A UK contractor’s guide to contracting in the Netherlands

It’s interesting to see UK contractors asking about contracting in the Netherlands but not ask about arguably the most interesting development there of late – payroll reforms. These changes are now likely to dominate considerations for Britons eying Dutch contracts, as the reforms significantly change the game, writes Nikolas Papageorgiou of Access Financial.

The Netherlands: in a nutshell

First, let’s start with the bit you probably know already. For British workers, the Netherlands is an almost irresistible choice for overseas working. It is the sixth largest economic power in the Eurozone, it’s not far; it’s a highly developed and prosperous country and, like the UK, is open to the global economy, making it a favourite location for multinational businesses.

And despite weak growth in many of the Eurozone’s major economies, the Netherlands has shown robust economic expansion over the last few years, pushing unemployment down and stoking demand for foreign workers.

Dutch payroll reforms: what they mean for UK contractors

But now to these significant changes. Well, the reform in Dutch payroll law have come into force this year, with the effect of making it easier for employers to dismiss employees, and extending the entitlement to a ‘transition allowance’ (effectively severance pay) to all employees (formerly, employees needed to have worked for an employer for a minimum of two years), at a reduced rate.

The main impact of the changes as far as foreign contractors are concerned is that employed solutions, whereby a third-party like an umbrella company, employs contractors instead of the end-user/client, will no longer be viable.

Contractors will therefore have to decide whether to operate through a limited company or be employed directly on a Fixed-Term Employment contract. For UK contractors, the former option may well be more attractive, not least because of the high levels of tax on employees in the Netherlands.

As UK contractors know, reform is popular at the moment. The application of the off-payroll working reforms in the private sector from April 6th 2020 may encourage more UK contractors to seek work abroad. In the Netherlands, there is a model agreement between the client and the contractor’s limited company, in which the client states that the contractor is not under the direction and control of the end-user. Oh, and there is no encouragement by the Dutch taxman for the client to determine the contractor’s employment status using a tool devised by the Dutch taxman!

What are the benefits of working in the Netherlands as a contractor?

The top three benefits of working in the Netherlands which UK contractors most often report are:

• High quality of life for expats
• The Netherlands constantly ranks at the top on the best countries to live in list
• Solid and thorough social security protection

What about worker take-home pay in the Netherlands?

The maximum salary retention you can achieve in the Netherlands can reach between 55% and 75% of your gross income if you are an expatriate, and this ‘maximum’ depends on the type of contract that you hold. The higher end of the scale is only achievable by limited company contractors, but there are many factors affecting the exact percentage.

What are the levels of taxation in the Netherlands?

Until this year, there were three tax brackets: 36.65% of income from zero to €20,384 (£17, 021), then 38.1% for income from €20,385 to €68.507 and thirdly, 51.75% for income exceeding €68,507 (£57,209).

This year the Dutch government reduced the number of tax brackets from three to two. 37.35% of income up to €68,507 you earn and then 49.5% for income exceeding the €68.507. This represents a modest tax break for middle and high-income earners, which most expat contractors will likely benefit from. But please note -- there is no personal ‘tax-free’ allowance in the Netherlands, and the tax rates are considerably higher than the UK.

What are the Netherlands’ social security requirements?

1. National insurance premium of 27.65% by the employee is included in the lowest two income tax brackets.

2. Social Security contributions paid by employer:

A person who has reached the age of 65 is not required to contribute to the Dutch social security scheme because it is the age when the person start receiving pension benefits.

The official retirement age in the Netherlands is (currently) 65.

How do I register locally in the Netherlands?

To live and work in the Netherlands legally as an EU national, you need to register at the local town hall. If you are a ‘third country’ national, you need a valid work permit sponsored by a local employer. It is likely that UK nationals will need work permits once the current Brexit ‘transition period’ concludes at the end of this year, and the new relationship with the EU is formalised.

If a foreign national is coming to stay in the Netherlands for a maximum period of 90 days, then he/she is not required to register with the police. In special cases the Dutch Consulate abroad or the Royal Military Police can impose the obligation to report within three days of arriving in the Netherlands at the police. If this applies to the foreign national, he/she will hear from the relevant foreign agencies.

But contractors, you’ll need to register with a local authority i.e. bevolkingsregister (GBA[1]), if you are staying longer than 90 days in the Netherlands

All foreign nationals (including EU/EFTA nationals) who intend to stay in the Netherlands for more than three months must register in the GBA[2] (gemeentelijke basisadministratie persoonsgegevens/ Municipal Personal Records Database), within five days of arrival.

Can I just use my existing UK limited company in the Netherlands?

Working in the Netherlands using your own limited company is possible for individuals from the EU and EFTA Member States.

If you have a limited liability company in the United Kingdom, you will act as sole shareholder and the remunerated director of the UK limited company, drawing a local salary and paying Dutch taxes on the salary. The balance of the company income will be taxed in the UK according to UK corporate taxation laws. This will likely be significantly more tax-efficient than working as an employee, but how difficult this will be once the UK’s transitional relationship with the EU ends on December 31st 2020, remains to be seen.

Know before you go

In spite of the new payroll reforms, introduced on January 1st 2020 under The Labour Balance (Wet arbeidsmarkt in balans - WAB), the Netherlands is likely to remain one of the most popular foreign destinations for British contractors, even as the UK transitions out of the EU. Like the UK, the Netherlands is an outward-looking, global economy which attracts talent from all over the world. A glance at one of the Dutch government’s latest press releases shows that the country is very keen to retain this ability (‘Record number of foreign companies choose the Netherlands’ – February 19th 2020).

From a practical standpoint, the Dutch are famed for being excellent English-speakers and its proximity to the UK (including a direct rail link between London and Amsterdam), makes it possible to work in the Netherlands during the week and return to the UK for weekends.

While the standard of living in the Netherlands is high and pay highly competitive, it is a relatively heavily-taxed country by global standards. This makes the limited company route more attractive for UK contractors, though the ease with which UK-registered limited companies can be used in the Netherlands once the transition arrangements with the EU come to an end is unclear at this point. That aside, the expansion of the Dutch economy, combined with its attractiveness as a hub for global multinationals, makes it a magnet for foreign workers.

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[1] Source: http://www.expatica.com/nl/essentials_moving_to/essentials/Dutch-immigration-and-residency-regulations_12220.html

http://ukinnl.fco.gov.uk/en/help-for-british-nationals/living-in-nl/faq-permits-registration

[2]GBA is the government database, shared by numerous government agencies, which contains relevant personal information regarding residents in the Netherlands. The details at GBA register (such as the size of your apartment and family) determine charges for water and refuse collection, prompts the local health department to contact you regarding checkups for your children, and eligibility to register for social housing.