Wage and income tax
For employees who perform cross-border work, the laws and regulations of different countries may apply. Each country has its own rules to determine whether and how income will be taxed. An employee who lives in one country and works in another is in principle liable for tax in the country of domicile and in the country in which they work. On the basis of international laws and regulations, it is then necessary to determine the country in which (part of) the income is taxable. Considerable benefits can be achieved with this.
The place of residency for tax purposes plays an important role in the determination of an employee’s tax liability in a country. Under Dutch law, it is necessary to determine where a person lives on the basis of the facts and circumstances. This concerns the actual situation. On the basis of the applicable treaty, it is also necessary to determine where the employee’s domicile is located for treaty purposes. Complex situations can arise here, with dual domicile occurring.
Exterus provides advice and support in the determination of the employee’s fiscal domicile and the associated consequences for tax liability.
Exemption for the avoidance of double taxation
The location at which the work is performed also plays a major role in the determination of an employee’s tax liability in a country. Most tax treaties provide that the country in which the employee works has the right to tax the income that the employee earns there.
Exterus can advise and assist with the calculation and applications for exemptions for the avoidance of double taxation.
Tax equalisation and hypothetical tax calculations
For an employee who is to be posted abroad, the remuneration for the posting is often very important. The employee will in any event not want to be worse off and will want to at least maintain the same standard of living.
The amount of tax due on the employee’s income depends on the country in which the work is performed. As a result, a difference can arise in the fiscal charges of an employee who works in one country in comparison with an employee working in another country. In order to equalise these unequal fiscal charges, an employer can introduce a tax equalisation policy. If a tax equalisation policy is introduced, the employees will not experience any fiscal advantages or disadvantages through a posting to a relevant country.
Exterus provides support for employers with setting up and implementing such a tax equalisation policy.
Employees who are deployed in different countries can in some cases use the operation of the tax treaties to gain tax advantages by dividing the income over those countries through setting up and applying a salary split.
Setting up a salary split results in a division of the power to tax the employment income between the different countries (in principle in accordance with the actual division of the work).
The main advantage of a salary split is that the income to be taxed in other countries will usually be taxed at lower tax rates. Before a salary split can be implemented, however, a number of conditions have to be met.
We can assist with the implementation and operation of salary splits.
Employment Costs Regulation
The mandatory entry into force of the Employment Costs Regulation (WKR) is due to take place on 1 January 2015.
In the WKR, all payments and benefits relating to an employment contract are simply exempted from payroll taxes up to an amount of 1.5% (2014) of the total gross salary. Payments in excess of the (fixed) limit are included in the taxable income and are taxed at a rate of up to 80%, unless the employer and the employee agree that they both regard the payment or benefit as salary.
Via the WKR, compensation can be issued fairly simply for company fitness programmes, a bicycle, professional literature, Christmas packages, etc. In the current system, employers must take account of multiple rules that apply for all exempted benefits and payments. However, complex situations also arise in the WKR, through exemptions and zero valuations.
It is important for employers to consider whether the WKR requires an adjustment of the existing pledges concerning payments that may or may not be included in employment contracts or fringe benefit regulations. The employment costs regulation also requires continual monitoring to determine whether and how much final levy is due: this has consequences for the (organisation of the) financial and salaries administration.
The combination and coordination of the financial administration, personnel affairs and salaries administration within your organisation will become even more important.
Exterus provides the following assistance with:
- Inventory and analyzing of the existing situation within your company;
- Proposing alternatives and assistance with making choices in the adjustment of fringe benefits;
- Implementation of the WKR and organisation of your administration and processes.