Employment in the Netherlands Conditions of employment, tax and social security aspects Edition 2015

Transcription

1 and tax partner if you do business in or from the Netherlands, Belgium and Luxembourg, our home markets. You can count on personal advice from any of our 900 advisers based in one of our offices in the Benelux or in key financial centres around the world. Thanks to our full-service practice, specific sector experience and thorough understanding of the market, our advisers comprehend exactly what you need. Employment in the Netherlands Edition 2015 As a leading firm, Loyens & Loeff is the natural choice for a legal EN-EIN Employment in the Netherlands Conditions of employment, tax and social security aspects Edition 2015 Editor Hans van Ruiten Cover_employments_in_the_Netherlands_2015.indd :16

2 Employment in the Netherlands Conditions of employment, tax and social security aspects Edition 2015 Editor Hans van Ruiten

3 Loyens & Loeff N.V All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or in an automated database or disclosed in any form or by any means (electronic, mechanical, photocopy, recording or otherwise) without the prior written permission of Loyens & Loeff N.V. Insofar as it is permitted, pursuant to Section 16b of the Dutch Copyright Act 1912 (Auteurswet 1912) in conjunction with the Decree of 20 June 1974, Dutch Bulletin of Acts and Decrees 351, as most recently amended by the Decree of 22 December 1997, Dutch Bulletin of Acts and Decrees 764 and Section 17 of the Dutch Copyright Act 1912, to make copies of parts of this publication, the compensation stipulated by law must be remitted to Stichting Reprorecht (the Dutch Reprographic Reproduction Rights Foundation, PO Box 3060, 2130 KB Hoofddorp, the Netherlands). For reproductions of one or more parts of this publication in anthologies, readers or other compilations (Section 16 of the Dutch Copyright Act 1912), please contact the publisher. This publication does not constitute tax or legal advice and the contents thereof may not be relied upon. Each person should seek advice based on his or her particular circumstances. Although this publication was composed with the greatest possible diligence, Loyens & Loeff N.V., the contributing firms and any individuals involved cannot accept liability or responsibility for the results of any actions taken on the basis of this publication without their cooperation, including any errors or omissions. The contributions to this book contain personal views of the authors and therefore do not reflect the opinion of Loyens & Loeff N.V.

4 Foreword This brochure deals primarily with the conditions of employment, as well as the tax and social security aspects of employment in the Netherlands. The employee may or may not be immigrating into this country. Both cases are discussed. The contents of this publication are based on the laws as operative on 1 January We have elected a format in which the topics are outlined rather than discussed in detail. Because of this approach, we advise you to consult your tax advisor if you are considering taking measures that may have tax implications. Although the brochure has been compiled with the greatest care, Loyens & Loeff cannot accept any liability for the consequences of the use of its contents without prior consultation. Loyens & Loeff N.V. loyens & loeff Employment in the Netherlands

5 CONTENTS Foreword 3 1 Conditions of employment Introduction Applicable law Separate regime in case of dismissal Particular issues of Dutch labour law Residence permit and work permit Residence permit Work permit Highly skilled migrant workers Legal residence wealthy foreigners Registration with the municipal authorities Driving licence 18 2 Taxation Residence Resident taxpayers Income tax Box 1: Income from work and home Box 2: Income from substantial shareholding Box 3: Income from savings and investments Partner rule Tax rates Tax rebates Wage tax Employment income Expenses Wage tax withholding obligations Gift tax, inheritance tax and transfer tax Real estate transfer tax Import duties, VAT and excise duties Moving from outside the EU to the Netherlands Moving from another EU Member State to the Netherlands Registration tax on private cars and motorcycles (BPM) Motor vehicle tax 34 4 loyens & loeff Employment in the Netherlands 2015

6 2.2.8 Real estate tax/other charges Double taxation Non-resident taxpayers Income tax Limited tax liability Sources of taxable income Qualifying non-resident taxpayers regime as of Tax rates Tax rebates Partner rule Tax treaties Wage tax Employment income Expenses Wage tax withholding obligations Gift tax and inheritance tax Real estate transfer tax Real estate tax/other charges Double taxation The 30%-ruling Introduction The conditions for the 30%-ruling Consequences of the 30%-ruling for wage tax purposes The non-taxable 30%-allowance Calculation of the 30%-allowance Impact of the 30%-ruling on social security and pensionable base Partial non-resident tax liability Summary Checklist application 30%-ruling General provisions Social security/tax registration number (BSN) Tax return, tax assessment, objection and appeal, preliminary tax refund Interest Penalties 54 3 Social security Introduction National Insurance Schemes General Old Age Pensions Act ( AOW ) Surviving Dependants Act ( ANW ) 57 loyens & loeff Employment in the Netherlands

