This small, densely populated country with a key geographic location and low unemployment is home to numerous multinational offices. Here are the basics of sending an employee to the Netherlands.

• Overview
• Setting up a company
• Tax
• Social security
• Work permits
• Residence permits
• News
• Links

OVERVIEW

For a country as stable as the Netherlands, 2002 has been a testing year. The assassination in May of far-right politician Pim Fortuyn rocked the tolerant nation. In the subsequent elections, Fortuyn’s List Pim Fortuyn (LPF) party collected a staggering 26 seats in the 150 seat assembly. LPF have joined the Christian Democrat Appeal (CDA) and Volkspartij voor Vrijheid en Democratie (VVD) in a massive swing from the left-wing governments that have been the norm for years.

But the democratic overhaul seems to have had little effect on the prosperity of this small, affluent and densely populated nation.

Historically, the country has been a vital trading crossroads in Europe and is still one of the first ports of call for foreign nationals looking to establish a company on the continent.

The latest survey of the Economist Intelligence Unit shows that the Dutch business climate is currently the best in the world: Amsterdam is one of the world’s leading financial centres and Rotterdam one of the world’s busiest ports.

The report cited the Netherlands’ stable political and macroeconomic environment, the efficiency of its financial sector and the quality of its infrastructure and human capital as being key reasons that contributed to its success.

And the human capital is indeed intriguing. Dutch society is characterised by many for its liberal views on gay marriage, marijuana, prostitution and euthanasia. The cities are vibrant and exciting, and the people, once you work your way under their skin, are warm and accommodating.

SETTING UP A COMPANY

Individuals intending to start a business in the Netherlands, may, in certain cases, obtain a residence permit based on self-employment. The application procedure (or change of purpose procedure) with Aliens Police/IND can be a lengthy process. A big plus is that a work permit is not necessary.

In order to qualify, the applicant has to prove that the Dutch economic interest will be served with the intended economic activities, and this is not always an easy case to make.

Those considering establishing a business in the Netherlands should emphasis innovation and fair competition, and prove that that expatriate presence is absolutely necessary for the company. In most cases Aliens Police/IND will ask the Dutch Department of Economic Affairs (or another competent Department) for advice on the proposed new activities.

Documents such as a detailed business plan, a sound financial prognosis showing sufficient source of income, and balance sheets, approved by an accountant, will help convince the Aliens Police/IND that the expatriate’s intended economic activities are viable and will benefit the Dutch economy.

Typically, the entrepreneur will have to register the new company with the Dutch Chamber of Commerce. In general the Chamber of Commerce demands some evidence regarding legal residency in the Netherlands. A residence permit will cover this requirement.

Depending on the activities, the expatriate/entrepreneur may register a sole proprietorship (eenmanszaak), a corporation (BV) or another form of legal entity.

Generally, in order to do business in the Netherlands and send invoices to Dutch clients, a VAT number is needed. The Dutch Tax Department will usually issue a VAT number following some proof of the actual business. A registration extract from the Chamber of Commerce and some business references should go a long way in satisfying the Tax Department.

Note: Different rules apply to EU citizens, US and Swiss nationals. Seek advice from an expert before making a decision. 

TAX

Not surprisingly, the Dutch taxation system is complex, and a number of factors will be considered in determining tax.

Resident tax liability or (partial) non-resident tax liability

Status as a resident taxpayer, or a non-resident taxpayer, or a partial non-resident taxpayer will determine whether taxable income is applied to worldwide income or income from a limited number of (Dutch) sources.

It is likely that in an expatriate’s home country, a distinction for taxation purposes is made between residents and non-residents. The main rule is that a person will have to pay tax on worldwide income in the country in which they are considered to have their place of residence.

Generally, if a person lives in one country (eg, Belgium) and works in another country (eg, the Netherlands) he or she will have to pay taxes on employment income (earned income) in that other country (the Netherlands), whereas he or she pay taxes on non-earned income in the home country (Belgium).

In the Netherlands, if a person is regarded as a non-resident taxpayer, the tax liability in the Netherlands is limited (in general) to the employment income.

If it is deemed that the Netherlands is the place of residence ("the centre of your personal and economic life") a person will have to report world-wide income on their Dutch tax return.

That could include earned income abroad, income from investments, rental income from a home abroad, etc. But the person will also be able to deduct certain expenses like alimony, mortgage interest for principal place of residence, support for relatives, study expenses and gifts to Dutch charity institutions.

Non-residents in the Netherlands can choose to be treated as if they were resident taxpayers. This is an option for those whose major part of their income from work is taxable in the Netherlands and they therefore pay tax on their salary here and have deductible expenses, like instance mortgage interest paid for their home.

For purposes of the application of a tax treaty, they remain a non-resident of the Netherlands.

