Payroll across the border International
10 aug, 2016
As an employer, are you aware that you are already dealing with a non-typical case of taxation when one of your employees is living and/or working abroad? On account of the globalisation of our society, cross-border employment is becoming more and more common. Your salary administration might not be the first thing that comes to mind when you decide to do business internationally. Nevertheless, this is of great importance. For instance: is your employee still insured for work disability in the Netherlands? Or are you obliged to pay payroll taxes abroad?
You may be confronted with this kind of questions as soon as you employ your employees abroad or when you start employing foreign employees in the Netherlands. We will gladly help you determine whether these matters apply to your situation.
If your company activities involve cross-border work, there’s a lot to keep in mind. By means of this article we would like to inform you on the following topics:
- Cross-border work and social security;
- The 30% ruling and expatriate costs;
- Foreign pension contributions within the Dutch payroll;
- Specific employments and cross-border work;
- Exemptions for income tax/social security contributions for your employees.
Cross-border work and social security
If an employee is sent to work in the Netherlands or abroad, this often has consequences for social security matters.
- Your employee is living in the Netherlands but working abroad
A Dutch employee who is working abroad can, under certain conditions, remain insured in the Netherlands. To arrange this, you must apply for an A1 statement (formerly known as an E101 statement) at the Sociale Verzekeringsbank (SVB). This statement has to be kept with the payroll administration and its ongoing validity is your own responsibility. If there is a treaty with the country your employee is working, then your employee may remain on your payroll with respect to the payment of national insurance scheme premiums and employee insurance premiums on account of the A1 statement. This employee therefore has to be included in the Dutch payroll. If there is no such treaty with the Netherlands, the employee may take out a so called voluntary insurance, and remain insured in the Netherlands this way. This takes place through invoices from the SVB and the employee does not have to be included in the Dutch payroll anymore.
- Your employee is living in another country but is working in the Netherlands
If a foreign employee is sent to work in the Netherlands, he or she can remain socially insured in the home country, under certain conditions. In order to do this, you need a social insurance statement from the home country and the employee needs to be on the payroll in the home country with regard to the payment of the contributions in question. If the employee has the European nationality, the required statement will be the A1 statement (formerly known as the E101 statement). Other countries often call this document a ‘certificate of coverage’.
Foreign social security premiums also affect the Dutch payroll of the employee. The Belastingdienst will analyse the social security premiums per country that signed the treaty, of which some are deductible and others will be taxed.
The 30% ruling and expatriate costs
Employees who are temporarily employed abroad or in the Netherlands often receive a compensation for their expenses for their stay in the country of employment, the so-called expatriate costs. There are two ways of determining the height of these costs: compensation of the actual expatriate costs or applying the 30% ruling.
In short, the 30%-ruling means that your employee does not have to pay any payroll tax on 30% of his/her gross income. This is an additional measure intended to convince highly qualified foreign employees to come work for your company in the Netherlands.
Caution: the 30%-rule may not be applied to a severance payment!
In order to apply the 30%-ruling, you have to meet the following requirements:
- the employee is in your service
- the employee has to have a specific expertise, which will be determined using a salary standard. The standard for 2016 is € 36.889, after deduction of the 30%-compensation.*
- the employee has been living more than 150 kilometres from the Dutch border for at least 16 of the 24 months before the first working day.
- the Belastingdienst has issued a statement indicating that you are allowed to apply the 30%-rule.
*Employees who have received approval to use the 30%-ruling after 1 January 2012, have to meet the criteria of the rule at all times (salary standard, expertise requirement). As soon as these requirements are not being met any longer, the 30%-ruling has to be stopped at once. For employees who have a Dutch master’s degree in academic education or who have a comparable foreign title, and who are younger than 30 years, the income standard is € 28.041, exclusive the compensation.
If you need assistance in filing an application for the 30%-ruling, contact us.
Duration and conditions
A decision that you may apply the 30%-ruling stays valid for a maximum of eight years. Employees who were granted the 30%-ruling before 1 January 2012 are subject to a transitional arrangement. For these employees, this decision stays valid for ten years.
Transitional arrangement: Employees benefitting from a 30%-ruling that was issued before 1 January 2007, do not have to meet the salary requirement. Employees benefitting from a 30%-ruling that was issued between 1 January 2007 and 1 January 2012, are subject to a transitional arrangement. These employees only have to meet the new requirements after a period of 5 years (such as the salary standard). In practise this means that you are not required to meet the new requirements before 1 January 2017.
End date 30%-ruling (changed in 2013)
The date that the ruling expires will be mentioned in the decision of the Belastingdienst. The 30%-ruling will in any case expire on the last day of the payment period within which the last working day takes place. For instance, if 15 August 2016 is the last working day of your employee, then you may apply the 30%-ruling up to and including 30 September 2016.
Change of employer
Are you hiring an employee who benefitted from the 30%-ruling at his/her previous employer? If this is the case, and if certain conditions are met, the employee may continue to apply the ruling in your service. You will have to apply for the ruling at the Belastingdienst together with the employee.
If the employee changes employers as part of a coherent group of withholding agents, the existing 30%-ruling will remain valid as long as your employee also meets the requirements at the new employer.
Extra territorial costs
If you also compensate your employee for other costs, next to the remunerations for the 30%-ruling, these compensations are subject to taxation and have to be included in the payroll administration.