7 3.2.3 Long term care Act ( WLZ ) General Child Benefit Act ( AKW ) National Insurance Schemes contributions Employee insurance schemes Sickness Benefits Act ( ZW ) Work and Income according to Earnings capacity Act ( WIA ) Unemployment Insurance Act ( WW ) Employee insurance schemes contributions Health Care Insurance Act ( ZVW ) Benefit Entitlement (Residence Status) Act (BEA) and Benefit Restrictions (Foreign Residence) Act Social security authorities Secondment from another EU Member State Conditions for secondment Temporary workers Working in more than one country; exceptions Formalities Secondment from another treaty state Secondment from a non-treaty state Family members 65 4 Matrimonial property law and inheritance law Matrimonial property law Married in the Netherlands The matrimonial property law in the Netherlands Marriage and international private law Inheritance law 70 APPENDIX I Countries to which a double taxation treaty is applicable 73 APPENDIX II scheme: social security treaties and the countries the treaties can be applied to 74 APPENDIX III Scheme: terms for secondment 75 APPENDIX IV Scheme: particularities bilateral and multilateral treaties 76 Offices of Loyens & Loeff N.V. 77 CONTACTS PRACTICE GROUP employment tax and employment law 79 Authors 80 6 loyens & loeff Employment in the Netherlands 2015

8 01 CONDITIONS OF EMPLOYMENT

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10 1 Conditions of employment 1.1 Introduction Employment in the Netherlands, either through a secondment or direct employment with a Dutch employer, will often have consequences in the field of employment law. A secondment to the Netherlands can affect the terms and conditions of employment as agreed to by the employer and the employee. The duration of the secondment is an important factor. In most cases, the sending company has formulated a secondment policy that clearly states what is considered to be a short secondment and what is considered to be a long secondment (the latter being the true expat secondment). This chapter deals with several of the terms and conditions of employment and a number of other subjects that should be borne in mind by the employer and employee in the case of a secondment to the Netherlands. 1.2 Applicable law Usually, an employee and his employer have an employment contract that is governed by the law of their home country. If the employee is seconded to work in the Netherlands, this contract can remain governed by the law of the home country, but will be partly governed by Dutch law. Certain rules of Dutch law will immediately apply to the employment contract. As from the first day of secondment to the Netherlands, the Terms of Employment (Cross Border Work) Act ( Wet Arbeidsvoorwaarden Grensoverschrijdende Arbeid, WAGA ) applies to all foreign individuals who work in The Netherlands. The WAGA is based on the EU seconded Worker Directive of The WAGA also applies to employees from non-eu countries. Pursuant to the WAGA, the provisions of Dutch law relating to the topics mentioned below apply to the employment agreement of each individual who works in the Netherlands. The Dutch law provisions indicated in the WAGA are considered minimum protection. Consequently, these Dutch provisions will be superseded by provisions of the applicable law if the latter are more favourable for the employee. The WAGA refers to provisions on the topics below contained in Dutch legislation and in Collective Labour Agreements, which have been declared generally binding in the Netherlands. loyens & loeff Employment in the Netherlands

11 These topics are: a) maximum working hours and minimum resting hours; b) maximum number of vacation days during which the employer has the obligation to continue the payment of salary; c) minimum wage, including payments for overtime, excluding additional company pension schemes d) conditions for the hiring out of employees; e) health, safety and hygiene at work; f) protective measures regarding employment conditions and working conditions for particular employees; g) equal treatment of men and women, as well as other subjects of non-discrimination. Furthermore, the longer an employee works in the Netherlands, the more Dutch law provisions there are that apply to the contract. These can be other provisions than the ones mentioned above, as long as they are mandatory rules of Dutch law that offer the employee better protection than similar provisions contained in the law of the home country. 1.3 Separate regime in case of dismissal A separate regime applies to the Extraordinary Labour Relations Decree 1945 ( Buitengewoon Besluit Arbeidsverhoudingen, BBA 1945 ) which provides for the need to obtain permission from the relevant authorities prior to giving notice of termination to an employee. The possible applicability of this Decree is based on a separate scope-rule, which differs from the rule for determining the applicable law. As a rule of thumb it can be said that if it is foreseeable that a foreign employee who has been dismissed will return to the Dutch labour market (i.e. apply for a new job in the Netherlands), the Decree is applicable, which means that the employer has to obtain permission from the Employee Insurances Implementing Agency (UWV) before he could dismiss this employee. Since 2010 however, the courts also take into account whether the specific situation of the dismissed employee differs from his colleagues who have the protection of the BBA. This means that if the foreign employee has more or less the same contract and the same position as his Dutch colleagues, the Decree is applicable to him, as it is to his Dutch colleagues. In practice, we see that if an employee is living and working outside the Netherlands and does not intend to come back to the Netherlands after his dismissal, courts say that the BBA does not apply to these employees. 10 loyens & loeff Employment in the Netherlands 2015

