[Netherlands] Tax and social security consequences of remote working

Since the onset of the COVID-19 pandemic, employees in the Netherlands have been expected to work from home as much as possible. Now that employees have been working remotely for a significant period of time, Community99 explores the impact that remote working can have on expatriates from an income/wage tax and social security perspective.

Place of residence

It is possible that an employee’s place of residence may changes as a result of remote work, as the place of residence in the Netherlands is determined on the basis of all relevant facts and circumstances. Employers and employees should reconsider an employee’s residence status in the Netherlands if any facts and circumstances have changed as a result of remote working.

For example, the residence status of a person determines which type of Dutch income tax return must be filed. Resident taxpayers are taxed on their worldwide income, with the option of deducting double taxation if tax is also due in other countries, while non-resident taxpayers are only taxed on source income in the Netherlands. The residence status also influences the tax credits that are applied in the employer’s payroll administration.

Income/payroll tax

For example, remote working from another country may not only affect your tax situation, but also the allowances and benefits to which you are entitled as a resident of the Netherlands.

International tax

If you work and live in the Netherlands for a Dutch employer, your salary is fully taxable in the Netherlands (no cross-border situation). However, this may change once you start working remotely from another country and this country becomes your state of work and/or your state of residence. In such cases, there is a cross-border situation and the relevant tax treaty will have to be consulted.

Under most tax treaties, an employee is taxable in the state of residence, unless the employment is provided in another country (the “state of employment”). So if you continue to live in the Netherlands, your wages are taxable in the Netherlands, unless you physically perform your employment in another state.

If the employment is performed in a country other than the Netherlands (“the state of employment”), the wages attributable to the working days in the other country are taxable in that other country. However, as the country of residence, the Netherlands may levy tax on your total salary (including the salary related to the working days in the other country) if:

1. You spend less than 183 days in the fiscal year or any 12-month period beginning or ending in the fiscal year in the state of employment

2. Your salary is paid by (or on behalf of) an employer who is not a resident of the State of employment

3. Your salary is not borne by a permanent establishment that your employer has in the state of employment

If your place of residence changes due to remote working and the Netherlands is no longer your state of residence, your salary is taxable in the Netherlands insofar as your salary can be attributed to your working days in the Netherlands (the Netherlands has become your state of work). In principle, the remainder of your salary is taxable in your state of residence. This, therefore, affects your net income, as each country has its own national legislation on taxes and rates. Keep in mind that if you have a net pay agreement with your employer, remote working will not affect your disposable income.

For correct distribution of the tax rights, Community99 advises you to keep a travel calendar with working days, holidays and sick days and the country in which you physically spent each day.

Surcharges and Reimbursements

Many expats benefit from the 30 per cent facility in the Netherlands. The 30 per cent facility consists of a tax-free allowance of a maximum of 30 per cent of the expat’s taxable wages. The 30 per cent facility only applies to wages taxable in the Netherlands. If, as a result of teleworking, the wages become (partially) taxable in a country other than the Netherlands, the 30 per cent ruling will of course be lower or nil, depending on the specific circumstances. It is therefore very important to take note of this as it may affect your disposable income.

Community99 previously discussed the fact that the Dutch government has taken tax measures to ensure that employers can continue to provide employees with the original untaxed fixed travel allowance despite changed facts and circumstances. The Dutch State Secretary approved that the tax-free fixed travel allowance can be paid on the basis of the original travel pattern regardless of an employee’s changed travel pattern for 2020 and 2021.

However, this approval will expire on January 1, 2022. The approval to continue with other untaxed fixed allowances ended on January 1, 2021. A changed travel pattern, due to remote working, will most likely affect your untaxed fixed travel allowance in 2022.

Social Security

If your work pattern or place of residence has changed, it is highly advisable to reconsider your social security position. EU Regulation 883/2004, social security treaties and national social security legislation determine whether and where people are covered by social security.

Within the EU, EEA and Switzerland, EU Regulation 883/2004 determines in which country a cross-border worker is subject to social security legislation. Within the EU, a person is subject to the social security legislation of only one Member State. The main rule is that a person is subject to social security legislation in the country where the work is performed.

Special rules apply, inter alia, to posted workers and persons carrying out activities in more than one Member State. If you work in more than one Member State, the main rule is that you are subject to social security legislation in your state of residence, provided that you perform a substantial part of your work in your state of residence. A substantial part is seen as at least 25 per cent of your working time or remuneration. If you do not perform a substantial part of your work in your state of residence, you are subject to social security legislation in the state where your employer is located.

Outside the EU, the social security position of a frontier worker is determined by social security agreements concluded or solely on the basis of national social security legislation. Where no social security treaty or the EU Regulation 883/2004 applies, the national social security legislation of the country or countries where you work and live will apply.

This may result in you being insured in more than one country or not being insured at all. It is therefore advisable to obtain advice from social security about your specific situation and to inform your employer about your whereabouts, as this may also have (financial) consequences for your employer.

Stay informed from home

Because working (at least partially) from home is becoming the norm, it is important for employees to reconsider their tax and social security position, especially if their employer is based in another country. Working from home can affect residency status, which indirectly affects which country has the right to tax and where employees are covered by social security. Therefore, employees should contact their employer or tax advisor to find out what impact working remotely has on their specific situation.

