Why do business in The Netherlands?
The Netherlands is renowned as a popular destination for business. The quality of life is high in The Netherlands, leading to the country frequently placing prominently on Global Happiness Indexes. This means that employees are likely to be dedicated and hard-working.
The country also has a stable economy. The Netherlands may not match the spending power of some European nations at their peak, but equally, the financial situation of the nation rarely drops sharply in troubled times. In an ever-changing world, there is a lot of like about such consistency.
The Netherlands also has a thriving digital business presence and favourable trading relations with countless other European countries. This all serves to make The Netherlands a popular destination for any business looking to expand their offering overseas.
World Bank Ease of Doing Business Ranking (1-190)
Tax rates 2020
How to set up payroll in The Netherlands
If you wish to set up a business in The Netherlands, your application must be approved by the nation’s Chamber of Commerce. This is known as the Kamer van Koophandel, or KVK. It will take around twelve weeks to complete this process.
You cannot set up a business as an individual. You will need the aid of a Dutch notary. This professional will help you register your business with the KVK and the Belastingdienst, the Dutch Tax and Customs Administration. You will also need a local bank account in The Netherlands. Your business needs at least one director, but this does not need to be a resident of The Netherlands.
You will need to pay business taxes to the Belastingdienst. At the time of writing, the business tax rates in The Netherlands are 16.5% for profits up to €200,000, and 25% thereafter. Later in 2021, these tax rates are expected to be reduced to 15% and 21.7% respectively.
Be aware – the Dutch tax year is from January 1st to December 31st, not April 6th to April 5th. Do not get caught out and incur a fine for filing your business taxes late!
Dutch employment law and HR considerations
There are few mandatory benefits listed under Dutch national law. Even company-sponsored pension schemes are technically optional, though most businesses offer a private pension to employees. The government can also insist on this if they see fit.
In terms of parental leave, the following is assigned by Dutch law:
- 4-6 weeks of maternity leave prior to birth and 10-12 weeks afterwards on full pay
- 1 week of paternity leave on full pay with a month of birth, and the option of up 5 weeks of unpaid leave
- Until a child reaches the age of 8, working employees can claim up to 26 times the hours of their standard working week as parental leave
You will also need to withhold income tax from the wages of your employees and pay these to the Belastingdienst. Income tax rates in The Netherlands are:
- Gross annual salary of €34,711 or less – 9.7% (plus social security taxes)
- Gross annual salary of €34,712 – €68,506 – 37.35%
- Gross annual salary of € 68,507 or more – 49.5%
As an employer, you will need to pay 23.19% of any employee’s salary in social security taxes. This covers unemployment insurance, health instance, disability payments, a national pension, payments to surviving relatives in the event of a death in service, long-term care payments.
On top of this, you’ll need to withhold 27.65% of an employee’s salary for social security tax if they earn less than €34,712 per year. Due to high income taxes, employees that earn over this threshold will not be liable for social security tax repayments.
These high employee taxes may deter talented employees from moving to The Netherlands. As a result, some skilled employees can take advantage of the 30% rule. This means that the individual’s gross salary is reduced by 30% PA, reducing taxable income, but they receive these funds as an expenses allowance that does not need to be declared to the Belastingdienst.
Setting up a subsidiary entity in The Netherlands
If you’re looking to set up a branch of an existing business in The Netherlands, the process is simple. Just apply in writing to the KVK. The Netherlands has a double-tax treaty with the UK, so you will only need to pay business tax on local income.
Alternatively, you can set up a limited liability company. This is known as a Besloten vennootschap, or BV. This means that your parent company will not be liable for any legal or financial issues encounter by this subsidiary entity. A new business may also qualify for tax relief under the startersaftrek initiative.
The Netherlands has a reputation as a relaxed nation for good reason. You may initially be surprised at how informal Dutch employees can be with their superiors, clients and suppliers. Naturally, you’ll still need to be polite. Just do not be taken aback if employees seem casual in terms of mannerism and dress code, though.
You’ll spend a lot of times in meetings in The Netherlands. Be prepared to attend a meeting to schedule the agenda for a meeting about the upcoming meeting. However, when the time to negotiate arrives, the Dutch bargain hard. Be honest and direct – and always stand by what you say. A verbal contract may not be legally binding, but in The Netherlands, a handshake is considered equal to a signed contract.
Dutch employees are well cared for. Sick pay, for example, is very generous. Employers are expected to pay a minimum of 70% of an employee’s annual salary for up to two years if the employee cannot work. Many employers offer a full 100% salary, so bear this in mind when drawing up a contract. This may be the difference between an employee accepting your offer or that of a competitor. If necessary, consider an insurance policy against employee sick pay.
Dutch employees are also entitled to a taxable 8% holiday allowance, known as the vakantiegeld. This is designed to incentivise employees to take their vacation days, retaining an appropriate work-life balance and avoiding burnout. Employees are not legally obligated to spend this bonus on a trip, but it is preferred that they do so.
Most businesses pay this as a lump sum with the employee’s May salary. This is certainly easier on the payroll department, as it makes tax easier to calculate. Some businesses opt to divide this payment into monthly instalments over the year, though.
Setting up in the Netherlands FAQs
Expect to wait around twelve weeks before your new business entity is ready to trade in The Netherlands.
Like most nations, The Netherlands offers a wide array of business structures. The most common are:
• Besloten vennootschap, or BV – the equivalent of a private limited liability company
• Naamloze vennootschap, or NV – the equivalent of a public limited company
• Coöperatie, a partnership of equal standing among several members
• Vereniging, a non-profit association with a single aim related to the public good
• Stichting, a non-profit charitable foundation
Does an employer have to provide a pension in The Netherlands? As you can probably imagine, the BV is the most common form of business structure in The Netherlands.
