2006 checklist for Dutch employers with international employees

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This year, companies in the Netherlands will need to deal with sweeping payroll tax and social security levying reforms. Our checklist will help you stay on top of the most relevant changes that affect your international employees.

New social security rule active as of 1 July 2006

Now, one tax return covers both wage tax and social security premiums.

The 'Social Security Registration' (Melding Sociale Verzekeringen) for new employees has been replaced by a 'first-day notification' (Eerstedagsmelding).

Employers must report new employment contracts before the effective date of these contracts. This rule is important, because if the tax inspector discovers that first-day notification was omitted for an employee who has already started working for an employer, the tax inspector can assume that the employee has been employed for at least six months, unless the employer can prove otherwise. The first-day notification rule will be effective from
1 July 2006

Health care insurance act (ZVW)

A new national health care insurance scheme started in the Netherlands on 1 January 2006, replacing the compulsory health insurance under the Health Insurance Act (Ziekenfondswet) and the private health insurances. Employers will pay an income-linked part of the premium on behalf of the employees. The contribution is subject to taxation.

Employees on assignment in the Netherlands are, in principle, also covered by the new Dutch health care system, because they work and/or live in the Netherlands. This means that they have to conclude a basic insurance. However, if this inbound assignee is not covered by the Dutch national insurance (by means of an E101-certificate or a Certificate of Coverage) and remains insured in the home country, the Dutch health care system is not applicable and no basic insurance has to be taken out. 

Major change in payroll processing requirements

From 2006 on, employers need to file one tax return for both wage tax and social security premiums. The return must be filed electronically. The employers will receive an annual request to file the electronic return. The filing deadline is stated in the request.

If the tax authorities detect errors in the filed return that can be corrected within the filing term, the tax authorities will notify the employer by sending a so-called 'notification of incorrect return' (Foutieve Nominatieve Aangifte). If the employer identifies the error in time, he may file a new return with the correct figures. No penalty will be due in that case.

Errors detected after the filing term has expired must be stated in the next return by including a 'notification of correction' (correctiebericht). The tax authorities are entitled to impose a penalty in that case. Therefore, keeping payroll records up-to-date is vital in the new situation.

Penalties: Notification of correction and the first-day notification

The administration of the UWV (Uitvoeringsinstituut Werknemersverzekeringen) will be based upon the wage tax returns. The Dutch tax authorities find it essential that correct information is filed in time. The tax authorities may impose fines in the case of an employer not fulfilling these obligations. For example in the following instances: Late filing or non-payment of the tax/premiums; the first-day notification is not filed (correctly) or on time; the notification of correction is not filed (correctly) or on time.

Therefore it is extremely important that you provide your consultant with the correct and complete payroll information on time, to allow this information to be processed in the correct wage period.

Company cars now taxed in the payroll

Up until 2006, the benefit of the private use of a company car was taxed through the employee's income tax return. Since the beginning of 2006, the employer has had to tax the company car in the payroll, unless the employee can prove that private use was less than 500 kilometres a year. In the latter case the employer and employee will be jointly responsible for the kilometre records.

The benefit is rated at 22 percent of the car's list value. Wage tax and social security premiums are due on the addition.

The administrative burden is expected to increase considerably, for example for an employee who changes cars or jobs, or for a temporarily used car is, or for a car used by more than one employee.

The tax authorities have issued practical guidelines to make it easier for employers to check kilometre records. Compliance with these guidelines will safeguard the employer from further assessments.

January 2006

Jeroen Gombert is the lead International Assignment Services partner in Amsterdam.   He can be contacted at JGombert@deloitte.com.

Subject: On assignment in the Netherlands, International employees in the Netherlands

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