Tax treaties: which country is allowed to levy tax on wages
If countries did not make agreements with each other, an employee who works across borders might not pay any tax on their wages. Or they might have to pay tax twice: wage tax in the country where they work and income tax in the country where they live. To prevent this, countries make tax treaties. These treaties state which country may levy tax and when. If a tax treaty says that the Netherlands may levy tax, Dutch legislation decides whether you actually have to pay tax in the Netherlands.
If no tax treaty applies, Dutch legislation will provide whether you have to pay tax in the Netherlands.
You can find all tax treaties in the treaty overview (verdragenoverzicht) on the website of the Dutch central government: Rijksoverheid.nl (available in Dutch only).
183-day rule
Most tax treaties prescribe that the state in which the employee works is entitled to levy tax on the wage the employee earns in that state. However, there is 1 exception: the state in which the employee lives is entitled to levy tax when the following 3 conditions are met:
- The employee does not stay in the country of work for more than 183 days during a certain period. Depending on the tax treaty that applies, this period may be a calendar year, a consecutive period of 12 months or a tax year. To calculate the 183 days, you include all days on which the employee was in the country of work, including weekends, sick days, public holidays, leave days and vacation days. Part of a day counts as a full day.
- The employer who pays the wage is not established in the work country. In secondment situations, the wage is not paid by or on behalf of an employer in the work country.
- The employee’s wages are not charged to the profits of a permanent establishment or a permanent representative of the employer in the country of work.
These 3 conditions are jointly referred to as the '183 day rule'. If not all conditions are met, then the state where the employee works is entitled to levy tax.
Supply situations
In many international secondment situations, the 2nd condition of the 183-day rule is not met. This happens when the Dutch recipient is seen as the so-called material employer. The Netherlands may then, as the country of work, levy tax. As the formal employer, you must then pay wage tax from the employee's 1st working day in the Netherlands. The Dutch recipient remains liable if you do not do this.
Material employer under tax treaties that were concluded before 22 July 2010
The Dutch recipient is seen as the employer (the 'material employer') when the following 3 conditions are met:
- There is a relationship of authority between the employee and the Dutch recipient. This means that the recipient decides how, when and under what conditions the employee works.
- The work is carried out at the recipient’s expense and risk. The financial benefits and disadvantages of the work are for the account of the Dutch recipient.
- The Dutch recipient bears the wage costs. This is the case if you charge the wage costs roughly per unit of time, for example an amount per hour or per day.
Material employer under tax treaties that were concluded on or after 22 July 2010
Whether the Dutch recipient is seen as the material employer depends on all the circumstances together. The 3 conditions are assessed as a whole, not separately. This means that the Dutch recipient can be the material employer even if not all criteria are met. Are you unsure whether there is material employment? Then contact the Tax Information Line for Non-resident Tax Issues.
