Growing complexity in (international) legislation and regulation means our clients are increasingly in need of truly integrated services. The nature of today’s issues means that our service offering no longer rigidly separates corporate tax, employee tax, social security, VAT & customs, legal and immigration.

As a pragmatic partner, we are proud to master each of these disciplines. These topics are just a small selection to give you an idea of what LIMES international can do for you.

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February 2023

Under the 30% ruling, a Dutch resident employee may elect to have ‘partial non-resident taxpayer’ status. This choice can be made each tax year and can be changed on a year-by-year basis. With partial non-resident taxpayer status, for ‘Box-1’ income (business profits, income from employment, and income from owner-occupied property) the employee is considered a Dutch resident taxpayer. However, for ‘Box-2’ (substantial interest) and ‘Box-3’ income (savings and investments), the employee is considered a non-resident taxpayer. As a result, investment income, for example, will not be subject to Dutch taxation, except for income from Dutch sources, such as Dutch real estate (i.e., a second home).  

The employee may still claim personal deductions, such as alimony and annuity payments, though. Fiscal partner regulations, such as optimal allocation of certain deductible costs, are not affected by this choice. Foreign withholding taxes on 'Box- 2' and 'Box-3' income cannot effectively be credited against Dutch tax.
US nationals residing in the Netherlands who have elected to have partial non-resident taxpayer status are considered US residents for tax-treaty purposes. One of the consequences of this legal fiction is that they do not have to report their worldwide income from employment in 'Box-1', but only the income related to the employment activities physically carried out in the Netherlands.

Lastly, an employee electing to have partial non-resident taxpayer status must do so while the relevant tax assessment is still open for appeal, but preferably already when filing the Dutch personal income tax return. In most cases the partial non-resident taxpayer status is advantageous for the employee.

6.2 Pension

An employee who participates in a Dutch pension scheme can accrue pension rights over the pensionable salary, including the 30% allowance. The Dutch wage tax facility for pension contributions will then apply: the employer’s contribution remains tax free, and the employee’s contributions remain tax deductible.

Please note that the employee’s tax-deductible pension contribution while participating in the company pension plan affects the taxable wage of the employee. Since the taxable wage must always meet the salary threshold (see 1.3), the employee may consider waiving the pension rights to increase the taxable salary and remain eligible for the 30% ruling. As an alternative to pension rights, in this case the employee may be better off with a life annuity.

6.3 Net salary agreement

The 30% ruling may also apply to net salary and tax equalisation agreements, in which case the 30% ruling would result in a substantial reduction of the employer’s costs.

The 30% allowance may be paid while the request for the 30% ruling application is still being processed. However, if the request is rejected, taxes on the remuneration will subsequently need to be recovered from the employee. Alternatively, the salary paid will need to be grossed up at the employer’s expense.

In the view of the Dutch Tax Authorities, the 30% ruling can only be taken into account in the payroll administration of the employer. This may cause inconvenience if the 30% ruling is issued after the end of the calendar year in which it can first be applied. In such situations, it may be necessary to update the payroll retroactively and file corrected wage tax returns.

The Dutch tax authorities will not issue a new notification. The new end date will have to be entered in the payroll administration by the employer.

The 30% ruling can be granted for a maximum period of five years (60 months). The 30% ruling will end on the last day of the salary period after the salary period in which the employment ends (i.e., the actual employment activities cease), provided that this latter salary period falls within the 60-month period.

April 2022

Directors

For an employee, a salary split situation may arise if the employee physically works in the host country while also continuing to work and live in his/her home country. For individuals receiving directors’ fees in their capacity as statutory director of a company in the host country, under most tax treaties they do not have to be physically present in the host country for a salary split to exist.

A salary split can be (financially) beneficial if the method to provide relief from double taxation in the home country, is the so-called exemption method. If the home country provides for relief from double taxation by offering a tax credit for taxes paid in
the host country, there would generally be no benefit to the salary split since the taxpayer would (at least) pay income tax
according to the tax rates in the home country.

For Dutch resident employees who have a salary split – as a general rule – the exemption method can be utilized. For Dutch resident statutory directors, whether the exemption method or a tax credit applies, is dependent on the applicable tax treaty. Some tax treaties prescribe an exemption, others a tax credit. Please find a few examples below:

A Dutch resident statutory director of a company resident in Germany, France or Belgium is therefore unlikely to benefit from a salary split with these countries, while the Dutch resident statutory director of a Spanish or Italian company could potentially benefit, under the right conditions. Whether the salary split of the Dutch resident statutory director could be financially beneficial, would therefore have to be analysed on a case-to-case basis.

In this example, the salary split provides a financial advantage of €9,375.

A salary split exists when the salary of an employee is attributed to two or more countries. It can arise in several ways. For example, a salary split situation arises when you are formally employed by a company in another country (host country) while continuing your employment with your formal employer in your home country. Consequently, you will most likely become liable to tax in the host country, while continuing to be liable for tax in your home country as well. Tax treaties and/or domestic tax law should prevent double taxation. If the foreign tax relief provided by the home country exceeds the tax liability in the host country, the salary split is financially beneficial.

April 2022

The first € 37,149 of taxable income is taxed at a rate of 9.28%. This means that only € 3,447 in tax is due in the first tax bracket. The annual amount of tax due can even be less when certain tax credits apply.

30% RULING

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 € 41,954 (2023).

A director, too, can qualify for the 30% ruling provided that all other conditions for the ruling are met. To give an example of the benefit of the 30% ruling, assuming an indicative gross remuneration of € 60,000: if the 30% ruling applies, the tax due on the gross remuneration of € 60,000 is € 5,239; otherwise € 11,886 is due. See also the below table.

TABLE

Taxpayer is:

• 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

Table (2022 rates)

TAX TREATIES

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 Dutch resident entity.

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:

1. how the state of residence eliminates or mitigates double taxation
2. the average tax burden on the director’s worldwide income in the state of residence.

Assumptions:

• Employee X and director Y are both residents of a foreign country.

• Employee X and director Y both perform work in their country of residence for the Dutch entity (A).

• Employee X and director Y are both subject to social security contributions in the country of residence (‘foreign country’).

In the situation described above, the remuneration of director Y will, in most cases, be taxable in the Netherlands. The remuneration of employee X on the other hand will be taxable in the foreign country.

January 2021

April 2022

A bank savings scheme is an alternative for a life assurance. Premiums paid for both facilities are tax deductible up to certain limits.
The differences and matches between the two facilities are listed below.

The above example can be implemented dependent on personal circumstances and in accordance with legal requirements.
For example, the maximum contribution into the life assurance/bank savings scheme depends on the employee’s (Dutch taxable) salary
(in previous and current employments) and (Dutch recognised) other pension rights accruals in the current and previous 7 years.

• Participation in a qualifying pension plan for Dutch tax purposes, will reduce the taxable salary, which might cause that the employee no longer qualifies for the salary norm of the 30% ruling (anymore).

• Choice of basis for pension contribution: inclusive or exclusive of 30% allowance and thereto related formal and legal issues.

• Participation in a qualifying pension for Dutch tax purposes effectively provides for a maximum tax benefit of only 34.65% instead of 49.50%.

The above potential pitfalls and risks can be prevented if the employee waives his pension rights and takes out a life assurance/bank savings scheme instead. The employer can pay the amount of the employer contribution in the pension to the employee as regular salary or a bonus. In other words, the employer costs will not change. Moreover, it provides a tax benefit to the employee (or the employer depending on the structure).

In this memo we will elaborate on this potential tax benefit/solution, and the various alternatives to structure it.

April 2022