Payroll tax traps: recharging salary costs to Dutch group entities

Payroll tax: who is the real employer?

The key question is whether the Dutch group entity qualifies as the economic employer under the relevant tax treaty. This determines which country may tax the employment income. The answer affects whether all or part of the salary is subject to Dutch payroll tax, or remains  taxable in the employee’s home country.

How does the Netherlands assess ‘employer’-status?

The Dutch tax authorities use three main approaches to determine if a Dutch group entity is the economic employer for tax treaty purposes: 

Short-term assignments (up to 60 days)

For assignments up to 60 days within a twelve-month period, the Dutch entity is generally not considered the employer for treaty purposes, regardless of  how salary costs are recharged. The salary remains taxable in the employee’s country of residence.

Economic employer: authority and recharge 

If the employee works under the authority of the Dutch entity and the Dutch group entity bears the employee’s remuneration and the risks associated with the employees activities, and salary costs are individually recharged, the Dutch entity is seen as the economic employer. In this case, all or part of the  salary becomes subject to Dutch payroll tax.

Integral part of the business 

If the employee’s activities are an integral part of the Dutch  entity’s business, payroll tax obligations may arise even if salary costs are recharged as part of a general service fee, not individually. The broader business context is decisive.

Which approach applies depends on the specific tax treaty with the employee’s country of residence, the date of the treaty, and the agreed provisions.

Is your company recharging salary costs to a Dutch group entity, either individually or as part of a broader service fee or management charge? If so, the payroll tax implications should be assessed upfront to avoid unexpected taxation and compliance obligations in the Netherlands.

How aaff can help

aaff supports international companies and entrepreneurs in structuring international assignments and salary cost recharges in a tax-efficient and compliant way. We identify risks and opportunities, ensure compliance, and advise on the best approach for your situation. Want to know what this means for your organisation? Contact our global mobility specialists.