Dutch tax authorities modify policy on expenditures for international employees
As per January 16, 2024, the Dutch Tax Authorities decided to impose taxes on expenses associated with Dutch residence permits and specific A1 statements. This change requires employers with an international workforce to ascertain how these costs were covered for their employees and incorporated into the payroll. Questions about this topic? Our Global Mobility team is here to help.
Costs for A1 statement as taxable benefit
European regulations stipulate the jurisdiction for social insurance when an individual is employed concurrently in multiple countries or during an assignment/secondment. This jurisdiction is exclusively assigned to one country at any given time. An A1 statement (Certificate of Coverage) can be obtained to validate this status. This document further acts as evidence that the obligation to make social insurance contributions in other countries is not applicable.
Regarding A1 statements requested for the benefit of employees working in two or more countries simultaneously, the following guidelines apply. This A1 statement verifies the jurisdiction where the employer is obligated to make contributions. The allocation of the employee’s duties across different countries is crucial for the assessment. In the case of this type of A1 application, it is the responsibility of the employee to notify the authorities in their country of residence. If the employer or an external advisor assists the employee in this process, the Dutch Tax Authorities consider it a taxable benefit—meaning wages subject to taxation. The quantification of this benefit, such as (a portion of) the advisor’s invoice value, must be determined. If this situation pertains to your organization and employees, please do not hesitate to contact our global mobility advisors for more information and guidance.
Please note: Expenses related to applying for an A1 statement on behalf of a seconded employee typically remain untaxed. Any queries about this type of A1 statement? Kindly complete this form.
Costs for residence permit as taxable benefit
The Dutch Tax Authorities have also revised their policy regarding expenses associated with work permits. Non-EU, EEA, or Swiss nationals require a work and residence permit to work and reside in the Netherlands. Typically, employees working in the Netherlands for over three months apply for a combined residence and work permit, often through programs such as the Highly Skilled Migrants Scheme, ICT Directive, or the EU Blue Card scheme. The responsibility for this application lies with the employer. However, as per the Tax Authorities’ decision on January 16, 2024, costs linked to an employee’s residence permit application are now subject to taxation as part of their wages.
This decision implies that the expenses related to applying for a combined permit should be divided into two parts: one pertaining to employment and the other to residence. For instance, costs associated with providing information by the employer are entirely related to employment, while the legal fees are entirely associated with residence. A thorough analysis is required to determine the accurate amount of tax to be deducted in payroll. If an employer opts not to recover the tax cost from the employee, it can be designated as a final taxable item (eindheffingsbestanddeel). By doing so, the employer can utilize targeted exemptions and the so-called free space (vrije ruimte). For the remaining amount that surpasses the free space, the employer will incur a final levy of 80%. Therefore, it is crucial for employers utilizing combined permits to meticulously scrutinize their payroll administration. Crowe Peak can provide assistance in this process. Curious about how? Reach out to your advisor or complete this form.
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