From 2019, we will be dealing with three times as many payroll tax tables as part of the payroll tax deduction process. This is announced in the first version of the Payroll Tax Newsletter 2019.
Income tax tables
Employers use the income tax tables to determine how much tax should be deducted from their employees’ wages. As almost all payroll administration is carried out using computers, most employers are unaware that the income tax tables are being used in the process. The computer selects the appropriate table based on the data entered into the payroll system. If you would like a paper copy of the income tax tables, you can use a tool on the Tax Office's website.
Three variants
From 2019, there will be three variants for each income tax table. A distinction is made between employees who are residents of:
- The Netherlands;
- another EU Member State, an EEA country, Switzerland or the BES Islands;
- from a country other than those mentioned above.
EEA stands for the European Economic Area. The EEA comprises all Member States of the European Union, as well as Liechtenstein, Norway and Iceland. Switzerland is not part of the EEA, but it is a member of the European Free Trade Association (EFTA). The BES Islands are: Bonaire, Sint Eustatius and Saba.
This distinction is important in determining whether or not the payroll tax credit applies. We explain this in our article Tax credit foreign taxpayer. The new rules come into force on 1 January 2019. You must therefore take them into account from the first payslip in 2019. If you apply the wrong table, you will incorrectly take the tax credit into account, resulting in you paying too little in payroll tax. It is therefore important to have a clear picture of the place of residence of all your employees before 2019.
Where do your employees live?
An employee who has their permanent place of residence or abode in the Netherlands is a resident of the Netherlands. For employees who live and/or reside in both the Netherlands and abroad, it must be determined where the employee’s social and economic life is centred. You assess this on the basis of all the facts and circumstances provided by the employee.
If in doubt, you can ask the employee for a certificate of residence. The employee applies for this certificate from the tax office with which they are registered. This may, of course, also be abroad.
The newsletter includes two examples relating to the determination of an employee’s tax residence. We reproduce them verbatim below.
- “If, for example, an employee’s family lives abroad, his children attend school there and he holds bank accounts there, then he is not a resident of the Netherlands. He is not entitled to the tax portion of the tax credits.”
- “In the case of an employee without a family, their intention is what matters: if they intend to settle here, they are a resident of the Netherlands. If they intend to stay here only for a short time, they are not.”
National insurance contributions
The above relates solely to (pay) tax. This is because payroll deductions consist of two components: the wage tax and the contributions to the national insurance schemes. Social security contributions are payable by employees who are covered by these schemes. Within the European Union, this is governed by Regulation 883/2004. A discussion of these designation rules is beyond the scope of this article.
The aforementioned Regulation replaced Regulation 1408/71 with effect from 1 May 2010. At that time, transitional provisions came into force which were to apply for a period of 10 years. This period therefore expires on 1 May 2020. Employees to whom a designation rule applied under Regulation 1408/71 prior to 1 May 2010 will retain this designation for as long as their circumstances do not change, but for a maximum of 10 years.
Transport sector
This applies, amongst others, to transport companies that employ drivers resident in Germany and who work in several countries. Under Regulation 1408/71, a specific rule applied to the transport sector. This usually meant that employees were insured in the country where the transport company was established. Under Regulation 883/2004, these employees are insured in their country of residence (Germany) if they work 25% or more in their country of residence. From 1 May 2020, contributions for these employees must be paid in Germany, even if the transport company is not established in Germany.