and expenses then your employer is seen as the economic employer, and you’ll be taxable in the Netherlands from day 1. This means that a payroll administration, like the Dutch Umbrella Company, will have to be set up and the formal foreign employer must be registered with the Dutch tax authorities for wage tax purposes.
The majority of the tax treaties contains a 183-day rule clause. The rules and regulations regarding your specific situation can be a bit complex though. Therefore we strongly suggest you consider hiring a tax advisor. It might seem a bit costly at first, but the financial benefits make it all worth it 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.
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