Shadow payroll is a mechanism for employees who are sent to the Netherlands from abroad but also vice versa (employees who are sent to the Netherlands from abroad). Such a deployment often has consequences for the applicable social security and tax liability. It is important to know where the employee is socially insured and where wage tax and national insurance contributions must be paid.
To prevent double taxation, the Netherlands has concluded treaties with a number of countries. These treaties state how the taxes and social insurance premiums of both countries are aligned.
If social security must be paid in one country and tax must be paid in another, or if tax is to be paid in both countries, the so-called shadow payroll comes into play.
Example of international payroll
If the employee is on the payroll in the Netherlands and is socially insured there, but he or she also works in Germany, it may be that taxes have to be paid in Germany. To determine the correct payments, a payroll is therefore required in the Netherlands, but also in Germany.
Note that the wage concept (which should be understood by “wage”) is not 100% the same in all countries. For example, a company car can lead to a completely different salary (“addition”) in one country than in another.
With an international payroll administration it is very important to make the correct payments to the relevant tax authorities, so that afterwards you will not be confronted with surprises. It’s particularly frustrating if it turns out that taxes or social security contributions have been paid in the wrong country. Firstly, it will still have to be paid in the right country. Secondly, it is not always easy to recover unduly paid amounts in the other country.
How does shadow payroll work in the regular payroll?
A shadow payroll is executed in the background of the regular payroll. This means that the shadow payroll is only intended for calculating the correct deductions and payments from the payroll taxes in the other country. No actual payments are made to the employee from the shadow payroll. The calculation of deductions takes place in the employee’s regular payroll or is at the employer’s expense.
Example of shadow payroll
When an employee is sent from Germany to the Netherlands, it must first be determined for the Dutch (shadow) payroll which wage elements are included in the Dutch payroll. The travel calendar then determines how many days the employee has worked in a specific month in the Netherlands and therefore how much income is attributable to Dutch working days. Based on this, it is determined which deductions and payments must be made in the Netherlands. Please note: no payment will be made to the employee on the basis of the Dutch wage slip, because he is already on the payroll in Germany and will receive his regular salary from that payroll. It’s also important whether a net salary agreement or a gross salary agreement has been made with the employee.
In the payroll tax return this employee is reported to the Tax Authorities. It is therefore important that a citizen service number (BSN) is present, so that an anonymous rate does not have to be applied to the wage taxable in the Netherlands.
When is a shadow payroll necessary?
A shadow payroll may be necessary in the following situations:
- An employee who works in several countries;
- An employee is on the payroll in one country, but has been posted to another country (this is especially the case if he wants to remain socially insured in the first country).
Important documents for a shadow payroll:
Important documents for a shadow payroll
- Identification (ID proof or passport)
- The employment contract and the assignment letter
- The day calender
- The pay slips
- The A1 statement or certificate of coverage.
- The 30% decision arrangement
Carrying out a schaduw payroll
Carrying out a shadow payroll and requesting various documents that are necessary in this context is often complex and requires specific knowledge. We can support you with planning the deployment, requesting the various documents and executing the shadow payroll.
If you have any questions about the shadow payroll or other Global Mobility Services, please contact our Global Mobility Services team.
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