GOVERNMENT: Constitutional Monarchy CAPITAL: Amsterdam; The Hague is the seat of government. POPULATION: 15.9 million (July 2001 est). Ethnic groups: Dutch 91 percent; Moroccans, Turks and other 9 percent (1999 est). CURRENCY: euro ECONOMY: The Netherlands is a prosperous and open economy that relies on foreign trade. The economy is noted for its stable industrial relations, moderate inflation, a sizeable current account surplus, and an important role as a European transportation hub. The Dutch were among the first 11 EU countries establishing the euro currency on 1 January 1999. KEY TRADING PARTNERS: Export partners: EU 78 percent (Germany 26 percent, Belgium-Luxembourg 12 percent, France 12 percent, UK 11 percent, Italy 6 percent), Central and Eastern Europe, Us (2000). Import partners: EU 56 percent (Germany 18 percent, Belgium –Luxembourg 10 percent, UK 5 percent, France 6 percent), US 9 percent, Central and eastern Europe (2000). LANGUAGES: Dutch Source: CIA World Factbook

Expatriates may also consider a fourth taxation status available under the 30 percent-ruling only - partial non-resident tax liability.

In that case, a person is a resident of the Netherlands and thus a resident taxpayer, but upon request is treated, fictitiously, as a non-resident taxpayer certain income taxed, but a resident taxpayer for other types of income and deductibles. This is an additional benefit of the 30 percent-ruling and of interest to those who own a substantial number of assets.

Income from investments will not be taxed in the Netherlands even if a person is considered a resident. Expert advice in this area is a "must" in order to be able to make the right decision, but most probably being a partial non-resident will be attractive under almost all circumstances.

A decision on what type of taxation will be used must be made during the calendar year – it is too late come the time of the first income tax return.

Those who intend to utilise the 30-percent ruling should express this preference on the application form. Choices can be reconsidered each year during the relevant calendar year. Those who have already benefited from the 35 percent-ruling (replaced by the 30 percent-ruling), can also reconsider their status of deemed non-resident taxpayer too.

The question of whether a person qualifies as a resident taxpayer or as a non-resident taxpayer is also important if that person also earned employment income outside the Netherlands.

Resident taxpayers or partial non-resident taxpayers have to report income earned outside the Netherlands on their Dutch tax returns, with a relief for double taxation available under a tax treaty or similar facility. “Real” non-residents will not be affected by this but may still have to report it on their income tax return.

Because of the complexity of the Dutch taxation system, be sure to consult a specialist for a more detailed breakdown.

Residents/partial non-residents - part of salary paid outside the Netherlands

Should part of a salary — earned in connection with a Dutch employer and therefore taxable in the Netherlands — be paid outside the Netherlands, this part of the salary must be included in the payroll-salary in order to guarantee the benefit of the 30 percent-ruling.

It is not possible to still claim the benefit when reporting the "foreign" income on your income tax return.

Salary-split residents/partial non-residents

In the case of a "salary split", a person has probably had a second employment position with a non-Dutch employer, for they work in a country other than the Netherlands and for which they receive a salary from that foreign company which is taxed in that other country.

Residents of the Netherlands (and partial non-residents), will, under all circumstances, have to report this income earned abroad on a Dutch income tax return. Check whether there is a relief for double taxation available on the basis of a tax treaty or a similar facility. The 30 percent-ruling cannot be applied on the foreign income.

Real non-residents and non-Dutch income

Non-residents will not fall under the Dutch taxation system as all income physically earned outside the Netherlands is not taxable in the Netherlands. Non-residents only have to report that part of their salary that can be allocated to working days (requiring physical presence) in the Netherlands.

Income not reported on the Netherlands tax return is, in principle, subject to tax in a person’s home country or another country.

A non-resident can ask the tax authorities to treat him or her as a resident taxpayer. There are possible ramifications - other income abroad has an impact on tax liability in the Netherlands and giving up a preference for the resident tax liability within eight years may cause the Netherlands tax authorities to claim back part of the tax benefits realized in the preceding years.

US citizens

US citizens (and those filing US tax returns because they have a green card) who elect the status of a partial non-resident taxpayer, will be treated as a "real" non-resident pursuant to the US-NL tax treaty.

Therefore, income physically earned outside the Netherlands will not be taxable in the Netherlands.

30 percent-ruling and non-earned income

There is an additional benefit to those being taxed under the 30 percent-ruling. Under the 30 percent-ruling the status of "partial non-resident taxpayer" is available. This means that those considered a resident of the Netherlands can choose to be treated as a non-resident for certain parts of their income.

The most favourable option usually depends on personal income and assets - but for most being a partial non-resident is the best choice (and one can be made every year). Those choosing the deemed non-resident tax liability under the 35 percent-ruling have the opportunity to revise their choice now the 30 percent-ruling applies.

