The Netherlands (Nederland in Dutch) is a country located mainly in Northwestern Europe. Netherlands literally means “lower countries” in reference to its low elevation and flat topography, with only about 50% of its land exceeding 1 metre above sea level, and nearly 17% falling below sea level. The country of the Netherlands is the principal component of the Kingdom of the Netherlands, which also includes the constituent countries of Aruba, Curaçao, and Sint Maarten; and the three special municipalities of Bonaire, Saba, and Sint Eustatius.
It is a constitutional monarchy and the official currency is Euro. The Netherlands does not consider bitcoin or other digital currencies to be legal tender.
The Netherlands is the sixth largest economic power in the Eurozone and the fifth largest exporter of goods. The country is very open to trade. For the past couple of years, the recovery in Europe has allowed the Dutch economy to grow at a dynamic pace: growth was estimated at 2.8% of GDP in 2018 driven primarily by domestic demand, but the pace of expansion is expected to ease from 2.6% and 2.3% in the next couple of years mainly due to slowing private consumption and investment.
The Netherlands represents an attractive investment destination for a number of important reasons, including different economic incentives, transport and communication, skilled workforce and its advantageous location.
We have detailed below some key points multinationals should consider when setting up in the Netherlands from a Global Payroll Perspective.
Dutch Payroll – 2019 Updates
- International employment: 30% facility changed- The maximum term of the so-called 30% ruling for expats working in the Netherlands was reduced from 8 years to 5 years as of January 2019.
- International employment: changes to tax and social insurance contribution credits for non-residents in 2019.
- Civil law changes in 2019, changes to labour law and work permits, will also affect employment policy.
- There are two payroll tax penalties which employers may be liable for – 52% penalty tax on banned early retirement schemes and the 75% penalty tax on excessive severance packages.
- Changes to the sector classification of employers.
- Contracts with freelancers and independents – It is expected that new legislation will be in place by 2021, this legislation will regulate the tax and social security position of the self-employed.
- From 2020 there will be a new tax regime for bicycles provided by employers, the tax-free allowances which can be paid under the volunteer scheme have been raised and the nominal addition to income for expensive electric company cars (the ‘Tesla tax’) will also rise.
- The application of the anonymous tax rate in payroll tax has also changed.
- Increase on previously reduced VAT rate from 6% to 9%.
Dutch Payroll – Basic Facts
All businesses must register with the Dutch Tax Authorities and receive a payroll tax number. All income taxes and social insurance contributions are at a federal level and all employers in the Netherlands are responsible for withholding tax at source.
Employers are also required to maintain a basic minimum standards of workplace protection including minimum wage and standard hourly work week. Additional non mandatory employee benefits are regulated by single contracts and agreements. Employers withholding payroll taxes generally must retain each of their employees’ payroll records for at least seven years.
All workers, even foreign workers coming from outside the European Union, are taxed on all Dutch income and must file a tax return with the government.
The tax year runs from 1st January to 31st December.
Tax and Social Security Considerations
The 2019 corporate income tax rate will is 19% on the first €200,000 of taxable profits and 25% for taxable profits exceeding €200,000.
Dutch corporate income tax is expected to gradually be reduce after 2019:
- 2020: 16.5% on profits up to €200,000 and 22.55% on profits above €200,000
- 2021: 15% on profits up to €200,000 and 20.5% on profits above €200,000
The wage tax applies to wages paid to employees.
The Netherlands has a progressive income tax system with increasing tax rates for increasing total annual income. These rates change almost every year. Income tax is due to be paid to the authorities by the last day of the month following the month in which the income was generated.
- Tax rates 2019 – state pension age and older, born before 1 January 1946:
- Tax rates 2019– state pension age and older, born on or after 1 January 1946:
- Personal income tax rates 2019 – younger than state pension age:
* Total Tax Rate= Income Tax + National Insurance Contributions
Payroll taxes consist of the following:
- Wage tax
- National insurance contribution
- Employed persons’ insurance scheme contribution
- Income-dependent Health Care Insurance Act contribution
The Netherlands has published the regulation from the Ministry for Social Affairs and Employment that sets the social security contribution rates for 2019. The total state social security contributions are maintained at 27.65%, including general old-age social security (AOW) 17.90%, surviving dependent (spouse) social security (ANW) 0.10%, and long-term care (WLZ) 9.65%. These contributions are included as part of the first two individual income tax brackets, although for individuals aged 66 and older, the total contribution is reduced.
The employer paid social security contributions for 2019 set in the regulation are as follows:
General unemployment insurance (AWF) – 3.60%
- Government unemployment insurance (UFO – paid by government employers instead of AWF) – 0.78%
- Occupational disability insurance (WIA) – 6.46%
- Childcare allowance contribution – 0.50%
The maximum salary basis cap for the employer contributions for 2019 is set at €55,927 (annual).
Having a separate tax regime for Bonaire, St Eustatius and Saba means there is a risk of double taxation or double exemption from taxes. To remove this risk as much as possible, two schemes have been introduced.
- One scheme prevents double taxation between the European region of the Netherlands on the one hand and Bonaire, St Eustatius and Saba on the other.
- A unilateral scheme prevents double taxation between these islands and third countries.
- Personal income tax: From 2019, the Caribbean Netherlands’ personal income tax rates and the minimum and maximum of income applicable to each bracket are as follows:
- Social taxes: From 2019 the total employer social tax rate is 13.4 %.