12 1.4 Particular issues of Dutch labour law Under European law, which applies to all EU Member States, all employers who conduct business in the territory of the European Union have the obligation to notify the employee, in writing, regarding a number of issues pertaining to the employment contract. If an employee is to work in another European Member State for a period exceeding a month, the employer must provide the following information: a written employment contract, a letter of appointment and/or a written document containing various particulars of the employment agreement or employment relationship, e.g. the identity of the parties, the place of work, the salary, etc.; the employment contract, letter of appointment and/or any other written document should be in the possession of the employee before he leaves his home country; the duration of the period of employment abroad; the currency in which the salary will be paid; if applicable, the social security aspects pertaining to the period of employment abroad; if applicable, the arrangements regarding the employee s return to his home country. There are also a few other issues worth mentioning that are specific to Dutch labour law, though we will not go into all of them here. The issues that will be briefly discussed in the following paragraphs are: a. the trial period; b. the non-competition clause; c. sickness and reintegration; d. liability for accidents and disease at work; e. the law on dismissal; f. employment contracts for a definite period of time; g. the position of the Statutory Director (statutair directeur). a. The trial period As from 1 January 2015, the following applies: To a contract of two years or more or to a contract for an indefinite period of time, a maximum trial period of two months applies. To an employment contract of more than six months but less than two years, the trial period in Dutch law is a maximum of one month or for the duration of a certain specific project. If there is a contract of six months or less, no trial period is per missible. If the parties agree on a trial period which exceeds one/two months or if they agree on a trial period in a contract of six months or less, the legal consequence is that there is no trial period at all. The trial period should be agreed to in writing in the individual employment contract or in the applicable Collective Labour Agreement. loyens & loeff Employment in the Netherlands

13 b. The non-competition clause If the employer wants to include a non-competition clause, this has to be laid down in writing in the individual employment contract. The inclusion of such a clause in a Collective Labour Agreement is not sufficient. If the position of the employee changes significantly, a new non-competition clause should be drawn up, as this clause always relates to a specific function. A non-competition clause can always be moderated by a court regarding its duration as well as regarding its geographic scope. In order to do this, the employee must start a legal procedure against the employer. The court cannot moderate a non-competition clause on its own initiative. As from 1 January 2015, non-compete clauses can only be concluded in temporary contracts if the employer in the clause itself also states the reason(s) for such a clause. This means that the employer explicitly has to motivate for the particular employee why a non-compete clause is important, regarding the position he/she will fulfil. c. Sickness and reintegration In case of sickness of an employee, the employer is obliged to continue payment of at least 70% of the maximum daily salary and holiday allowance during a maximum of two years as defined in the Civil Code. The maximum daily salary as defined by social security legislation is in 2015 about per day. Furthermore, he cannot dismiss the employee on the grounds that he is ill. The employer and employee are obliged to cooperate as much as possible on the reintegration of the employee. Ifthe employee does not cooperate sufficiently on the reintegration, the employer may discontinue payment of the salary. If the employee continues to be uncooperative, the employer may dismiss the employee, even before the two years have passed. If the employer does not cooperate sufficiently, the UWV may, after two years, sanction the employer by deciding that he has to continue payment of the employee s salary for yet another year. During this period, the employer may not dismiss the employee. d. Liability for accidents and disease at work If an employee has an accident or develops an occupational disease at work, he can hold his employer liable. The employer can only avoid liability if he can prove that he has taken all necessary precautions to avoid the accident/disease, or if he can prove that the accident/disease is the result of deliberate action or conscious recklessness of the employee. This is very difficult to prove and over the past ten years there have been many legal procedures regarding these claims. In most of these cases, the employer was held liable for the accident/disease at work. 12 loyens & loeff Employment in the Netherlands 2015

14 e. The law on dismissals The Netherlands has a unique regime when it comes to dismissals. If an employee has an employment contract for an indefinite period of time and there are no urgent grounds for termination of the employment contract, there are two ways in which an employee can be dismissed. The first way is by means of a dismissal permit from the UWV. The procedure for obtaining such a dismissal permit takes approximately 2 to 4 months, depending on the question of whether and how the employee defends himself in this procedure. If the UWV issues a dismissal permit, the employer can terminate the employment contract in accordance with the terms of notice. These terms of notice vary from 1 to 4 months, depending on the total duration of the employment. The second way to terminate an employment contract is by means of a court decision. The employer can ask the court to dissolve the employment contract for serious cause. If the court dissolves the contract, it can award a redundancy payment in favour of the employee on the basis of the so-called cantonal court formula. This formula has been developed by the Dutch cantonal judges and calculates the redundancy payment by multiplying the number of years in employment by the gross salary per month, taking into account a correction factor. As from 1 July 2015 the following applies: if the reason for dismissal is long term illness (meaning 2 years or longer) or if the dismissal has an economical background, the employer can only apply for dismissal at the UWV. If there is any other ground for dismissal, the employer has to go to the Cantonal Court. Furthermore, the Cantonal Court Formula will no longer apply. Instead of this, the employer will have to pay a transition severance (transitievergoeding) if the employment agreement has been for a period of 2 year or more. Besides this, a court can decide that the employer has to pay a reasonable severance (billijke vergoeding) if he has acted in a very wrongful way towards the employee. f. Employment contracts for a definite period of time An employer can, within a period of three years at maximum, enter into three consecutive employment contracts for a definite period of time with an employee. If this is followed by a fourth contract, this fourth contract will automatically be considered to be an employment contract for an indefinite period of time. This does not apply if there is an interruption of more than three months between two contracts, during which period the employee neither has an employment contract with the employer nor works for the employer through a temporary employment agency. It should be noted that in a Collective Labour Agreement it can be stipulated that the number of temporary employment contracts can be more than three or that the total period of temporary employment contracts can be more than three years. loyens & loeff Employment in the Netherlands

