Netherlands: New employer tax charge on pension contributions for high earners
With effect from 1 January, 2010 the Netherlands has enacted a
provision to discourage excessive remuneration
Pension contributions for employees with a ‘high pensionable wage’
will be subject to income tax at a rate of 15%. Where applicable, this
tax charge will be borne by the employer.
Conditions for charge
The tax charge will only be levied if:
- The pension contributions are made as part of a final salary pension
scheme, that is the pension benefits are based on the final salary of
an employee on the pension date;
- The ‘pensionable wage’ of the employee must exceed € 519,000 (this
is the pensionable wage amount for 2010, but it will be indexed
- The employee must also have received salary increases. A salary
increase results in a so-called ‘backservice’. A backservice is an
increase in the pension entitlements of the earlier years of employment
due to the salary increases, which is set out as a percentage of the
final salary of the employee. A switch to another employer may also
lead to a backservice.
The employer’s income tax charge is based on a ‘notional’
backservice contribution. This notional contribution is fixed at four
times the amount by which the salary exceeds € 519,000 in 2010. On any
excess of salary above € 519,000 for 2010, the 15% tax charge will arise
on the notional amount of the backservice contributions.
The tax charge is relevant only for the employer and is made in
addition to any tax charges which may subsequently arise for the
employees when the pension benefits are taken at retirement.
The pensionable wage of an employee is € 450,000. After a salary
increase, his wage becomes € 600,000. The pension contribution is based
on a final salary pension scheme.
In 2010, the threshold for salary
before the employer tax charge is levied is € 519,000. The employee’s
salary is now € 600,000, exceeding the threshold by €81,000.
The employer’s notional backservice contribution will be € 324,000
(being 4 x € 81,000)
The tax charge for the employer in 2010 is calculated as follows:
15% x (€ 600,000 – € 519,000) x 4 = € 48,600
For further information or to discuss any of the issues raised,
please contact Peter Bos (firstname.lastname@example.org)
on +31 20 578 57 85 or Marieke de Vries (email@example.com)
on 31 20 578 51 76.
This article was produced by, and re-produced with kind permission
of, our correspondent firm in The Netherlands, Loyens & Loeff N.V. www.loyensloeff.com