Tax guidelines for local employees and supplement recipients

About the tax guidelines

When it comes to tax liability, there are two key questions: ‘In which country is tax owed?’ and ‘How is tax levied?’. The answers to these and many other questions are given in the ‘Tax guidelines for local employees and supplement recipients’. The guidelines are available in Dutch, English, French, German and Spanish.

Specific terminology is used in the context of taxation. In the tax guidelines the terms used in Dutch tax legislation are explained in plain language. Several examples are also discussed to help clarify the rules.

The guidelines do not go into the tax system in other countries. For information about tax legislation in the country where you live and work, consult the local authorities. The operational manager at your mission can assist you with this if necessary.

The appendices to the guidelines contain lists of the countries with which the Netherlands has a tax treaty and with which the Netherlands is currently negotiating a new treaty or changes to an existing treaty. Hyperlinks provide access to the text of each treaty in the treaty languages; these texts are in the public domain. Another appendix contains the relevant provisions of the Legal Status (Local Employees) Regulations 2020 (LSR 2020).

Where are you liable to tax?

Local employees are employed as a government employee at a Dutch mission (an embassy, consulate or permanent mission) outside the Netherlands on the basis of an employment contract with the State of the Netherlands. These contracts are subject to local law. Government employers have a special position in international tax law. For tax purposes local employees are therefore treated differently to other employees in the country in question. They are also treated differently to civil servants employed by the State of the Netherlands who have been posted to the mission. This is not something BZ, in its role as employer, can change.

The default situation is that in the case of local employees both the local and Dutch tax authorities will wish to levy tax on their salary. The same applies to supplements received by ex-employees or their surviving dependants. It would be highly undesirable for employees or supplement recipients to face a double tax burden. The Netherlands has for many years been working to avoid this by actively negotiating bilateral tax treaties and making reciprocity arrangements. The tax guidelines explain what this means for you.

If you are liable to tax both in the Netherlands and locally, the salaries tax owed in the Netherlands will be paid by your employer. You will only have to pay the salaries tax owed locally. For further details, see the Legal Status (Local Employees) Regulations 2020 (LSR 2020) and the mission version for your mission.

Avoiding double taxation

Over the course of time the Netherlands has concluded tax treaties for the avoidance of double taxation and the prevention of tax evasion with over 90 countries. These treaties allocate taxing rights between the countries that are party to the treaty.

In new tax treaties the taxing right on remuneration of government employees is usually assigned to one of the countries. The other country is then no longer permitted to levy tax on such remuneration (or is permitted to do so only to a limited extent).

However, in older tax treaties the taxing right is not assigned exclusively to one country. This means that in practice the other country sometime also levies tax on the remuneration. This is of course undesirable. Usually the treaty includes a provision on how double taxation is prevented in the country of residence. Unfortunately, due to the different tax rates in different countries this does not always function as intended. BZ, in its role as the employer, has no influence over this.

The Netherlands is currently in negotiations with a number of countries to amend existing tax treaties. The intention is also to conclude tax treaties with countries with which a treaty does not yet exist. The tax situation may therefore change in the future. This process is dynamic and will in most cases take many years.

Salaries tax and income tax

Salaries tax is withheld from salaries by the employer and remitted to the Tax Administration. Income tax has to be paid by the recipient on taxable income. This includes not only salary, but also other income components and assets.

Salaries tax is usually a matter for the employer. In some cases employees may be involved. In contrast, income tax is in most cases a matter for employees, who have to deal with it themselves, whether locally, in the Netherlands or sometimes even in both countries. The employer has no involvement with income tax, but the tax guidelines nevertheless discuss some aspects of income tax. After all, salaries tax is essentially a ‘prepayment’ of the income tax owed by the employee concerned. If salaries tax is remitted in the Netherlands for an employee or supplement recipient they do not automatically have to deal with Dutch income tax. Only a small number of the employees who are liable to salaries tax in the Netherlands have to file a Dutch income tax return.

The tax guidelines also touch on social security contributions. This topic is not discussed in great detail, but only mentioned to clarify the definition of ‘remuneration’ for tax purposes. In the Netherlands ‘remuneration’ is defined as all payments from current or previous employment. This is much broader than just the monthly salary you receive for your work. Certain allowances and social security contributions are also regarded as remuneration by the Dutch authorities. This definition forms the basis for calculating the amount of Dutch salaries tax owed. In practice different definitions may be used locally. This might seem odd, but every country has the right to define what ‘remuneration’ means for tax purposes.

Questions

If after referring to the tax guidelines you still have questions, contact the operational manager at your mission. The operational manager can pass on complex questions to 3W.

If you have a question that relates specifically to your personal situation, there are various organisations you can contact. The final appendix to the guidelines contains contact details and references to useful information.

• The Tax Information Line (0800 0543) can answer general questions from people liable to tax in the Netherlands. It can also be reached from abroad by calling the BZ numbers +31 70 348 4030 or +31 70 348 4130 (calls are automatically forwarded by the switchboard).

• The Tax Administration’s Department of International Issues can be reached on: +31 (0)555 385 385. This department can answer your questions about paying Dutch income tax as a non-resident taxpayer. Always clearly state that you have an employment contract with the State of the Netherlands subject to local law or that you receive a supplement from the State of the Netherlands, and that you are not a civil servant posted abroad. Have your citizen service number (BSN) ready. If your are liable to tax in the Netherlands, your BSN will be given on your annual statement.