15 As from 1 July 2015 the following applies: An employer can still enter into three consecutive employment contracts for a definite period of time with an employee. However, the interruptions need to be more than six months, instead of three between two contracts, during which period the employee neither has an employment contract with the employer nor works for the employer through a temporary employment agency. In addition the total period will become two years instead of three. It is still possible that in a Collective Labour Agreement it will be stipulated that the number of temporary employment contracts can be more than three or that the total period of temporary employment contracts can be more than two years. However, there will be more limitations to such CLA s than currently is the case. g. The Statutory Director (statutair directeur) Under Dutch law, a Statutory Director has a special position. The Statutory Director may be dismissed or suspended at any time pursuant to a resolution of the corporate body authorized to appoint the Statutory Director. In general, the general meeting of shareholders is authorized to dismiss or suspend a Statutory Director. If he is dismissed by the authorized corporate body in accordance with the applicable rules, his employment contract ends. There is no need to obtain the prior consent of the UWV, nor does the court need to be asked to dissolve the employment contract for serious cause. When dismissing a Statutory Director, the relevant (statutory) provisions regarding the convocation and holding of meetings of the authorized corporate body must be complied with and the Statutory Director should be informed about the reasons for his proposed dismissal. At the meeting, the Statutory Director must be granted the opportunity to give his views on (the reasons for) his proposed dismissal. After the corporate body resolved to dismiss the Statutory Director, the (contractual or statutory) notice period for termination of the employment agreement must be observed. A Statutory Director who is dismissed, may request the competent court to award compensation for his dismissal via a claim for unfair dismissal or cancellation of the contract. However, the Statutory Director cannot request the court to restore the employment relationship. Under Dutch law, the legal relationship between a Statutory Director and a listed company cannot be regarded as an employment relationship and, hence, the contractual relationship will qualify as a contract for services. As a result, the Statutory Director does not have the normal employment law protection against dismissal and the listed company is not bound by the statutory notice period(s) for termination of the agreement. Moreover, the Statutory Director will not be able to claim compensation for his dismissal via a claim for unfair dismissal or cancellation of the contract. Whether a notice period must be observed for this purpose will depend largely on the agreement between the parties. 14 loyens & loeff Employment in the Netherlands 2015

16 1.5 Residence permit and work permit Prior to actually working in the Netherlands, it must be determined whether the employee is allowed to reside and actually work in the Netherlands, given the restrictive conditions aimed at protecting the Dutch labour market Residence permit All foreign nationals, except those from Member States of the European Union and the European Economic Area (EEA), including Switzerland (and their family members), who wish to reside in the Netherlands for a period exceeding three months (90 days), need a residence permit. In order to be granted a residence permit, a number of specific conditions must be met. First, it should be determined that the person does not already have a residence permit. If he claims not to need one, or to have already requested one, this should be verified before he enters the company s employment. A residence permit is normally granted after a work permit has been granted. Entry visa In most cases, those who wish to obtain a residence permit must first request an entry visa ( MVV ). This does not apply to nationals of one of the European Union Member States (including the European Economic Area and Switzerland), Monaco, Vatican City, the United States of America, Canada, Australia, New Zealand, Japan, and South Korea. Persons of all other nationalities must request an MVV. An MVV is a special type of travel visa that is placed in the passport by means of a sticker. It allows the holder of this passport to enter the Netherlands. An MVV can only be obtained from the Dutch embassy or consulate in the country in which the foreign national resides, or in the nearest country in which the Netherlands has representation. Upon entering the Netherlands, the foreign national must apply for a residence permit in one of the nine regional front offices of the Immigration and Naturalisation Service (IND) within three days. If he meets all requirements for staying in the Netherlands, a residence permit will be granted. If an MVV is required and a foreign national applies for a residence permit without first having obtained one, his request will be rejected and he will have to leave the Netherlands Work permit Work permits are issued pursuant to the Foreign Nationals Employment Act (WAV). This act contains a number of restrictions regarding the right for foreign nationals to loyens & loeff Employment in the Netherlands