Since the onset of the COVID-19 pandemic, employees in the Netherlands have been expected to work from home as much as possible. Now that employees have been working remotely for a significant period of time, Community99 explores the impact that remote working can have on expatriates from an income/wage tax and social security perspective.

Place of residence

It is possible that an employee’s place of residence may changes as a result of remote work, as the place of residence in the Netherlands is determined on the basis of all relevant facts and circumstances. Employers and employees should reconsider an employee’s residence status in the Netherlands if any facts and circumstances have changed as a result of remote working.

For example, the residence status of a person determines which type of Dutch income tax return must be filed. Resident taxpayers are taxed on their worldwide income, with the option of deducting double taxation if tax is also due in other countries, while non-resident taxpayers are only taxed on source income in the Netherlands. The residence status also influences the tax credits that are applied in the employer’s payroll administration.

Income/payroll tax

For example, remote working from another country may not only affect your tax situation, but also the allowances and benefits to which you are entitled as a resident of the Netherlands.

International tax

If you work and live in the Netherlands for a Dutch employer, your salary is fully taxable in the Netherlands (no cross-border situation). However, this may change once you start working remotely from another country and this country becomes your state of work and/or your state of residence. In such cases, there is a cross-border situation and the relevant tax treaty will have to be consulted.

Under most tax treaties, an employee is taxable in the state of residence, unless the employment is provided in another country (the “state of employment”). So if you continue to live in the Netherlands, your wages are taxable in the Netherlands, unless you physically perform your employment in another state.

If the employment is performed in a country other than the Netherlands (“the state of employment”), the wages attributable to the working days in the other country are taxable in that other country. However, as the country of residence, the Netherlands may levy tax on your total salary (including the salary related to the working days in the other country) if:

1. You spend less than 183 days in the fiscal year or any 12-month period beginning or ending in the fiscal year in the state of employment

2. Your salary is paid by (or on behalf of) an employer who is not a resident of the State of employment

3. Your salary is not borne by a permanent establishment that your employer has in the state of employment

If your place of residence changes due to remote working and the Netherlands is no longer your state of residence, your salary is taxable in the Netherlands insofar as your salary can be attributed to your working days in the Netherlands (the Netherlands has become your state of work). In principle, the remainder of your salary is taxable in your state of residence. This, therefore, affects your net income, as each country has its own national legislation on taxes and rates. Keep in mind that if you have a net pay agreement with your employer, remote working will not affect your disposable income.

For correct distribution of the tax rights, Community99 advises you to keep a travel calendar with working days, holidays and sick days and the country in which you physically spent each day.

Surcharges and Reimbursements

Many expats benefit from the 30 per cent facility in the Netherlands. The 30 per cent facility consists of a tax-free allowance of a maximum of 30 per cent of the expat’s taxable wages. The 30 per cent facility only applies to wages taxable in the Netherlands. If, as a result of teleworking, the wages become (partially) taxable in a country other than the Netherlands, the 30 per cent ruling will of course be lower or nil, depending on the specific circumstances. It is therefore very important to take note of this as it may affect your disposable income.

Community99 previously discussed the fact that the Dutch government has taken tax measures to ensure that employers can continue to provide employees with the original untaxed fixed travel allowance despite changed facts and circumstances. The Dutch State Secretary approved that the tax-free fixed travel allowance can be paid on the basis of the original travel pattern regardless of an employee’s changed travel pattern for 2020 and 2021.

However, this approval will expire on January 1, 2022. The approval to continue with other untaxed fixed allowances ended on January 1, 2021. A changed travel pattern, due to remote working, will most likely affect your untaxed fixed travel allowance in 2022.

Social Security

If your work pattern or place of residence has changed, it is highly advisable to reconsider your social security position. EU Regulation 883/2004, social security treaties and national social security legislation determine whether and where people are covered by social security.

Within the EU, EEA and Switzerland, EU Regulation 883/2004 determines in which country a cross-border worker is subject to social security legislation. Within the EU, a person is subject to the social security legislation of only one Member State. The main rule is that a person is subject to social security legislation in the country where the work is performed.

Special rules apply, inter alia, to posted workers and persons carrying out activities in more than one Member State. If you work in more than one Member State, the main rule is that you are subject to social security legislation in your state of residence, provided that you perform a substantial part of your work in your state of residence. A substantial part is seen as at least 25 per cent of your working time or remuneration. If you do not perform a substantial part of your work in your state of residence, you are subject to social security legislation in the state where your employer is located.

Outside the EU, the social security position of a frontier worker is determined by social security agreements concluded or solely on the basis of national social security legislation. Where no social security treaty or the EU Regulation 883/2004 applies, the national social security legislation of the country or countries where you work and live will apply.

This may result in you being insured in more than one country or not being insured at all. It is therefore advisable to obtain advice from social security about your specific situation and to inform your employer about your whereabouts, as this may also have (financial) consequences for your employer.

Stay informed from home

Because working (at least partially) from home is becoming the norm, it is important for employees to reconsider their tax and social security position, especially if their employer is based in another country. Working from home can affect residency status, which indirectly affects which country has the right to tax and where employees are covered by social security. Therefore, employees should contact their employer or tax advisor to find out what impact working remotely has on their specific situation.