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Following the abolition of the Declaration of Employment Relationship (VAR), the rules on the deduction of payroll tax have also been amended in respect of non-executive directors and supervisory board members. This amendment came into force on 1 May 2016.
Up to and including 30 April 2016
Withholding payroll tax, except in the case of business profits or where the director is a director and major shareholder (DGA)
Withholding payroll tax
The employment relationship between the supervisory director and the institution over which he or she exercises supervision does not constitute a genuine employment relationship. However, as the Payroll Tax Act treats the auditor’s employment relationship as a deemed employment relationship, payroll taxes (and the income-related contribution under the Health Insurance Act) must still be deducted.
Except when …
If the income received by the director qualifies as business profits, or if this income is received on behalf of a legal entity (usually a private limited company), this takes precedence over the deemed employment relationship. In that case, payroll taxes must not be deducted.
The risk that payroll taxes have been wrongly not deducted rests almost entirely with the institution paying the supervisory director’s remuneration. These institutions would therefore be well advised to refrain from withholding payroll taxes only in respect of supervisory board members who, in addition to a valid identity document, can produce a valid VAR-wuo or -dga (Declaration of Employment Relationship) have been submitted.
The VAR is as of 1 May 2016 abolished.
From 1 May 2016
No payroll deductions, unless this option is chosen (opting in)
No payroll taxes
The notional employment relationship for the auditor is as of 1 January 2017disappeared from the payroll tax.
The abolition of the notional employment relationship means that no payroll tax is deducted from the remuneration of any non-executive director.
The director must, of course, include this remuneration in his or her annual income tax return.
Choice (1 May – 31 December 2016)
From 1 May 2016, the auditor and the institution were able to together choose not to withhold payroll tax. This is provided for in a decision by the State Secretary for Finance[1].
Choice (from 1 January 2017)
Following the abolition of the notional employment relationship, the director will, in most cases, be able to choose to have payroll taxes deducted nonetheless. In that case, opting in applied. In that case, the commissioner does, however, pay the income-related contribution under the Health Insurance Act themselves.
Foreign commissioners who are eligible for the 30% scheme will have to opt for payroll tax to be deducted at source.
[1] Decision of 14 March 2016, BLKB2016/265M