17 work in the Netherlands. In principle, a work permit will only be issued if no employee is available on the EU/EEA market to fill the position. An employer may not employ a foreign employee to work in the Netherlands without a work permit. For each employee who is working in the Netherlands without the required permits, the employer will owe a fine of 12,000 regardless of whether the employer acted in conflict with the law deliberately. Other companies (economic employer(s)) may also be fined for the same amount, because they will also be qualified as employer according to the WAV. The main rule is that a work permit must be requested for each foreign national who wishes to work in employment in the Netherlands. There are certain exceptions to this rule (see further on). A work permit must also be obtained for part-time work, jobs aimed at obtaining work experience, training on the job-positions and volunteer positions. Even if the employee is recruited from another company, for instance an employment agency, a work permit must still be requested. At the very least, it should be verified that the employee has already been issued one. The principal for whom the work is actually being carried out is responsible for ensuring that the regulations included in the WAV are complied with. A work permit is not required for the following categories of persons: persons who have a residence permit for the purpose of becoming/being selfemployed. These persons must, however, actually be self-employed and apply for a residence permit; persons who are allowed to stay in the Netherlands on the basis of community law (i.e. nationals of EU/EEA-countries, including Switzerland, and their family members). They only need a valid passport to carry out work here; persons who have a permanent residence permit, refugees; persons who have been exempted by means of an Order in Council. These include: foreigners who only have come to the Netherlands to work for a very short period of time, for instance to repair machinery, give lectures, install software; and foreign nationals who have a residence permit, with an appendix, stating that the foreign national is permitted to freely carry out work. This appendix is essential. Although Croatia has been EU member state since 1 July 2013, a work permit is still required. Croatians do not need a residence permit, however. Employees who have priority Pursuant to the WAV, a work permit will be refused if there are employees on the local labour market who can fill the position. This labour market comprises not only 16 loyens & loeff Employment in the Netherlands 2015

18 the Netherlands, but the entire EU/EEA. Another requirement is that the position must be advertised within the EU/EEA well in advance (at least five weeks before the work permit is requested), in other words: before the employee is recruited from abroad. This costs time and effort. These grounds for refusal are not applicable in the case of an intercompany transfer of specialised employees. As from 1 January 2014 the validity of a work permit is limited to only one year. If the foreign employee needs to continue his activities in the Netherlands after this period the work permit application process needs to start all over again. Partners of intercompany transfer employees are free to work on the basis of the work permit granted to their partners. Special conditions apply to intercompany transfers Highly skilled migrant workers Highly skilled migrant workers ( knowledge migrants ) are employees (in other words, not self-employed persons) whose income lies above a certain level and is in line with the prevailing market. The salary test is applied on a monthly basis. This test is set at 4,189 gross per month excluding holiday allowance for those over the age of 30; for those under the age of 30, it is 3,071 gross per month excluding holiday allowance. After completing their studies in the Netherlands, foreign university graduates are allowed to stay in the Netherlands for a period of one year to find employment as a highly skilled migrant worker. The minimum income that is required in this situation amounts to 2,201 gross per month excluding holiday allowance. After this year, these employees must have either an employment contract or an appointment as a civil servant. One should keep in mind that the work activities of a knowledge migrant do not need to be limited to one particular employer. However, the employer must always be able to give above guarantee. This means that, if the migrant s income were to fall below this level for instance because he decided to work part-time then he would lose his status of knowledge migrant. The employer is required to report this and to request a work permit for this employee. Another example of knowledge migrants is those working on a Ph.D.; there is no age or income limitation for them. Also postdoctoral or university professors under the age of 30 are to be considered knowledge migrants, regardless of their income. loyens & loeff Employment in the Netherlands

19 The following persons inter alia do not qualify as knowledge migrants: professional soccer players, clergymen, self-employed persons and students. Duration of the residence permit for knowledge migrants Knowledge migrants receive a five-year residence permit if they have an employment contract for an unlimited period of time. If they have an employment contract for a limited period of time, the residence permit is granted for this same period, with a maximum of five years. In these cases, the residence permit will not have to be extended regularly. This leads to a reduction in administrative burden. 1.6 Legal residence wealthy foreigners Wealthy foreign nationals can more easily obtain a residence permit. For a regular residence permit of 1 year the individual must have a net wealth of at least 1,250,000 which is invested into the Dutch economy. With respect to this type of permit, strict regulations apply. 1.7 Registration with the municipal authorities If a foreign national wishes to stay in the Netherlands for a period of more than four months in a six month period, he must register with the municipal authorities ( GBA ). For this purpose he must submit: a valid passport (this also applies to the spouse and children); a legalised copy of his birth certificate (this also applies to the spouse and children); a legalised marriage certificate (if applicable); if either partner was previously married, a copy of the divorce decree. Non-residents staying in the Netherlands for a period not exceeding four months also have to register but as non-resident (RNI). 1.8 Driving licence As a rule, residents of the Netherlands are required to have a Dutch driving licence in order to be allowed to drive a motor vehicle. There are, however, a number of exceptions to this rule. Holders of a valid driving licence issued in other countries in the European Union (EU) or in countries of the European Free Trade Association (EFTA) are entitled to drive in the Netherlands on their non-dutch driving licence for 18 loyens & loeff Employment in the Netherlands 2015

