A BRIEF INSIGHT
DUTCH TAX RATES The first two brackets of the Dutch income tax provide a combined rate for social security contributions and tax. Director Y is subject to social security legislation in a foreign country and is therefore only liable to pay tax on his or her Dutch-sourced taxable income.
Dutch income tax and social security contribution rates 2021.
The first €35,129 of taxable income is taxed at a rate of 9,45%. This means that only €3,320 of tax is due. The annual amount of tax due can even be less when certain tax credits apply.
Under the provisions of the 30% ruling (tax facility), an employee may be entitled to a tax-free cost allowance amounting to 30% of the income from present employment including the allowance). To be eligible for this facility, employees must be recruited or seconded from abroad and have specific expertise or skills that are not available (or are scarce) on the Dutch labour market. An employee is deemed to have a scarce expertise or skill if the employee’s annual taxable salary (excluding the 30% allowance) is at least €38,961 (2021).
A director, too, can qualify for the 30% ruling provided that all other conditions for the ruling are met. If the 30% ruling applies, only €4,830 is due on gross remuneration of approximately €56,000; otherwise €11,062 (approx. 20%) is due on gross remuneration of €56,000.
- a resident of a foreign country
- a director of a company established in the Netherlands
- subject to Dutch wage tax and income tax
- not subject to Dutch social security legislation
To be eligible for this facility, employees must be recruited or seconded from abroad and have specific expertise or skills that are not available (or are scarce) on the Dutch labour market.
Under most tax treaties signed by the Netherlands, the Netherlands can and will levy tax on the remuneration received by a non-resident director of a company that is resident in the Netherlands.
Depending on the applicable tax treaty, the state (country) of residence of the director will have to provide for double tax relief. Whether a director benefits from the situation with his or her Dutch-sourced director’s remuneration depends on two factors:
- how the state of residence eliminates or mitigates double taxation
- the average tax burden on the directors’ worldwide income in the state of residence.
Depending on the applicable tax treaty, the state (country) of residence of the director will have to provide for double tax relief.