Supply of labour in the Netherlands

15-10-2013

1

On 1 July 2012 new Dutch legislation on the supply of labour came into effect. As a result it is important that foreign companies supplying personnel in the Netherlands are aware the Dutch Tax Authorities, Labour Inspectorate, Collective Labour parties and immigration authorities are investigating and assessing newly registered companies.

Dutch companies now require their foreign clients to register with the Dutch Chamber of Commerce before doing business.

Such registration allows the Authorities to verify whether foreign companies have complied with the requirements for Dutch wage tax, social security, immigration, etc. so forestalling any possible fines, which could be substantial.

We anticipated this approach and it proves that action must be taken by foreign companies providing personnel or services to Dutch clients in order to comply with the requirements of the new strict legislation.

In this update we inform you on the current action taken by the Authorities and steps to take to minimize any risks of being non compliant

Compliance on supply of labour in the Netherlands

2

The new Obligation to Register Intermediaries Act ('Wet registratieplicht intermediairs') in the Netherlands came into effect on 1 July 2012. This new law affects non-resident temporary employment and secondment agencies and foreign companies supplying one or more specialized workers on an ad hoc basis to clients in the Netherlands.

These non-resident companies are obliged to register with the Dutch Chamber of Commerce.

Failure to register will result in high fines. Both the company supplying workers and the Dutch hirers risk fines.

Accordingly, Dutch clients hiring personnel from foreign companies should check whether or not the foreign company is registered. If not, our experience is that Dutch companies request the foreign company to register before doing business. From their perspective this eliminates their risk.

The Dutch Tax Authorities have adopted a proactive approach; they send wage tax registration forms to foreign employment and secondment companies that have registered with the Chamber of Commerce.

Our findings and experience

3

Foreign companies supplying independent contractors should also know that the Dutch Tax Authorities may re-qualify such contracts to an employment relationship.

When a foreign company supply an independent contractor there are a few criteria based on which the contract could be re-qualified, remuneration, labour, power of authority, number of clients, etc.

Once the relationship is re-qualified to employment relationship the independent contractors can be subject to Dutch wage tax/social security etc.

The employer, the foreign (intermediate) company will be obliged to withhold and remit wage tax and social security in the Netherlands.

Using group companies or umbrella companies for the payment of the independent contractors does not mitigate the abovementioned risks.

Our findings and experience

4

The Dutch Tax Authorities hold the view that when personnel is provided to Dutch clients, a Dutch wage tax/social security withholding obligation exists for the foreign company with effect from the first day the employees are present in the Netherlands.

Based on case law, for treaty purposes, the Dutch client will be deemed to be the economic employer, as a result an income tax and wage tax obligation arises.

In addition, pension funds, collective labour parties, the Labour Inspectorate and immigration authorities have announced they intend investigating whether these foreign companies comply with Dutch mandatory employment laws and agreements.

Tax treaty application

5

Non Dutch employment agencies, secondment companies and companies supplying specialized personnel to Dutch clients should;

1. Check their registration obligation with the Chamber of Commerce, ascertain whether the contracts concluded with their Dutch clients contain providing services or labour.

2. Check the wage/income tax and social security obligation of the employees and employer.

3. Check whether the employment benefits and labour conditions are in line with Dutch law;

4. If the contractual (employment) relation is uncertain (i.e. provision of services, supply of labour or independent contractor), review any potential risks and liabilities.

Step plan

6

Every foreign company that supplies personnel must register with the Dutch Chamber of Commerce. It is forbidden to supply personnel without registration with the Chamber of Commerce. It is also forbidden to hire personnel from a company which is not registered with the Chamber of Commerce.

Both the company supplying workers and the hirers risk a fine of up to €76,000 for the first violation, €152,000 for the second and €228,000 for the third violation of the obligation to register per worker. In practice, the fines are not expected to amount to more than €12,000 for the first violation, €24,000 for the second and €36,000 for the third violation.

You can speak of providing personnel or services to Dutch clients when there is a company that supplies labour force to an other company, in exchange for a remuneration from the company who hires personnel and the personnel is under surveillance and management of the hiring company. There are different kinds of supply of labour, such as providing personnel, services or an acting as intermediate for an independent contractor.

1. Registration obligation

7

Examples of companies who are obliged to register:

1. Employment agency established in for example the UK supplying workers to clients in the Netherlands;

2. Companies providing specialized personnel to clients in the Netherlands, for example, offshore projects, seasonal work, construction projects;

3. An (IT) consultancy firm that temporarily places one or more of its employees with a client to assist on a clients project

Examples

8

If the services provided fall under the definition of supply of labour, the following tax and social security consequences need to be considered:

1. Wage tax and social security obligation of the employer as of the first Dutch work day.

2. Social security in home country possible under EU-regulation.

3. Set up a shadow payroll in the Netherlands for payment of wage tax and or social security.

4. Arrange exemption of tax withholding in home country payroll for Dutch work days.

5. File individual income tax returns to reclaim any excess taxes withheld or conclude ruling with the Dutch tax authorities.

2. Wage tax and social security obligations

9

Every foreign company which supplies employees to a company in the Netherlands must check whether the employment benefits are in line with the minimum requirements as set by Dutch law and or applicable Collective Labour Agreements:

Primarily, the employment benefits and labour conditions consist amongst others of:

1. Limitation on the working hours

2. Minimum wages

3. Minimum leave

4. Immigration requirements (non-EU)

Secondary, there are conditions which are complementary such as:

Travel expenses, (partly) paid education or a company car.

3. Employment benefits and labour law conditions

10

When a foreign company isn't sure whether they provide personnel, services or act as intermediate for independent contractors it is advisable to review the current structure.

1. Review and/moderate contracts with Dutch client to providing services or labour.

2. Arrange declaration of independency statements for independent contractors.

3. Determine whether employees presence may lead to a permanent establishment for corporate tax purposes.

4. Uncertain contractual situation – Review risks

11

Dutch clients hiring in foreign personnel can be held liable for the social security and wage taxes due by the foreign supplier of labour. In order to reduce the risks for the Dutch clients they can take the following actions:

G-account

When a foreign company provides personnel, service or a contractor, the hiring company can ask the first company to open a G-account. A G-account is a blocked bank account for remittance of wage tax and social security. The hiring company deposits part of the fee on this bank account by which it is protected against any tax and social security claims on the level of the supplier up to the amount deposit. The supplier can only use this money for the payment of wage taxes and social security for its employees.

NEN-certification

The supplier of labour can apply for a NEN-certification. Under this certification, the hirer of labour may deposit 25% of the fee on the G-account and cannot be held liable for any excess of tax and social security above the 25% due by the supplier.

Risk reducing measurements

1212

Key contacts 12

Chris van WijngaardenT. +31 20 757 0940 E. Chris.vanwijngaarden@vmwtaxand.nl

Paul van HorsenT. +31 20 301 6633 E. Paul.vanhorsen@vmwtaxand.nl