SOCIAL SECURITY

All residents of the Netherlands are guaranteed national insurance plans. These schemes cover long-term invalidity, death, old age, as well as certain medical expenses and child benefits. There are three kinds: compulsory social security schemes for the general population of the Netherlands, for employees and for the self-employed.

Welfare

People who are unable to cover essential living expenses are guaranteed supplementary benefit. Most Dutch natives and lawfully residing people are eligible for welfare, but there are exceptions. Illegal aliens, students who receive loans and grants and people who are under the age of 18 are not eligible to receive government assistance.

Municipalities govern welfare support, and those who are granted benefits must be unable to support themselves, have no other means of support available to them and have made every effort to find a job.

People aged over 57 and people who care for children under age 5 are exempt from having to seek employment. Municipalities possess the freedom of discretion concerning personal situations in individual cases.

To be eligible for social security, an applicant must register with their local authority and immigration authorities. Once completed, the person can then apply for a social security (or tax number) from the local tax authorities.

It is up to employers to arrange social security for their employees, but it is the employee's responsibility to arrange their own health insurance.

International social security treaty

It is possible for an expatriate to remain insured in their home country if it is not an EU member state. This is because of an international social security treaty devised by certain non-EU countries in conjunction with The Netherlands. In order to stay insured, the following conditions must be fulfilled:

• The person must be insured in conjunction with the social security schemes of the sending state.
• The person has to be a national of a country with which the social security treaty is applicable.
• The person’s employment with the venture continues in another state.
• The person’s work in the Netherlands is paid for by a foreign venture.
• The person’s duties within the posting period do not exceed the predetermined time barrier.

The social security treaty will protect the rights of the person acquired while working in a treaty state and enable them to use the Netherlands' periods of insurance when applying for benefits in their home country.

They also have the option of acquiring benefits from the Netherlands according to its periods of insurance. If the conditions are met (and they are strict), a certificate for secondment can be obtained. This document allows the employee to avoid paying social security in the Netherlands.

This is only possible if an expat’s home country is an EU/EEA country with which EU regulations are applicable, or if it has a separate social security agreement with the Netherlands.

They include: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden and the United Kingdom. The other 13 countries with a bi or multi lateral agreement include Australia, Canada, cape Verde, Chile, Croatia, Israel, Morocco, new Zealand, Switzerland, Tunisia, Turkey, the United States and the states of the former Yugoslavia (Croatia has negotiated a separate treaty).

It is also important to note that if an employee is to fall under the EU regulations they must be an EU national (a US national working for a UK company will not fall under an EU treaty agreement, or the specific US/Dutch treaty. Instead, he or she will only be available for Dutch social security.

WORK PERMITS

EU citizens do not need a work permit to work in the Netherlands - all others require one. Generally, it is the responsibility of the employer to apply for a permit. Applications are submitted to the local employment office in the city in which the employee lives.

The following documents will be required:

• copy of passport
• address in home country
• copy of rental agreement
• copies of diplomas, degrees, etc.
• copy of visa, date of arrival
• copy of your employment contract

A work permit is vital in order to apply for a residence permit at a later date.

Employer's duties

The employer must ensure the job vacancy is reported to the employment exchange at least five weeks before filing the application; otherwise the application may be voided. Employers transferring a staff member to a Dutch branch do not have to report the vacancy.

However, the employee must have worked for the company for at least one year in a position of middle or senior management. As a rule, the decision on applications is made within five weeks. It therefore takes 10 weeks from the date the vacancy has been reported before the position can be filled. Work permits are only issued to people aged between 18 and 45. People over 65 may be hired for short-term work only.

A work permit is only granted when no one else living in the Netherlands or other EU countries is available or qualified for the position. Technically, an employer should do everything in his or her power to hire someone in the Netherlands or another EU country.

After a position has been filled, the employer must prove he/she has actively searched in the Netherlands for a worker and applied for a work permit. The Aliens Police, officials from the Inspectorate of the Ministry of Social Affairs and the Employment Office have the right to perform unannounced inspections.

Companies that employ aliens to work without a permit risk criminal prosecution, leading to a substantial fine or imprisonment.

Employers need to provide the following information:

• paper from the Chamber of Commerce that proves the company's registration with them
• employer's name, address and telephone number
• number of employees within the company
• employee's job title
• employee's future duties and responsibilities
• the address of the place where the work will be performed
• employee's working hours
• employee's gross wage per month
• labour agreement
• the time period of employment

Spouses/partners

Spouses/partners who are EU nationals can work in the Netherlands.

Non-EU/EEA spouses/partners who accompany employees on company transfers are allowed to work in the Netherlands for the same period of time as the transferred employee's permit is valid.