Employee social tax contributions in the Caribbean special municipalities consist of:
- 25% contribution rate for pension insurance,
- 1.3% to the Widow’s, Widower’s, and Orphan’s pension,
- 0.5% for health insurance.
- Dividend withholding tax– 15%
- Real estate transfer tax- 6%
Compensation and Benefits
Minimum Wage and Wage Payment: The legal minimum wage in the Netherlands is based on age and is revised every six months in line with inflation. The minimum wage consists of a basic wage and various allowances, such as for shift work and irregular working hours. It applies to all employees of 22 years of age and over. The minimum wage is based on a full-time employee working between 36-40 hours a week and is paid weekly or monthly. The minimum wage for employees who are at least 22 years of age is €1,615.80 per month.
Overtime: Overtime is not indicated by law. Rates are established in employment contracts or collective bargaining agreements.
Hours of Work: Full-time employment usually ranges from 36 to 40 hours per week.
Holidays: Dutch law does not require employers to give workers national or public holidays or to pay additional for work on those days. A full list of all public holidays in Netherlands for 2019 can be found here.
- Holiday leave: Full-time employees in the Netherlands are legally entitled to a minimum of 20 days (four weeks) of paid holiday leave per year. This is based on a calculation of four times the number of hours worked per week. Part-time employees are also entitled to four times the number of hours they work per week.
- Sick leave: Up to two years of paid sick leave is provided at a minimum of 70% of the most recent earned wages. Sick leave must be reported to the employer in order to make a sick leave claim.
- Maternity Leave: Employees are entitled to 16 weeks of pregnancy and maternity leave at full pay up to a maximum of €214.28 a day. If the pregnancy causes an illness before or after the leave, the employee is entitled to full pay up to the maximum of €214.28 a day for up to two years.
- Paternity/ Partner Leave: As of January 1, 2019, partners of mothers who have just given birth are legally entitled to 1 workweek of paid leave, this applies to both full time or part time work.
- Parental Leave: Parents of children up to the age of eight are entitled to parental leave designed for parents to spend time with their children. Parental leave is generally unpaid, however, some employers may partially cover part of the parents salary. The maximum amount of leave per child is calculated as 26 times their weekly working hours.
- Care leave: In the Netherlands, employees are legally entitled to take short-term care leave to look after a sick relative such as a child, partner, parent or family member. Within a 12-month period, employees are entitled to take short-term care leave equal to twice their weekly working hours. During this time the employer must pay at least 70% of the salary.
Bonuses and Special Benefits: A 13th month bonus is routinely given to employees in November or December.
Termination Pay: Employers require prior permission by the work placement branch of the Employee Insurance Agency (UWV) or the subdistrict court before they can terminate the employment agreement. Employment contracts can be terminated by mutual consent, during a probationary period, or for various other reasons, including the cessation of a contract, failure to meet a condition of employment, serious negligence and other reasons.
If the period of notice is not specified in the contract or agreement; the required period is from one to four months, depending on how long the employee has worked for the company.
Workers’ Compensation: Employers pay into the workers’ compensation system, which is governed by the Work and Income According to Labor Capacity Act. An employee who is injured whilst working is entitled to paid sick leave for up to two years.
Foreign Workers in the Netherlands
Foreign nationals who want to work in the Netherlands must satisfy a number of requirements and depending on their country of origin, may need an employment permit.
Visas: Individuals from most of Europe, the Americas (including United States), and parts of Asia, need only passport and reason for entrance to enter the Netherlands.
For other foreign residents, visas for entrance are divided into four categories:
- Schengen Visas
- Family of EU/EEA Nationals
- Airport Transit Visas
- Authorization for Temporary Stay (MVV)
Payroll Taxes: Netherlands payroll taxes include both income taxes and social insurance contributions, including health care insurance payments, which must be withheld at source by employers. Both foreign and domestic employers are responsible for withholding payroll taxes on all employees depending on their status.
Employers may grant employees a free (untaxed) 30% reimbursement of wage for the extraterritorial costs that incur due to living in the Netherlands. This facility is known as the 30%-facility and since January 2019, it can be received for up to five years. No proof of incurred expenses is required.
The Netherlands has entered into more than 90 income tax treaties. The Netherlands also has a totalization agreement with the United States for social tax coverage purposes. An agreement has been concluded between the Netherlands and Pakistan on the verification of benefit entitlements. Under this agreement, all AOW pension payments to Pakistan are based on a maximum of 50% of the Dutch net minimum wage.
Setting up in the Netherlands can be challenging from a payroll point of view, for help establishing your Dutch payroll strategy and navigation of the rules and regulations contact the team here in Payslip.
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- Nordea, Country Profile Netherlands
- EY publication, “Netherlands payroll tax in 2019 and 2020”
- “THE NETHERLANDS – TAX CHANGES 2019 – CORPORATE INCOME TAX”
- Deloitte, “Outline of wage and income tax measures”
- “Netherlands Social Security Rates for 2019”
- “Netherlands Sales Tax Rate – VAT”
- “Important changes to Dutch law in 2019”
- “Caribbean Parts of the Kingdom, Tax System”
- Teseopress, “Corporate taxation in the Dutch Caribbean and Latin American Region”
- “New in the Netherlands, Employment permits for foreign nationals”
- Belastingdienst, “30% facility for incoming employees”
- HMRNETHERLANDS.COM, “Compensation”
- I AM EXPAT, “Sick leave, holiday leave and time off work in the Netherlands”