Imagine your best employee is leaving your country and moving to the Netherlands. While you’d like to keep her on staff, this move to the Netherlands concerns you.
The good news? She wants to keep working with your company, and your organization is already set up for remote work.
The bad news? You have no idea how keeping her on board will impact your compliance and payroll taxes in the Netherlands.
Trying to manage payroll for Dutch workers when your business isn’t established in the Netherlands is a challenge for any team, even those with sophisticated enterprise HR departments.
If your organization is considering employing workers who live in the Netherlands, keeping compliant with Dutch tax law can seem overwhelming. You may not know where to start.
Jump straight to a key chapter
- Why you must comply with Dutch payroll tax requirements
- Corporate income tax in the Netherlands
- Income tax in the Netherlands
- Tax rates in the Netherlands
- Special rules for employees moving to the Netherlands
- Tax considerations for Dutch contractors
- The easy way to minimize risk and stay compliant
First, know you’re not alone; plenty of managers want access to the best global talent, and so many growth-focused businesses are looking to employ top remote talent in the Netherlands.
There is a simple solution to remove any anxiety, confusion, and risk. An employer of record (EOR) can legally hire and pay Dutch employees on your behalf to ensure you stay compliant with local employment regulations at all times.
We’ve prepared a dedicated guide to help you understand how to pay your Dutch workers while minimizing your risk so you can facilitate a smooth global expansion.
Before we jump in, you must understand the Netherlands’ specific tax requirements for remote employees and contractors.
Why you must comply with Dutch payroll tax requirements
Tax law in the Netherlands can be confusing. While some parts of the tax code, like permanent establishment requirements, are similar to other countries’ laws, other pieces of the tax code are unique and specific to Dutch law.
It’s important to get a full picture of Dutch tax law before employing a Dutch worker to avoid mistakes commonly made when companies go remote before they’ve gathered all the information they need.
What is permanent establishment?
Permanent establishment, also called substance requirement, is a tax term that describes a business with an ongoing presence in a country.
When employing a worker in another country, you want to eliminate your permanent establishment risk, or the risk that your company is established enough in that country to be taxed.
You want to avoid permanent establishment status because it means double taxation: first by your home country and again by the country you’ve triggered permanent establishment in.
Permanent establishment is often triggered by issues like the following:
- Does the company have a fixed place of business in the country?
- Does anyone regularly conduct business as an agent of the company in the country?
- How much control does the company exercise over its workers in the country?
- How does the company generate revenue in the country?
- How long has the company been doing business in the country?
- Does the company make strategic decisions from within the country?
So, how do you know when you’re in danger of permanent establishment in the Netherlands?
What triggers permanent establishment in the Netherlands?
The Netherlands sticks pretty close to the Organization for Economic Co-operation and Development’s (OECD) guidelines for defining permanent establishment.
For one thing, a company’s premises are a major trigger for permanent establishment, particularly if a company is making or selling something in the Netherlands.
For example, if your company’s premises (like retail outlets, points of sale, workshops, factories, or outlets) are located in the Netherlands and capable of acting as a fully self-sufficient business, your business is classified as having a permanent establishment in the Netherlands.
But permanent establishment can also be triggered simply by a representative of the company working from the country.
If your worker in the Netherlands is in a “contracting state,” meaning that they’re doing business on behalf of the company and in the name of the company, this alone can trigger permanent establishment risk, especially if they’re only working for your organization (but be aware that co-employment won’t necessarily impact your permanent establishment risk).
A designer, engineer, or salesperson, for example, may trigger permanent establishment, even if they’re not working in isolation for your organization.
The penalties for non-compliance are stiff, so you need to take this risk seriously.
If the Netherlands deems that your company has a permanent establishment and you’re not meeting your taxation obligations, this can be considered tax evasion or worse, tax fraud. Both crimes come along with huge fines and even possible jail time, apart from the obvious resulting public relations nightmare.
