Collection of payroll taxes by the employer
Payroll tax payable by employees in respect of their employment income is generally collected by the employer and paid through the “Pay As You Earn” (PAYE) payroll system. Employment income includes salary, bonuses and benefits (in kind). Each employee should have a “Payroll tax number”, which is obtained from the Dutch Tax authorities.
Employees’ social security contributions are on account of the employer. The employees’ social security contributions depend on the branch classification and amount to approximately:
- long term disability 6.36 % (levied over a maximum of € 186.65 a day);
- unemployment benefits: 5.68% (levied over a maximum of € 186.65 a day);
- healthcare 7.05% (over a maximum of € 2,765.75 a month).
Most Dutch employers are obliged to register their employees at a (branch) pension fund. The contributions differ from 12%-20% of the pension based salary.
Social security contributions
Dutch Social security law consists of National Insurance Acts, which provide benefits to all Dutch residents. National insurance contributions are payable on taxable income. Employee Insurance Acts are also part of Dutch security law, and provide additional benefits for wage earners. The contributions for these (excluding health insurance) are paid to the Dutch tax authorities by the employer, and amount per employee are approximately €4,417. These insurance plans entitle employees to a benefit or provision (under certain conditions), and consist of the following.
- Unemployment insurance plan (Werkloosheidswet)
- Occupational disability insurance plan (Wet werk en inkomen naar arbeidsvermogen)
- Illness insurance plan (Ziektewet)
- Healthcare insurance plan (Zorgverzekeringswet); Under the Healthcare Insurance Act employers deduct healthcare premiums from the wages of the employees. If the employer acts as a withholding agent for the purposes of the Exceptional Medical Expenses Act (AWBZ), the employer also deducts under the Healthcare Insurance Act premiums of benefit claimants. Income-related healthcare premiums are paid to the Dutch tax authorities. As a main rule, 6.9% of the wages must be withheld from the net wages of all employees and benefit claimants up to maximum wages of €32,369. If however the underlying wages are paid for (current) employment, an employer is obliged to reimburse this to the employees.
Meaning of Dutch tax residence
An individual is deemed to be Dutch resident for tax purposes in a particular year if the centre of his personal live is in the Netherlands. Registration in the municipal administration and possessing a house or apartment is one the criteria for a Dutch residency. Dutch domiciled residents can deduct for instance their mortgage interest, maintenance allowance and pension contributions (reference is made to the paragraph personal income tax).
Expatriate employees working in the Netherlands
Expatriate employees may be regarded as Dutch tax resident but non-Dutch domiciled while being seconded to the Netherlands. Expatriate employees are liable to income tax on all employment income arising under Dutch employment contracts. If expatriate employees are employed under a non-Dutch employment contract and are paid outside the Netherlands, they are liable to income tax on the portion of their employment income that is attributable to the duties of employment which are exercised in the Netherlands. Other income may be subject to Dutch income tax if remitted into the Netherlands.
A special concession, referred to as the ‘30% ruling’, is available for certain employees coming from abroad to work in the Netherlands (extra-territorial employees). The concession is aimed at attracting international mobile qualified people to the country. Under this concession the employer can pay the employee a tax-free allowance of up to 30% of his total remuneration (including the allowance itself). This allowance is intended to cover costs incurred as a result of coming to the Netherlands (extra-territorial costs).