The Netherlands – Law Amends Tax Rules for Independent Contractors, Board Members

The Netherlands – Law Amends Tax Rules for Independent

This GMS Flash Alert reports on legislation that has been enacted in the Netherlands which may impact independent contractors and the companies (their “clients”) that engage their services in respect of their tax treatment, as well as supervisory board members.

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flash alert 2016-053

New legislation has been enacted in the Netherlands which may impact independent contractors and the companies (their “clients”) that engage their services in respect of their tax treatment.  Additionally, the legislation has consequences for supervisory board members.

WHY THIS MATTERS

Independent contractors working for clients generally hold a self-employed statement (in Dutch, Verklaring ArbeidsRelatie, or “VAR”).  All VARs in circulation will lose their validity as of 1 May 2016, and it will no longer be possible to apply for a new one.  There will be, instead, a system of pre-approved agreements that apply for companies and their independent contractors.  Such companies will have to make arrangements to secure this agreement and obtain the approval of the Dutch tax authorities.  Failure to conform to the new rules could subject the companies to an income tax withholding obligation and social security contributions, with interest and penalties assessed.  

As of 1 January 2017, supervisory board members are no longer considered deemed employees.  Companies may refrain from withholding income tax and social security contributions on supervisory board fees as of 1 May 2016, if agreed between the company and the supervisory board member1

As of 1 January 2017, supervisory board members who benefit from the Dutch expatriate concession (30% ruling) must elect this deemed employment status in order to retain this benefit.  Conditions apply to make this election. 

New Legislation and Its Consequences

On 2 February 2016, the Assessment of Employment Relationships Deregulation Act (Wet deregulering beoordeling arbeidsrelatie, “DBA Act”) was passed by the Dutch Upper House.  The DBA Act, which replaces the current practice of VAR, will enter into force on 1 May 2016. 

Withholding for Principals/Clients of Independent Contractors

Currently, the obligation to withhold Dutch income tax and social security contributions does not apply to the client of an independent contractor who holds a qualifying VAR and who meets certain conditions.  

As of 1 May 2016, all VARs in circulation will lose their validity and new VARs can no longer be applied for.  Instead, a system of pre-approved agreements will apply. The income tax withholding obligation is only waived if an agreement is in place that has been approved by the Dutch tax authorities and the activities performed by the independent contractor are done so in accordance with the agreement. If either one of the conditions is not fulfilled, the client of an independent contractor has to operate withholding of income and social security contributions on payments to the independent  contractor.  Non-compliance may result in additional assessments (with interest and penalties assessed), retroactively up to a maximum five years starting from 1 May 2016.

Ramifications for Supervisory Board Members: Withholdings of Income Tax and Social Contributions, Recourse to 30% Ruling

Under current law, supervisory board members are deemed to be employed by the entity under their supervision.  Provided the supervisory board member has a valid VAR, no payroll tax and social security contributions have to be withheld on the board member’s remuneration and no employer contributions under the Healthcare Insurance Act are required.   

As of 1 January 2017, supervisory board members are no longer considered deemed employees.  Companies may refrain from withholding income tax and social security contributions on supervisory board fees as of 1 May 2016, if agreed between the company and the supervisory board member.

This might have consequences for the tax position of the nonresident supervisory board member (which would include, the application of the 30% ruling).  The position as of 1 May 2016 and/or 1 January, 2017, should be considered carefully by companies in consultation with their qualified tax advisors.

FOOTNOTE

1  For 14 maart 2016, nr. BLKB2016/265M, see “Staatscourant” Nr. 14756, published on 23 March 2016.

RELATED RESOURCE

For more details, see “Introduction of Assessment of Employment Relationships Deregulation Act Amends Tax Rules on Supervisory Board Members,” published by the KPMG member firm in the Netherlands.

CONTACTS

For additional information or assistance, please contact your local GMS or People Services professional or the following professionals with the KPMG International member firm in the Netherlands:

 

Jurgen Stormmesand

Tel. +31 (0) 88 909 1498

Stormmesand.jurgen@kpmg.com

 

Anton Steijn 

Tel. +31 20 6 561406

steijn.anton@kpmg.nl

The information contained in this newsletter was submitted by the KPMG International member firm in the Netherlands.

© 2016 Meijburg & Co Caribbean, Tax Lawyers, is an association of limited liability companies and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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