If you don’t own a legal entity in the Netherlands and are looking to work with Dutch employees or contractors, you can consult an EOR or another Dutch employment law specialist.
Corporate income tax in the Netherlands
Let’s talk taxes. In the Netherlands, both public and private companies pay a corporate income tax (CIT) on their profits. CITs can also apply to foundations and associations, depending on the scenario. There are some organizations, such as fiscal investment institutions, that are exempt from paying CITs.
The corporate tax rate itself depends on a company’s taxable income: its taxable profit, less its deductible losses.
As of 2023, the CIT rate is as follows:
- If your taxable income is €200,000 or under, your CIT rate is 19%.
- If your taxable amount is more than €200,000, your CIT rate is €38,000, plus 25.8% for the taxable amount exceeding €200,000.
There is no longer a special tax consideration for companies that engage in innovative research.
Income tax in the Netherlands
Where should your remote employees pay their taxes?
To your company’s country, or to their own?
If your worker is Dutch and living in the Netherlands, the answer is simple. Anyone who lives in the Netherlands or receives income in the Netherlands is subject to income tax that must be paid to the Dutch Tax and Customs Administration.
This means your Dutch employees have to pay taxes to the Dutch tax office, which they’ll do by filing a tax return, and because some of their tax is deducted from their paychecks, you’ll also be paying taxes on their behalf.
For Dutch residents, worldwide income is separated into three categories called boxes. Each box has its own tax rate. Box 1 includes income from employment, homeownership, or profits. Box 2 includes income from substantial financial interests. Box 3 includes income from savings and investments.
Dutch residents also pay statutory fees out of their paychecks, such as pensions for old age, long-term care, and a pension for orphans and surviving spouses.
So, how does this affect your payroll?
You’ll be paying out of your employee’s paycheck for specific fees, like insurance and social security payments.
Employer taxes in the Netherlands
- 5.82 to 7.11%: AOF laag (disability insurance contribution) for small and large employers, respectively
- 6.68%: Heffings ZVW premie (Dutch health insurance contributions)
- 1.59%: Premie WHK gediff (Differentiated Premium Work Resumption Fund)
- 0.50%: Uniforme opslag kinderopvang (Uniform Childcare Allowance)
- 2.64 to 7.64%: AWF hoog (general unemployment insurance) for contracted workers and temporary or flex workers, respectively
The maximum annual taxable base for employer contributions for 2023 is €66,956.
Tax rates in the Netherlands
So, what exactly is the income tax your employees will be paying out of their paychecks?
How much tax they pay depends on their wage bracket:
- Between €0 and €37,149 income: 9.28%
- Between €37,149 and €73,031 income: 36.93%
- More than €73,031 income: 49.5%
- Employees are entitled to a “general tax credit” (heffingskorting) tax deduction, calculated as follows:
Between €0 and €22,261 income: €3,070
Between €22,661 and €73,031 income: €3,070 to 6.095% x (income – €22,660)
More than €73,031 income: €0
These amounts are to be deducted from income taxes.
- Employees are entitled to a “labor tax credit” (arbeidskorting) tax deduction, calculated as follows:
Between €0 and €10,741 income: 8.231% x labor income
Between €10,741 and €23,201 income: €884 + 29.861% x (labor income – €10,740)
Between €23,201 and €37,691 income: €4,605 + 3.085% x (labor income – €23,200)
Between €37,691 and €115,295 income: €5,052 – 6.510% x (labor income – €37,690)
More than €115,295 income: €0
These amounts are to be deducted from income taxes.
There are some other special tax issues that we should mention.
Employees’ holiday allowance pay is taxed, just as their salary is.
The exact amount of tax depends on the salary of the employer, but it’s higher than the regular tax rate.
You can learn more about your payroll and benefit obligations on our Dutch country explorer page.
Special rules for employees moving to the Netherlands
Taxes can get a little tricky when your workers have recently moved.
Below are a couple of rules that will help you and your employees navigate a recent move and taxation.