20 ten years as of the date it has been issued if the date of issue is prior to 19 January 2013, or fifteen years if the licence has been issued after 19 January 2013 (unless the validity elapses at an earlier point in time). Holders of a valid driving licence issued in countries outside the EU and EFTA, or in former Netherlands Antilles or Aruba, who come to live in the Netherlands are allowed to drive a motor vehicle in the Netherlands on their national licence for a maximum period of 185 days after entrance. Before this period expires, such person has to either take a driving test in the Netherlands to get a Dutch driving licence, or exchange his own non-dutch licence for a Dutch one. Special rules apply to employees (and their family members) to whom the 30%- ruling (see section 2.4) has been granted, also if they come from countries outside the EU or EFTA. If they can show the tax office s 30%-ruling decision, they can easily exchange their non-dutch driving licence for a Dutch one. loyens & loeff Employment in the Netherlands

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22 02 TAXATION

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24 2 Taxation 2.1 Residence For Dutch tax purposes, it is essential to know whether an individual who is working in the Netherlands is considered a tax resident of the Netherlands or not. If so, he is considered a resident taxpayer; if not, he is considered a non-resident taxpayer. A non-resident taxpayer may opt to be treated as a resident taxpayer. An employee benefiting from the 30%-ruling can choose the status of partial non-resident taxpayer. Dutch residency is determined on the basis of facts and circumstances. The existence of a long-term relationship of a personal nature with the Netherlands is regarded as a very important factor. Dutch case law shows that the following circumstances are, amongst others, relevant in this regard: the place where he has his home; the place where his family (partner) resides; the place where he works; the duration of his stay in the Netherlands; other personal ties with the Netherlands, such as (club) memberships, bank accounts, etc. Any individual from abroad who is working in the Netherlands can, for tax purposes, be considered a resident of more than one country. This may result in double taxation. However, most tax treaties that have been concluded between the Netherlands and other countries provide a solution for this. The regulations that apply to resident taxpayers differ substantially from those that apply to non-resident taxpayers. We have therefore chosen to discuss the two situations separately. Individuals who are resident taxpayers should refer to section 2.2. Section 2.3 is relevant to those who are non-resident taxpayers. In section 2.4, the specific situation of employees who benefit from the 30%-ruling and who may choose to be treated as partial non-resident taxpayer is explained. loyens & loeff Employment in the Netherlands

25 2.2 Resident taxpayers This section applies to individuals who are resident taxpayers (see section 2.1) and partly (for income in Box 1 only) to partial non-resident taxpayers (see section 2.4) Income tax Unlimited tax liability Resident taxpayers owe income tax on their worldwide personal income irrespective of where it is earned or paid. The Dutch tax year runs from January 1 through December 31. Income is taxed in three separate Boxes: Box 1: income from work and home; Box 2: income from substantial shareholding; and Box 3: income from savings and investments Box 1: Income from work and home The income from work and home, taxable in Box 1, includes: employment income, pensions, social security benefits, etc.; business profits (for entrepreneurs); income from work that is not considered salary or business profit (e.g. free-lance activities, extra earnings, etc.): special rules apply to this type of income; income and capital gains from so-called lucrative interests, i.e. from certain financial instruments used as an employee incentive (e.g. carried interest, sweet equity and non-recourse loans); negative income for income provisions (e.g. refund of previously deducted life insurance premiums); periodic payments such as alimony and certain state benefits; child alimony is not taxable; deemed rental income in connection with a privately owned principal residence in the Netherlands. Deductible expenses: expenses for commuting by public transport; interest and other costs related to mortgage loan(s) and ground rent paid for long lease, under strict conditions; expenses for income provisions, e.g. annuity premiums; alimony or maintenance expenses paid to a former spouse or partner; particular expenses for medical care; weekend expenses for severely handicapped persons over the age of 21; educational expenses; expenses in connection with a building listed as a Monument; donations to qualifying charitable institutions. Some of the deductible items are income-related. 24 loyens & loeff Employment in the Netherlands 2015

