On January 20, 2010, the Dutch Deputy Minister of Finance has issued a decree which is of importance to intercompany assignments to the Netherlands (nr. DGB2010/267M). According to the new decree, employees of foreign companies who are assigned to the Netherlands within an international group, are exempt from Dutch personal income tax on their employment income if they work in the Netherlands for 60 days or less in a twelve-month period.
Background
Tax treaties allocate the right to levy personal income tax on employment income arising from cross-border assignments to either the employee's country of residence or the country of employment. Tax treaties provide a 183-days rule. Under this rule, the employment income of an employee who is assigned to the Netherlands is only subject to home country personal income tax and exempt from Dutch personal income tax if the following cumulative conditions are met:
1. the assignee's stay in the Netherlands does not exceed 183 days in a calendar year or a twelve-month period (differs per treaty);
2. the salary is not paid by or on behalf of a Dutch employer during that period;
3. the employment costs are not borne by the foreign employer's Dutch permanent establishment during the period of assignment .
On December 1, 2006, the Dutch Supreme Court adopted the economic employer concept, for assignments within an international group, which will mean that the Dutch group company will be more readily considered as the employer. As the employment costs in most cases are recharged to the Dutch group company (as group companies must operate on an arm's length basis), the income from employment attributable to work performed in the Netherlands will be subject to Dutch personal income tax under the economic employer approach, irrespective of the duration of the assignment. The foreign employer is the withholding agent for Dutch payroll tax purposes, and the Dutch group company can be held liable in case of non-compliance. As a consequence, the employer is faced with an additional administrative burden.
New decree
In a new decree, the Deputy Minister of Finance has now decided that if the assignee works in the Netherlands for 60 days or less in a twelve-month period, the Dutch company is deemed not to be in a relationship of authority with the assignee. As a result, the Dutch company does not qualify as the economic employer and the assignee is exempt from Dutch personal income tax. Moreover, the foreign employer does not have to withhold Dutch payroll tax. This new approach will result in a reduction of the administrative burden.
If the assignee is subject to Dutch personal income tax because he or she works in the Netherlands for more than 60 days in a twelve-month period, the foreign employer is required to withhold Dutch wage tax. In order to reduce the administrative burden, the Ministry has granted approval to the Dutch group company to act as the withholding agent on behalf of the foreign group company, which means that the foreign group company does not have to register as a withholding agent.