The 30% special tax rate
The Netherlands offers a special tax rate for certain expats who have been recruited to work in the Netherlands for a specific, skilled role. It’s intended to compensate the employee for the expense of their move and the cost of living in the Netherlands.
When certain conditions are met, the 30% reimbursement ruling allows an employer to grant a tax-free allowance equivalent to 30% of the gross salary, subject to Dutch payroll tax. Put simply, 30% of your employee’s gross employment income will be tax-free.
This benefit is available for up to five years and entitles employees to partial non-resident taxpayer status.
If your employee qualifies, it’s up to you to help them apply for the benefit.
The 183-day rule
What if your employee hasn’t been living in the Netherlands for a full year?
The 183-day rule, so named because 183 days comprise the larger “half” of a 365-day year, means that if a worker has spent 183 days or more in a country, they’re considered a tax resident for that year. The Netherlands observes this rule. Workers who spend more than 183 days in the Netherlands must pay Dutch taxes.
Social security tax
Social security tax in the Netherlands covers social security benefits, like pension upon retirement, long-term care, and benefits for children or surviving spouses.
As of 2023, total social security contributions are 27.65% of an employee’s salary. This amount is broken down as follows:
- 17.9%: AOW (old-age pension scheme)
- 0.10%: ANW (survivor benefit scheme)
- 9.65%: WLZ (long-term care scheme)
Is social security tax mandatory in the Netherlands?
Yes. If you live or work in the Netherlands, you’re expected to pay national insurance contributions toward the social security system.
If your employee lives in the Netherlands, you, as the employer, can apply for exemption from this payment by completing the “Declaration of conscientious objection” form.
Learn how to set up your global payroll to manage taxation efficiently and maintain compliance. In this guide, we’ll walk you through the foundations you need to scale international growth.
Tax considerations for Dutch contractors
Contractors in the Netherlands — classified as employees with flexible contracts — are entitled to more benefits than those in other countries. As of 2020, for example, you’ll pay less of an unemployment benefit contribution for employees with fixed-term contracts, and a higher unemployment contribution for employees with a flexible contract.
On-call workers also should be offered a permanent contract after a year of working for your company, and if you terminate the contract, you’ll be required to pay a transition fee to help temporary workers move to a new job.
Determining employees vs contractors
As with traditional employees, remote workers can either be employees or contractors.
- Contractors are hired to provide specific services for a client or business on a freelance, often short-term, basis. They often sign a contract with a client, promising to provide a specific service or product at an agreed-upon rate in a specific amount of time. How and when they perform the work is up to them.
- Employees are a different story. You set their hours, tell them how to do their job, and can require them to manage other employees. In return, you provide employees with a steady paycheck and benefits, like insurance. You also pay some of their income taxes, as we discussed earlier.
The Netherlands classifies these employees as workers with permanent contracts and flexible contractors — and, in some cases, requires some contractors to be offered permanent positions after a year with their current employer.
Penalties for misclassifying employees as contractors
Tempted to avoid taxation issues by hiring employees as contractors? Think again.
There are significant dangers to misclassifying your employees as contractors, including harsh fines and heavy penalties for your company. While the Netherlands did protect companies who mistakenly misclassified employees, those protections have now ended with The Balanced Employment Market Act, which offers more protections to contractors.
The easy way to minimize risk and stay compliant
All of this can seem tricky and complicated, but it doesn’t need to be.
The best way to keep yourself compliant with Dutch tax law is to have an expert on your side: a partner with roots in the Netherlands who can help you understand the tax code, its changes, and how you can make sure you’re doing everything right by both your employees and the Dutch government.
The Netherlands is unique, but employing Dutch workers is simple
The Netherlands is a part of the European Union, but the country has always done its own thing: canals instead of roads, inventing its own painting style during the Renaissance, and legalizing certain controlled substances.
It’s no surprise that the Netherlands also takes a different approach to some labor laws. Its approach to contractors is just one difference from other countries’ stances on freelance workers.