Changes in Payroll Tax for Non-Residents of the Netherlands from the 1st of January 2019
In the Netherlands, we have levy rebates in payroll tax. These levy rebates consist of a tax component and a premium component. From January 1st 2019, only residents of the Netherlands are still entitled to the tax component of the levy rebate.
This means that since that date, the amount of wage tax / national insurance premium that you deduct from the wages of your employees depends on the country where your employee is a resident - and you will have to register this. We are happy to explain how this works.
What is changing?
Until now, everyone who was subject to payroll tax was entitled to the tax component of the levy rebate. From January 1st 2019, only residents of the Netherlands are entitled to the tax component of the levy rebate. Non-residents are only entitled to the premium part, and only if they are socially insured in the Netherlands. An exception applies to the tax part of the “employed person's levy rebate”. Employees who are residents of an EU Member State, Switzerland, Iceland, Norway, Liechtenstein, Bonaire, St Eustatius or Saba, are also entitled to this employed person's levy rebate.
What does this mean for your payroll
The wage tax / national insurance premium that you deduct from your employees’ wages is therefore determined by the country where your employee is a resident. To arrive at a correct wage calculation, it is important to know the country of residence of your employee. You are required to record this of each employee in the salary administration. Do you have an employee who is not a resident of the Netherlands? In that case, you may not include his temporary Dutch address (for example, of a holiday home) in the declaration. This must be the foreign address. If you do not have that address abroad, you must apply the anonymous rate for this employee.
This way you determine where someone is a resident
The main rule is that a person is a resident of the Netherlands if he or she has his permanent place of residence here. If you have an employee who lives and resides both in the Netherlands and abroad, it is not always clear whether he is a resident of the Netherlands. In this case, your employee will only be a resident of the Netherlands if his social and economic life takes place here. For example, does your employee's family live abroad, do his children attend school there, and does he keep bank accounts there? Then he is not a resident of the Netherlands. If your employee does not have a family, the distinction is more difficult to make. Then it is important to look at your employee's intention: does he intend to settle in the Netherlands or does he just want to stay here for a short time? In the latter case, he is not a resident of the Netherlands.
What does this new scheme mean for you?
From January 1st 2019, you must determine whether your employee is eligible - and to what extent - to the levy rebates. If you are unsure on how to apply this new scheme or if you want an expert to review whether you have done this correctly up to now, we will gladly help you with this!
This article was written by our partner in taxes SAS for Expats. Feel free to contact them with questions regarding this article or any other tax relates enquiries.