1. Determine the employees tax resident country

The first action to take when hiring your first employee in the Netherlands, is to ask the employee about his/her resident country. As an employer in the Netherlands you are obliged to keep information about the employees’ tax resident country. The employees’ resident country for tax purposes depends on (inter)national law per country and the employees’ private circumstances.

2. Check whether the 30% facility applies

Some employees will qualify for a reimbursement of extraterritorial costs. If the employee is coming to work in the Netherlands from another country he/she may experience higher cost of living than he/she is used to. For instance, because living expense here are higher than in their country. If so, the employer may compensate them for these so-called ‘extraterritorial costs’ untaxed. In case all additional criteria are met, you may also choose to pay the employee 30% of your salary, extraterritorial costs included, tax-free. This is the 30% facility. Be aware that the 30% facility has to be agreed on in (an addendum to) the labour contract of the employee.

3. Conclude employment contract

In an international employment relationship, the law applicable to the employment contract is important. National labor laws vary enormously from country to country.

As an employer you have the option to record a choice of law in the employment contract. With this choice of law, you and your employee agree which law is applicable, upon entering into the contract. This liberty to make a choice of law is however, not limitless and can be affected or supplemented by mandatorily applicable rules and regulations of a different legal system. In order to prevent unnecessary and unpleasant consequences, it is therefore of utmost importance to review well in advance what the specific possibilities, wishes and consequences are in a certain situation. Check which labour law applies to the employment contract of your employee and get yourself informed about the implications of this legal system on your position as an employer.

4. Determine social security position

Based on the expected working countries in the upcoming 12 months, determine in which country the employee is most likely going to be covered for social security. Within the European Union this can only be 1 Member State at same the time. In case of a secondment to the Netherlands by the foreign employer this might remain the country of origin for a maximum period of 24 months (assuming the employee is not send to the Netherlands to replace another seconded employee). (This period of time can (under circumstances) be extended). In case of a secondment, apply for an A1 certificate in the employees resident country.

5. Apply for wage tax number (not always an obligation)

When hiring a Dutch resident employee who will be working for you in the Netherlands, you will in some cases qualify as a withholding agent for Dutch wage taxes and social security contributions. Wage taxes, as well as social security contributions are due to the Belastingdienst. In case you qualify as a withholding agent, you will have the obligation to withhold wage taxes and / or pay social security contributions on behalf of the employee to the Belastingdienst.

It might also be possible to voluntarily register as a withholding agent in the Netherlands. In any scenario it is wise to consider carefully whether you qualify as a withholding agent, would like to register voluntarily or whether payments of taxes via an income tax return by the employee is the best option for your company.

6. Determine whether the activities of the employee can lead to a Dutch permanent establishment

In our opinion it is always wise to determine whether the activities of your company or employee lead to a permanent establishment in the Netherlands. This can for example be the case if you would rent an office space for the employee. Also the nature of the employees activities can lead to a permanent establishment in the Netherlands. If there is a permanent establishment in the Netherlands, you will have to obligation to file a Dutch corporate income tax return and/or VAT returns.

7. Set up Dutch payroll in case you qualify or choose to be a withholding agent

Register in the Netherlands as a withholding agent. This form also contains questions regarding VAT and CIT, so it’s important to not skip step 6 regarding a permanent establishment. After registering as an employer in the Netherlands, you will receive a wage tax number from the Dutch Tax authorities. With this number you can file payroll tax returns in the Netherlands.

8. File documents in your wage tax administration

As an employer you are obliged to meet certain documentation requirements regarding your Dutch resident employee. Your payroll administration should at the minimum keep the following information regarding your employee for a period of 5 years after the employment relationship ends:

• Name and initials
• Date of birth
• BSN (citizen service number)
• Address and postal code
• When the employee does not live in the Netherlands, the state in which the employee lives and the region
• Place of residence
• Copy of valid passport
• A request regarding payroll tax reductions (heffingskortingen). It is in our opinion practical to use the ‘Model Statement of data for payroll taxes’
• A copy of the employment agreement, indicating whether the agreement has been entered into for a fixed or indefinite period of time (and/or whether the employment agreement qualifies as an on-call contract);

The employee supplies these data, either on paper or in a digital format, provided with a date and a signature. Were you unable to establish the employee's identity (in time), or did you not keep all information as mentioned in the list above, a penalty rate of 52% over the employees income applies.

9. Overview work related cost scheme

Dutch wage tax withholding agents are obliged to keep a list of allowances, benefits in kind and provisions paid to their employees under the work related cost scheme.

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More information?

Would you like more information? Please contact Clea Cremers, global mobility specialist - tax, on telephone number +31(0)77-3217715, e-mail.