Netherlands: Amendment to proposed changes to employer deductions for hired contractors

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Following considerable criticism, the proposals to change an employer’s liability to make tax and social security deductions for hired contractors have been amended.  New rules will now come into force from 2016.

In September 2014 we informed you of proposed changes to the Declaration of Independent Contractor status (“VAR”) whereby a company hiring a self-employed contractor is exempt from paying tax and social security contributions.  Following consultation with employers, these proposals have been amended and the VAR will be abolished and replaced by a (voluntary) approval procedure from January 2016 (target date).  There will be no transitional provisions.

Under the new proposals, the hiring company will submit contracts to the tax authorities, where they will be assessed to determine whether there is an obligation to deduct tax/social security contributions.  If the contract is approved by the tax authorities, there will be no obligation on the hiring company. Approval may be granted for a maximum of five years.  Model contracts will be available on the tax authorities’ website from October and can be negotiated with the tax authorities.

Certain types of ‘notional employment’ for wage tax purposes will be covered by the approval procedure and therefore exempt from employer deductions. However, the remuneration of a supervisory director/non-executive board member (deemed employment relationship) will always be subject to wage tax withholding.

The new proposals will give greater clarity to companies using contractors, as the approval procedure will provide certainty about their tax and social security obligations.  Companies should carefully check their current contracts with self-employed workers, as well as Management Agreements, in order to determine whether prior approval from the tax authorities needs to be considered.

Further information

For further information or to discuss the consequences of the above, please contact Hans van Ruiten on +31 10 224 6418 or email Rina Driece, or speak to her on +31 10 224 6 424 at Loyens & Loeff Rotterdam.

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