Salaries of international directors

Salaries paid to directors that reside in the Netherlands are subject to income tax in the Netherlands. If the company that pays the salary is based abroad, tax treaties normally award taxation rights to the foreign country in question. The Netherlands offers tax relief in order to avoid double taxation. The method used to calculate this tax relief will now change for international directors due to the new policy. 

Exemption method

For many years the State Secretary of Finance approved use of the exemption method for cross-border directors’ salaries, subject to certain conditions. As part of this method, Dutch income tax is reduced based on the tax rate that applies in the Netherlands.  Due to the aforementioned change in policy, the exemption method can no longer be implemented for directors’ salaries unless the exemption method has been prescribed in a tax treaty. For example, like in the treaty between the Netherlands and Luxembourg. 

Credit method

Now that approval for using the exemption method will be revoked, the credit method will in general apply to international director’s salary’s as of 2023. This method involves reducing Dutch income tax based on tax that is paid abroad. If taxation is higher abroad, the Netherlands does not repay the difference. If foreign taxation is lower, the remainder of Dutch taxes must still be paid.

The credit method involves taxing directors’ salaries at the highest applicable tax rate of both countries. In many cases, this method eventually results in a higher tax burden than the exemption method. We will be pleased to assess the consequences for you and think of suitable ways to anticipate to this change of policy.   

Further information or advice

Would you like to know more about international employment contracts? ABAB Global Mobility Services has in-house expertise for legal and tax support for employers and expats. Please contact Loes van Baast, Global Mobility Specialist / Tax, on +31402942601 or send Loes an e-mail.