However, spouses/partners must still apply for a work permit with the potential employer. The potential employer does not have to prove that the job requires skills scarce in the labour market, nor does he have to post the job with the labour office in the Netherlands and its European counterpart, EURES.

Non-EU spouses/partners have to apply for new work permits if they change employers as the work permit is not transferable.

Non-EU spouses/partners who come to the Netherlands as a result of their spouse/partner's job offer — which is not a company transfer — are not permitted to work.

Types of permits

There are three types of work permits: employment, conditional and non-renewable. Employment permits are valid for a maximum of three years. Conditional permits are for unique situations and are only valid for one year.

Non-renewable short-term permits are valid for a maximum of 24 weeks. These permits are usually for seasonal workers.

After five years working in the Netherlands, employees no longer need to renew their permits.

RESIDENCE PERMITS

Residence permits are not obligatory for EU nationals, but it is still a good idea to obtain them because a permit will allow them to apply for services in the Netherlands more easily.

Those from Iceland, Norway, Liechtenstein, Australia, Canada, Japan, Monaco, New Zealand, Switzerland and the United States of America are eligible for residence permits.

Those from other countries will have to find out if they are allowed to live and work in the Netherlands before arrival by applying for a temporary residence permit, known as an MVV, at the Dutch Embassy or Dutch Consulate in their home country.

Under these circumstances, residence permits of one year will probably be issued to non-EU nationals, depending on the terms of employment.

To assist in the process of applying for a provisional staying permit, it is a good idea for the employer to prepare the following information and documents.

• copy of passport
• address in the persons home country
• written statement from an employer that outlining the terms of employment
• work permit (or evidence of request)
• employment contract

If employment is not long term, a residence permit will probably be granted for the period of employment and no longer. The authorities have the right to postpone their decision on an application, although their decision is usually made within six months of the date of the application for the permit.

It is also important to note that a prolongation of residency should be applied for four weeks before a permit is due to expire. After the expiry date, the person may have to return to their home country until a new one is issued.

Aliens police

All non-EU nationals have to register with the Aliens Police (Vreemdelingpolitie).

Registering with the aliens police takes place in the town where a person lives and must be done within three days of arrival.

Every alien must report to the police in the city in which they are planning to live. Family members must do the same.

How to register

Both non-EU nationals and EU nationals have to register at the town hall in their local municipality within eight days of arriving in the country. The following documents are necessary:

• Valid passport (preferably valid for the duration of the stay)
• two passport pictures
• form D79 (declaration of legal marriage that is issued by the foreign police upon registration)
• health insurance
• proof of employment with a copy of a pay slip
• rental agreement
• proof of registration with the Aliens Police
• application for a work permit
• birth and marriage certificates of all family members

NEWS

Permit price hike: As of 1 May 2002, the price of a residence permit has increased significantly. The price of a temporary residence permit (for a maximum period of five years) for non-EU/EER nationals 12 and older is EUR 258, for children under the age of 12, the price is EUR 169. A permanent resident permit costs EUR 539.

New MVV rules: Recent changes to Dutch labour law now requires all non-EU nationals except citizens of Australia, Canada, Japan, New Zealand or the United States of America to obtain an MVV (authorisation temporary stay) for stays in the Netherlands beyond three months.

An MVV request must be submitted before entering the country and the requestor may not enter the country while the request is being decided. After entering the country with an MVV, the expat can have the MVV converted into a residence permit. The procedure for obtaining an MVV initiated by the non-Dutch national with the Dutch diplomatic post abroad or by the referent in the Netherlands, who must turn to the Aliens Department in his place of residence for advice on the conditions for receiving the non-Dutch national in the Netherlands.

New national employment office: As of 1 January 2002, the new Centrale Organisatie voor Werk en Inkomen (Central Bureau for Work and Income, www.cwinet.nl) became responsible for dealing with work permit requests. This bureau has taken over the duties and powers of the former Employment Office (Arbeidsbureau). Within the CWI, the legal affairs department is responsible for executing legal duties.

Accelerated procedure for specialists: Dutch companies have requested an accelerated entrance procedure for residence and work permits for highly trained specialists that cannot be found on the Dutch employment market. The absence of these specialists has been said to negatively impact the Dutch economy and employment opportunities, as it prevents Dutch companies from maintaining or expanding their level of production in the Netherlands and even causes production to be moved elsewhere.

LINKS

Immigration service: http://www.immigratiedienst.nl
Central Bureau for Work and Income: http://www.cwinet.nl
Tax service: http://www.belastingdienst.nl/
Netherlands' embassy in the US: http://www.netherlands-embassy.org
in Canada: http://www.netherlandsembassy.ca/
in Australia: http://www.netherlandsconsulate.org.au/

August 2002