When do you, as a foreign employer, become liable for wage tax in the Netherlands?
National legislation stipulates that wage tax in the Netherlands is levied on withholding agents. When you as a (foreign) employer hire a Dutch employee, you can be regarded as a withholding agent. You are only liable for wage tax if one of the three situations below applies to you.
1. You have your registered office in the Netherlands
If you as an employer have your registered office in the Netherlands and your employee is a tax resident of the Netherlands, you will be regarded as a withholding agent for the purposes of wage tax. If your employee is not a resident of the Netherlands, then it depends on the country in which the employment is performed whether you are liable for wage tax in the Netherlands.
2. You have a permanent establishment or permanent representative in the Netherlands
If you as an employer have a permanent company site in the Netherlands, such as an office or shop, then this will probably be regarded as a permanent establishment as defined by Dutch tax legislation. If you as an employer have a permanent establishment in the Netherlands, you are subject to withholding wage tax in the Netherlands.
If your employee is authorised to conclude contracts and/or negotiate about contracts in the Netherlands and actually performs these activities, then the employee is probably regarded as a permanent representative as defined by Dutch tax legislation. If you, as an employer, have a permanent representative who works for your company in the Netherlands, you are subject to withholding wage tax in the Netherlands.
3. You voluntarily register as a withholding agent for wage tax
An employee who is resident for tax purposes in the Netherlands is liable to pay personal income tax in the Netherlands. It will be determined, on the basis of both national legislation and bilateral treaties and regulations, whether this employee is actually liable for tax and/or social security contributions in the Netherlands. As an employer, you can facilitate the deduction of tax and/or social security contributions from your employee's wages, so that your employee does not have to pay these amounts in full afterwards with the personal income tax return. You can arrange for this by voluntarily registering as withholding agent for wage tax with the Dutch Tax Authorities.
If you choose to voluntarily register as a withholding agent, it is important to do this deliberately. The provisions in the Dutch Wages Tax Act apply to you when you register as a withholding agent. These provisions also contain typically Dutch regulations such as the “work-related expenses scheme” and the “pseudo final levy” [levy on excessive severance pay payable by the employer]. By not opting for voluntary registration (if possible), these schemes may be kept off board.
Are you an employer established abroad and do you want to know more about the obligations towards employees in the Netherlands and/or do you want support in this area? Please contact Loes van Baast, tax advisor, by phoning 040-2942601 or send Loes an e-mail.