THE 183-DAY RULE

SPLIT PAYROLLING IN THE NETHERLANDS

Referring to the text above regarding the 183-day rule and other rules triggering the right to levy tax by the work country, it is sometimes beneficial to create taxation in two or more countries to lower the total income tax paid on gross salary.

Split payroll will often only be accepted in case of a genuine split payroll situation, which entails that the employee must physically work a few days or weeks out of the month in both countries, and that, economically, he is working for entities in both countries.

A salary split may lead to a lower overall income tax paid if the country of residence uses an exemption method rather than a credit (of foreign tax paid) method.

OTHER ITEMS WHEN WORKING INTERNATIONALLY

Please note that all of the above considerations are regarding income taxes (and payroll tax) only. Your social security position is governed by a different set of tax treaties, or by the EU regulations with regard to social security. It could be that a social security obligation is triggered, where still there is no income tax due.  Your work permit is a different topic altogether. In case you need one (being a non-EU citizen), there is usually only an exemption for short business trips.

WHAT IS THE MEANING OF ”EMPLOYER” IN INTERNATIONAL TAX?

The “employer” in international tax situations is the “actual employer”; the person or body who carries the relative risks and responsibilities to the work concerned. So, the formal contract is not decisive when determining on who the employer is. The Dutch court decisions seem to indicate that there must be a direct link to the work done and the cost borne (through a cross charge of salary costs) by the employer.

Other items when working internationally 

Please note that all of the above considerations are regarding income taxes (and payroll tax) only. Your social security position is governed by a different set of tax treaties, or by the EU regulations with regard to social security. It could be that a social security obligation is triggered, where still there is no income tax due.  Your work permit is a different topic altogether. In case you need one (being a non-EU citizen), there is usually only an exemption for short business trips.

Split Payrolling

Referring to the text above regarding the 183-day rule and other rules triggering the right to levy tax by the work country, it is sometimes beneficial to create taxation in two or more countries to lower the total income tax paid on gross salary. 

Split payroll will often only be accepted in case of a genuine split payroll situation, which entails that the employee must physically work a few days or weeks out of the month in both countries, and that, economically, he is working for entities in both countries.

A salary split may lead to a lower overall income tax paid if the country of residence uses an exemption method rather than a credit (of foreign tax paid) method.

NATIONAL LAW VS. INTERNATIONAL LAW

Some countries have the (national law) rule that you are only seen as resident in the country if you spent 183 days or more in the country in a 12 months’ period, calendar year or tax year. This rule is, when applying tax treaties, not relevant.

183-day rule in tax treaties

Most tax treaties state that the country in which the employee physically works is entitled to levy income tax on the salary related to the work. The work state however does not have the right to levy if:

The employee spends 183 days or less during a certain period in the country, and

The employee is paid by or on behalf of an employer that is not tax resident in the work country, and

The employee does not work for a permanent establishment of the employer  in the work country.

• Important observations to this rule:
  fulfilling any of the 3 conditions mentioned above leads to taxation rights for the work country. 
• The flipside of this rule is that, if the work country does not have taxation rights, there is no option to claim a pro rata exemption on the salary in the country of residence.
• The number of days of physical presence in the work county is decisive, not the number of work days. The split of which country gets to tax which part however is made on actual work days.

The 183-day period is in some treaties measured as “in a calendar year”, in some “in a tax year” or , in newer treaties, “in any given 12 months period”.

183-DAY RULE IN TAX TREATIES

Most tax treaties state that the country in which the employee physically works is entitled to levy income tax on the salary related to the work. The work state however does not have the right to levy if:

The employee spends 183 days or less during a certain period in the country, and
The employee is paid by or on behalf of an employer that is not tax resident in the work country, and
The employee does not work for a permanent establishment of the employer  in the work country.

Important observations to this rule:

• Fulfilling any of the 3 conditions mentioned above leads to taxation rights for the work country.
• The flipside of this rule is that, if the work country does not have taxation rights, there is no option to claim a pro rata exemption on the salary in the country of residence.
• The number of days of physical presence in the work county is decisive, not the number of work days. The split of which country gets to tax which part however is made on actual work days.
• The 183-day period is in some treaties measured as “in a calendar year”, in some “in a tax year” or , in newer treaties, “in any given 12 months period”.