26 Employment income Employment income (world-wide) consists of employment income and certain other kinds of benefits, including pension benefits. Employment income is discussed in more detail in section Employment related expenses are not deductible, except, under conditions, commuting expenses if travelling by public transport when these expenses have not been reimbursed by the employer. Income from other activities Specific regulations apply to income generated from other (free-lance) activities, not being employment income or business profits, and to income generated by practising an independent profession. In order to qualify, the person concerned must satisfy certain criteria. If these criteria are not met, the income will generally be taxed as employment income. If he wishes to enjoy certain employee benefits, the self-employed can, under certain conditions, elect to be treated as an employee ( opting-in ). The tax authorities can upon request issue a so called Verklaring Arbeidsrelatie or VAR, confirming the self-employed status of such person. A new system replacing the VAR will be introduced most likely in Dutch real estate If the taxpayer owns a house in the Netherlands which is to be considered his principal place of residence, the taxable income attributable to this home ownership is set at 0.75% 1 of the official value of the house, as determined by the municipality (WOZ-value), up to a WOZ-value of 1,050,000. For houses having a WOZ-value exceeding 1,050,000, the deemed rental value will be 7,875 plus 2.05% of the value of the house in as far as exceeding 1,050,000. In view of this fixed income, the costs of home ownership (except for mortgage costs and ground rent) are not tax-deductible. Since mortgage interest paid is deductible if the house is used as the principal place of residence (during a maximum period of 30 years), home ownership generally is a negative source of income. As of January 2013, more strict regulations apply as to the type of new mortgage loans taken in order to enable a house owner to deduct mortgage interest. An essential condition is that scheduled annuity repayments are made on the loan. A second residence or other owned real estate, rented out or not, is taxed in Box 3 (see ). 1 For houses having a WOZ-value not exceeding 75,000, the applicable percentage ranges from 0% to 0.60% loyens & loeff Employment in the Netherlands

27 If a mortgage for the principal place of residence existing on 31 March 2013 is linked to an endowment insurance (i.e. the mortgage is repaid out of the insurance lump sum payment), this endowment insurance may be taxable in Box 1, upon expiration, in as far as it exceeds a certain exempted amount (thus avoiding paying tax in box 3). If the conditions are not met, the endowment insurance is taxed in Box 3. Endowment insurances starting as of 1 January 2013, also those related to a principal home, will be taxed in Box 3. Please note that if one rents out or sells his principal place of residence in the Netherlands and purchases a new residence, additional regulations ( bijleenregeling ) may apply, which may reduce the amount of mortgage interest he can deduct Box 2: Income from substantial shareholding If an individual, together with his fiscal partner, owns at least (directly or indirectly) 5% of the shares or of any class of shares in a company, the income is taxed in Box 2. Certain expenses can be deducted. Also, the balance of certain personal deductions (not deducted in Boxes 1 or 3) can be deducted in Box 2. Although the main rule is that capital gains are tax-exempt and that capital losses are not deductible, an exception applies to capital gains on shares which qualify as substantial interest for tax purposes. Then, capital gains are taxed and capital losses are deductible in Box Box 3: Income from savings and investments The value of almost all worldwide assets of an individual minus most of his debts and liabilities per 1 January of the tax year, is the basis for calculating a fixed notional income of 4% in Box 3. Personal allowances may reduce this taxable basis. The investment income actually realised (such as interest, dividends or rental income) is not taxed Partner rule Married persons and persons officially registered as partners are automatically considered partners for tax purposes. Other unmarried individuals will only qualify as partners if they are registered at the same address and have either: a notarial cohabitation contract; a joint child; a joint privately owned principal residence or; a joint pension plan. 26 loyens & loeff Employment in the Netherlands 2015

28 Being partners, two persons can divide certain income and deductible items between them, in order to realise optimal tax benefit. The same applies to taxable assets and deductible debts and liabilities in box 3 (see ) Tax rates The total income tax liability is the sum of the income tax calculated over the taxable income in three Boxes. Income tax is levied together with national insurance contributions. The amount of national insurance contributions due is calculated over the first two tax brackets of Box 1 (see also ). The total amount of income tax and if applicable national insurance contributions is reduced with the applicable tax rebates Box 1 (under 65) 2 Taxable income exceeding up to tax in % national insurance in % total in % total due in 0 19, ,234 19,822 33, ,016 33,589 57, ,094 57, Box 2 The tax rate applicable to income taxed in Box 2 is 25%. Box 3 Income in Box 3 is taxed at a flat rate of 30%. Certain tax-exempt amounts in Box 3 are available under specific conditions. Debts are deductible to the greater extent Tax rebates Each individual who is a resident of the Netherlands and/or is subject to the social security schemes of the Netherlands has a right to specific rebates on the income tax/national insurance contributions due, the level depending on his personal circumstances (tax rebates). 2 Other rates and/or brackets apply as of pensionable age for state pension purposes. loyens & loeff Employment in the Netherlands

29 Each resident taxpayer has a right to (at least) the general tax rebate. A spouse/ partner who has no or a small income of his/her own can (partially) receive the general rebate upon request from the tax authorities. If an individual is not compulsorily covered by the Dutch social security system he is entitled to the tax part of the rebate only. Some of the tax rebates are taken into account when the wage tax withholding is calculated, others can be claimed on the personal income tax return only. In a year of migration the social security part of the rebate is pro-rated Wage tax In the Netherlands an employer has the obligation to withhold wage tax (and social security contributions, if applicable) from the employment income paid to its employees (see ). This deduction is an advance tax to be credited against the personal income tax eventually due. The tax is calculated over the same brackets and the same rates apply Employment income The term employment income is defined very broadly and comprises cash benefits, benefits in kind and also entitlements. Income in cash Besides regular employment income, cash benefits can also include expat allowances, commissions, bonuses, etc. Income in kind Benefits in kind include the private use of a company car, free housing, free meals, free travel, shares, goods, etc. There are general and specific rules for determining the taxable amount of benefits in kind. The private use of a company car is subject to taxation. The annual benefit is basically 25% 3 of the official Dutch list price of the car. Only if the employee can prove that the private mileage does not exceed 500 kilometres per full calendar year, the taxable benefit in that year will be nil. Commuting qualifies as business travel. A statement confirming this can be requested from the tax authorities. It is necessary to maintain a detailed kilometre registration and to retain supporting documents. 3 The benefit is calculated at 4%, 7%, 14% or 20% of the official Dutch list price of the car for environmental-friendly cars with zero or low CO2-emission. 28 loyens & loeff Employment in the Netherlands 2015

