Declaration of Independent Contractor Status in the Netherlands to be scrapped: self-employed affected
On 2 February 2016, the Dutch Senate passed the Deregulation of Assessment of Independent Contractor Status Act (Wet Deregulering Beoordeling Arbeidsrelaties). As of 1 May 2016, the Declaration of Independent Contractor Status (VAR) will be abolished.
Currently, companies who work with independent consultants (or self-employed professionals such as freelancers, entrepreneurs, etc.) require a VAR from these individuals (issued by the local tax authorities) as proof that there is no obligation on the hiring company to deduct and pay tax/social security contributions. If the tax authorities at a certain point of time find the relationship between the hiring company and independent consultant that of an employment relationship, by having the VAR in place the company can rely that the fees due will be the responsibility of the independent consultant.
It has now been confirmed that, as of 1 May 2016, the VAR will be replaced with a voluntary approval procedure in which the hiring company can submit their contract/s with independent consultants (or the templates for these types of contracts) to the tax authorities to be assessed (see previous articles here and here). Advance approval on the contract will, however, only prevent the tax authorities from imposing additional tax assessments if the way of working in practice is in line with the contract.
What does this mean for my business?
If you are currently working with independent consultants, from 1 May 2016, hiring employers will no longer be protected by the VAR and for each separate work relationship it will be necessary to determine whether or not an employment relationship exists.
A transitional period will be allowed until 1 May 2017 in order to adapt such contracts and working practices. During this period the tax authorities will monitor developments but will not enforce penalties, provided that parties are actively reviewing their existing work relationships.
The VAR abolishment also has the effect that remunerated supervisory board members will, at all times, become subject to wage tax withholding and therefore must be included in the company’s payroll. To avoid this, the state secretary of Finance announced that the deemed employment relationship of supervisory board members for wage tax purposes will be abolished in the near future. We will keep you updated with any further developments.
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