Building a data centre in the Netherlands: how to ensure compliance with wage tax requirements and labour law
It is no secret that the Netherlands is one of the prime locations for data centres in the world. Over 30% of the data centres in Europe are located in the Netherlands and there are good reasons for this. The technical infrastructure in the Netherlands is one of the most technically advanced in the world and a substantial part of transatlantic sea cables that connect the US with the EU start and end in the Netherlands.
A large number of data centres are being built in the Netherlands and a lot of highly specialized knowledge goes into building a data centre. It is essential that these centres can perform 24/7 without any issues or downtime. A substantial part of this specialized knowledge is present on the Dutch market, but given the limits of available builders, it is highly common that workforces or (sub)contractors are attracted from abroad. In practice, a lot of the necessary workforce is attracted from the United Kingdom.
This poses a number of challenges for the main contractor, which may not always be evident beforehand. As with any construction project, compliance with local law is key, as financial difficulties that can arise from non-compliance can threaten the continuity of the project. These projects should also continue without issues or downtime. The biggest challenges contractors face are the posted worker notification duty, wage taxes and social security.
Posted Worker Directive (WagwEU)
Since the 1st of March 2020 the Posted Worker Directive has been implemented in Dutch law. This creates a number of obligations, but primarily a notification duty. For the main contractor it also creates the duty to check whether or not the subcontractors met the requirement related to the notification and the other obligations related to the employment conditions when bringing employees from abroad to the Netherlands. More information about this implementation can be found here.
Wage taxes and the G-account
Whether or not the main contractor is required to withhold wage taxes or can be held liable for non-compliance of its subcontractor(s) is dependent on a number of factors. What needs to be determined is where the foreign workers need to pay their taxes: in the Netherlands or in their state of residency. In a lot of cases it is thought that as long as the presence in the Netherlands is less than 183 days, no taxing rights are allocated to the Netherlands. While this is a relevant criterion, it is not the complete picture. The employment relationship, who holds the control over the employees, the presence of a permanent establishment and the length of the construction project all play a role in this allocation.
The second question is who is required to withhold the wage taxes, the main contractor or the subcontractor? It’s important to realize is that what is called a contractor-relationship can in reality be merely the provision of labour, which can lead to a different outcome. The actual facts are decisive in this. If the outcome is that the subcontractor is required to withhold the taxes, the question remains whether or not the main contractor is liable for these taxes when the subcontractor does not meet its criteria. The threshold for this liability is relatively low, so it makes sense to think about how to mitigate or at least manage this particular risk. There are number of ways to deal with this. One of the most effective ways, at least in theory, is the so-called G-account. Be aware that it may be difficult for a subcontractor hired from abroad to get a G-account, which means that alternatives must be assessed.
Social security contributions and the A1-statement/certificate of coverage
When dealing with wage taxes, inevitably, the question about social security contributions must be raised. Whether or not an employee is exempt from Dutch social security contributions (which tends to lead to paying these contributions in the state of residency) is generally confirmed by the presence or absence of an A1 statement.
These are just some of the aspects to take into account when hiring subcontractors from abroad for building a data centre in the Netherlands. It is by no means meant as a complete overview. For example, when hiring from the UK, Brexit will lead to questions about immigration. Also, when hiring employees directly from abroad, similar questions arise, but also questions like whether or not the 30%-ruling can be applied.
When building a data centre in the Netherlands a contractor will need a good, sound process to deal with wage taxes and labour laws at hand in order to be compliant from day 1. Without such a framework, contractors can expose themselves to time consuming and costly issues following from non-compliance, which can also lead to reputational damage.
If you are interested in building a data centre or have any questions about hiring workers from abroad in the Netherlands, please feel free to contact our specialists.