The Dutch Government has announced its plans for the tax year 2018 and future years. The issues most relevant to companies employing staff in the Netherlands are as follows.
Reduction in the life of the special tax regime for inbound expatriates from eight to five years
The maximum term of the Dutch expat regime, known as the “30%-ruling”, will be reduced from eight to five years, most probably from 1 January 2019. It is not yet clear whether there will be transitional regulations which will affect existing expatriates employed in the Netherlands before this date.
What action should employers consider taking now?
Employers, and employees hired from outside the Netherlands should consider bringing forward the date of their proposed Dutch employment.
Changes to employment status of non-executive directors of Dutch listed companies with one-tier Board impacts withholding and social security liability for resident and non-resident individuals
From 2018 non-executive directors of a Dutch listed company with a one-tier Board will no longer be regarded as in an employment relationship with the company.
How does this impact relevant companies?
Unless there is a valid “opt-in” by the non-executive, the companies will no longer be liable to withhold and account income taxes in relation to such non-executive directors’ fees. It also means that, irrespective of any opt-in by a non-executive director, the company will no longer be liable for employer’s social security contributions.
How does this affect non-executive directors?
Unless the non-executive “opts in” for withholding to continue then the individual non-executives will be required to file tax returns in order to account for the income taxes due. However, even with an “opt in” the changes to social security treatment mean that non-executives who are not resident in the Netherlands are unlikely to be covered by Dutch social security.
What steps should be taken now?
Relevant Dutch listed companies should carefully review the tax and social security position of their non-resident non-executive directors and discuss the changes and consequences with them. Opting-in may be particularly attractive in order to benefit from the 30%-ruling, the Dutch expatriate tax regime. Parties will have to notify the choice for opting-in to the Dutch tax authorities.
In the absence of an opt-in all such non-executives should prepare to file their own tax returns to the Dutch tax authorities.
Clarity for for the employment status of contractors and the self-employed promised by new legislation
In late 2016 we the CELIA Alliance reported on the great difficulties in practice with the implementation of new legislation determining the employment status of contractors and the self employed.
The Budget announced that the Contractor Status Act (the “DBA Act”) will now be replaced by new legislation in due course, providing more clear criteria to determine the position of contractors and the obligations for principals. However,for the time being, principals have to act in line with the current legislation. In this transitional period, however, the Revenue may well be slow to act when it comes to imposing tax bills and penalties.
Changes to tax bands and rates
|Tax bands||Proposed new rates for 2018|
|Up to EUR 20,142||36.55% (8.90 % tax + 27.65% national insurance)|
|EUR 20,143 – EUR 33,994||40.85% (13.20% tax + 27.65% national insurance)|
|EUR 33,995 – EUR 68,507||40.85% (tax only)|
|Over EUR 68,508||51,95 (tax only)|
These bands represent only slightly different tax rates compared with 2017. Also, adjustments to various tax credits were announced.
As of 2019, only two tax bands will be in place, with a low tax rate of 36,93% and a high tax rate for income over € 68,600. It is unclear how the national insurance contributions will be implemented in the new tax brands.
Pensionable age to be 68 in 2018
All pension agreements and company pension schemes have to be adjusted prior to 1 January 2018.
Principals hiring contractors still have to work in line with the current – complicated and unclear - legislation. It is, therefore, advisable to seek expert advice and assistance when drafting contracts and discussing these with the Dutch Revenue.
What happens next ?
The proposals are debated in Parliament and if accepted, transformed into new legislation, any (further) changes to be confirmed by the end of 2017 .
How can we help?