Some examples are:
- Utility costs (or ‘cost of living allowance’)
- Expenses for a request for, or conversion of, official personal documents, such as residence permits, visa and driving licences.
- Expenses for medical examinations and vaccinations required for the stay in the country of employment
- Double accommodation costs because the employee keeps living in the home country and as such, for instance, has to pay for hotel stays in the country of employment.
- (Initial) accommodation costs
- Costs for storage of household effects that will not be moved to the country of employment.
- Travelling expenses to the home country, for instance for family visits or family reunification.
- Expenses for the filling in of the income tax declaration by an expert. Limited to a maximum of € 1.000 per employee
- Expenses for language lessons for learning the language of the country of employment, both for the employee and family members who come along with him or her
- Additional (non-business related) telephone costs to the country of origin
- Expenses for applications for clearance of social security premiums, such as an A1- or E101 statement
- Additional compensations for working abroad, bonuses or similar compensations (foreign service premium, expat allowance, overseas allowance)
- Costs for the buying and/or selling of a house (reimbursement expenses purchase house, brokers fee);
- Compensation for higher taxation rates in the country of employment (tax equalisation).
In case you are compensating the employee for such costs, and these have not yet been included in the payroll administration, we urgently ask you to report these to us as soon as possible.
Other untaxed compensations and payments
If you are benefitting from the 30%-ruling, you may also reimburse the following expenses tax-free:
- Moving costs and costs for the temporary storage and the transport of household effects
- Costs for an introduction visit by the employee to the company in the country of employment
- Costs for the application for, or conversion of, an employment permit
- School fees for an international school or for the international department of a regular school.
Foreign pension premiums on the Dutch payroll
If your foreign employee is sent to the Netherlands for work, he or she often stays in a foreign pension scheme. This is of influence for the Dutch payroll. The main rule is that the employee’s part is non-deductible and the part of the employer is taxable. This may be a considerable cost to the employer. It is however possible to apply for a so called ‘corresponding approval’ at the Belastingdienst, meaning the foreign pension scheme is acknowledged by the Belastingdienst. The Belastingdienst will assess whether the pension scheme in question is equivalent to the Dutch standard. If this is the case, the premiums may be handled the same way as Dutch pension premiums. The employee’s part is deductible in this case and the employer’s part is exempted, which constitutes a considerable saving. First an approval has to be requested for the foreign pension scheme. Subsequently, each employee has to be signed in separately with the tax authorities. The approval is valid for 5 years per employee.
Special groups and cross-border work
The following groups enjoy a special status in cross-border work:
- Pensioners and beneficiaries of pension schemes
You also have to deduct taxes from salary from previous employments. However, you do not have to deduct income tax from a Dutch (pension) benefit if the person in question lives abroad, provided the Netherlands have signed a treaty with the home country that assigns the taxation to the country of residence. Because this is hard to determine on the basis of the treaty, you may ask the beneficiary of the pension scheme to request a so called ‘verdragsverklaring’ (treaty statement) at the Foreign affairs department of the Belastingdienst.
You have to deduct payroll tax from the salary that you pay a foreign student for work at your company. This is however not necessary if you meet the following four requirements:
– The student only stays in the Netherlands for six months or less
– The student is doing an internship for his/her study or vocational education
– You only pay a compensation for sustenance and pocket-money
– After the calendar year, you report the sum you payed the student to the Belastingdienst (formulier betalingen aan derden / IB47)
- Artists and professional athletes
Artists and professional athletes pay their taxes in the country of employment. It does not matter whether they are working in the service of a company are registered as a freelancer or entrepreneur. The Belastingdienst has made a special manual that provides more information on this topic.
Exemption from payroll taxation/national insurance scheme contributions for your employees
Under certain conditions, you may adjust the payroll tax/national insurance scheme contributions to the income tax and possible national insurance scheme contributions that your employee has to pay. For instance, if you and your employee have agreed on a certain net hourly wage, you can quickly and definitively calculate the right amount this way. Your employee will not have to file an income tax statement this way.
This simplified way may be used for:
- employees who live abroad but work in the Netherlands and who only have an income in the Netherlands
- employees who have been recruited from another country to come work in the Netherlands. If this employee is living in the Netherlands and is benefitting from the 30%-ruling, he/she may choose for the so called ‘partiële buitenlandse belastingplicht’ (partial foreign tax obligation). In that case the employee will not be considered a citizen of the Netherlands with regard to the income tax in box 2 and 3. In most cases, taxation will be limited to the actual salary.
To be able to use this simplified calculation, you have to make agreements with the Belastingdienst and you will have to record the approval in a (taxation) covenant. More information on this topic can be found on the website of the Belastingdienst or you can contact us.
End of the year: one-off calculation
At the execution of the covenant, as an employer, you may make up (or have made up) an annual account in the payroll administration in December or directly after the year ends. In this case you determine the payroll tax/national insurance scheme contributions based on the actual amount of income tax/national insurance scheme contributions you have to pay. You take along the payroll tax/national insurance scheme contributions that you calculate this way in the last tax declaration of the calendar year.
Throughout the year: estimating payroll figures
Throughout the year, per period, you will have to estimate the payroll figures you need for making up the annual account as accurately as possible. Information that is reasonably not available before the end of the year, may be determined when drawing up the aforementioned annual account.
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