30 Entitlements The third category, entitlements, includes conditional rights to receive one or more future benefits in cash or in kind. Taxation of most entitlements is deferred to the time the benefits are received. Examples of such entitlements are pension rights and rights to receive benefits under one of the employee insurance schemes (see 3.3). Pension schemes The term pension is strictly defined for tax purposes. It does not refer to the General Old Age Pension based on the state social security system (AOW). A pension scheme that complies with the pension definition as provided in the law is called a qualifying pension scheme. If the pension scheme qualifies, the employee s contributions are tax-deductible and the employer s contributions are tax-exempt. The benefits are subject to taxation at the time of payment. However, if a pension scheme does not qualify for Dutch tax purposes, the employee s contributions are not tax-deductible and the employer s contributions constitute taxable income for the employee. As from 1 January 2015, it is no longer possible to accrue pension rights in a tax efficient way on annual income exceeding 100,000. In addition, the yearly accrual rate will be decreased as from that date. Participation in a non-dutch pension scheme requires particular attention, as these schemes often do not meet the conditions stated in Dutch law. In order for the non- Dutch pension scheme to qualify for Dutch tax purposes, approval can be requested from the Dutch tax authorities for a limited period of time. The changes which will come into effect on 1 January 2015, will not apply to pension schemes from other EU member states. Employees seconded to the Netherlands who continue to accrue pension rights under an approved non-dutch pension scheme (i.e. with a non-dutch pension fund or insurance company) will receive a protective tax assessment ( conserverende aanslag ) on the pension rights they thus accrue or the tax-facilitated contribution paid during the period of employment in the Netherlands, a final one being imposed upon emigration. In principle, the annual increase of these pension rights is subject to taxation. However, if certain conditions are met, the income tax is not actually due. If at any time the non-dutch pension scheme no longer qualifies, the income tax due will have to be paid. A protective tax assessment is nullified after ten years upon request. Employees who participated in a Dutch pension scheme during their stay in the Netherlands, will upon emigration also receive a protective tax assessment for the total value of either the pension rights accrued or the total of the tax-facilitated contributions paid during the period of employment in the Netherlands. loyens & loeff Employment in the Netherlands

31 Stock option rights Stock option rights are taxable upon exercise. In other words, tax is due over the gain realised at that moment, being the difference between the fair market value of the underlying shares at the moment of exercise and the exercise price of the stock option rights. Please note that an exercise gain realized in relation to stock option rights granted prior to coming to the Netherlands may also be (partially) taxable in the Netherlands Expenses Expenses incurred for the purpose of earning employment income with some exceptions cannot be deducted on the individual s income tax return. Extraterritorial expenses/30%-ruling An employer may compensate employees coming from abroad for extraterritorial expenses. Under certain conditions, these employees may be entitled to the 30%- ruling, which means they will receive a fixed tax-free allowance for extraterritorial expenses. This facility is explained in section 2.4. The tax treatment of expense allowances and benefits in kind may be different under the 30%-ruling (see 2.4). Employment costs regime Specific legislation applies when it comes to taxation of employee benefits, referred to as the employment costs regime (werkkostenregeling). All benefits (whether in cash or in kind) are regarded to be taxable wage, unless specific valuation rules and exemptions apply. If the employer decides to take the wage tax due on the taxable benefits for his account, the employer can make use of a tax-free employment costs budget of 1,2% of the employer s total taxable wages. On the excess, 80% employer tax is applicable. Under circumstances, it may be more beneficial to tax the excess taxable benefit on an individual basis (e.g. when the 30%-ruling applies) Wage tax withholding obligations In general, employers are required to deduct the wage tax and, if applicable, social security contributions, due from the employee s employment income and pay it to the tax authorities on a monthly basis. Only Dutch employers and non-dutch employers with a permanent establishment (e.g. an office or a branch), a permanent representative or a deemed permanent establishment (see below) in the Netherlands, are required to withhold wage tax and/or national insurance contributions. A non-dutch employer may, under certain circum stances, register as a wage tax (and national insurance contributions) withholding entity voluntarily. Please note that non-dutch employers do have an obligation to register as withholding entity for the payment of employer social security contri- 30 loyens & loeff Employment in the Netherlands 2015