Yes and no. Officially, an employer-sponsored pension scheme is not mandatory under Dutch law. However, the government can force a business to offer a pension to employees if they consider this appropriate. As a result, over 90% of employers in the Netherlands offer a pension scheme. This makes it advisable to do so to attract talented employees. Your competitors will likely do so.
The authorities of The Netherlands offer tax relief to certain new businesses. This initiative is known as startersaftrek. This is as a sub-division of the entrepreneur allowance known as the ondernemersaftrek or the private business allowance called the zelfstandigenaftrek.
To qualify for the startersaftrek, your business must meet the following criteria:
• You must not have been a business owner for at least one year of the last five, supporting your claim that this is a new business venture
• You are eligible for the zelfstandigenaftrek, and have not claimed this more than twice in the last five years
• You must not have changed your business structure (i.e. from a BV to a sole trader) within the last year
If you qualify for tax relief under the startersaftrek initiative, you can deduct €2,123 from your gross profit when completing your tax return.
The 30% rule (also known as, “The 30% tax ruling”) applies to international employees that move to The Netherlands for work. The essence of the 30% rule is that the employee has their annual salary reduced by 30%. However, these funds are provided in the form of an expenses package that is not taxed.
This can be used to find accommodation for example, so the employee is not out of pocket. Meanwhile, the reduced salary theoretically means that the employee pays less income tax, and the employer is liable for lower social security payments. The 30% rule is optional, not obligatory.
Not everybody is eligible for the 30% rule. The following restrictions are applied:
• Only permanent employees can take advantage of the 30% rule – freelancers and the self-employed are not eligible. However, if you set up a BV and employ yourself as a Director, you can benefit from the 30% rule
• Agreement to the 30% rule must be made in writing by employee and employer alike
• The employee must have moved to The Netherlands exclusively for the role in question
• The employee cannot have lived and/or worked within 150km of the Dutch border for longer than eight months over the last two years. This means employees that previously lived and worked in Kent, Luxembourg, Belgium Eastern Germany or Northern France will not qualify for the 30% rule
• The role must be relevant to the experience and expertise held by the employee, and the employee must perform duties that cannot easily be completed by a Dutch national. Employers will likely need to prove that they tried, and failed, to hire a local employee before looking overseas
• The employee’s gross salary must be €38,961 or above after the reduction of 30% (€50,568 before the reduction) unless they hold a Master’s degree and are aged 29 years and eleven months or younger. In this case, the minimum salary is reduced to €29,616 (€38,500 before the reduction). There is no minimum wage for trainee doctors or scientific educators to qualify for the 30% rule
Once agreed, the 30% rule is active for five years at a time. The qualification criteria are reviewed every January though. If your circumstances mean that you no longer qualify for the 30% rule, such as a salary failing to reach the minimum threshold, your ability to claim this tax relief will be revoked.
Employers pay an additional 23.19% of a permanent employee’s gross salary in social security taxes in The Netherlands. This is reduced to 18.19% for employees on short-term contracts.
Employees that earn €34,711 or less per annum pay an additional 27.65% of their salary in social security taxes, as well as income tax of 9.7%. Employees that earn €34,712 or more are exempt from paying social security tax as their income taxes are much higher.
Under Dutch law, the probationary period of an employee is capped at two months maximum. If you are bringing in a new hire on a fixed-term contract, this is reduced to a one-month cap. If the contract is for less than six months, you will not be permitted to assign a probationary period.
Expect to pay roughly 1.15 time an employee’s gross annual salary to make a new hire in The Netherlands.
To open a BV in The Netherlands, you’ll need a minimum share capital of €0.01. If you cannot spare this, you may wish to reconsider starting a business at this point!
Yes, you will need to open a local bank account in The Netherlands in the name of your business. This will be possible once your business has been registered with the KVK. You will not need a residential address in The Netherlands to do this, just ID (including proof of your international address.)
A full-time job in The Netherlands, known as a voltijd, is usually contracted to 38 – 40 hours over a five-day working week. It’s essentially the traditional western nine-to-five working pattern.
As mentioned previously, while a company pension scheme is not mandatory in The Netherlands, it can be enforced. This makes it an extremely common – and popular – benefit. The previously discussed 30% tax ruling is also popular among those that qualify.
Also, many Dutch businesses offer the following perks:
• Free training programmes
• Financial allowances for travel, especially if eco-friendly (cycling, for example, is very popular in The Netherlands)
• Gym memberships
• Encouragement to take personal days to support charitable endeavours
• An annual bonus paid in December of one month’s salary (colloquially known as the, “13th month salary.”) This is taxable at the same rate an employee’s standard salary
No, employee rights are well protected in The Netherlands. You must have a good reason to terminate a contract. Typically, this will need to gross misconduct, dissolution of a role or consistent substandard performance despite attempts to help.
If you wish to terminate the contract of an employee, you’ll need permission from the Uitvoeringsinstituut Werknemersverzekeringen, or UWV. This is the Employee Insurance Agency of The Netherlands. If you can convince the employee to accept termination by mutual consent, you’ll save your business a lot of hassle.
The notice period required is one month for every year of service, capped at four months. Severance pay is mandated as 33% of a monthly salary per year of service.
Full-time Dutch employees are entitled to a minimum of 20 days of paid holiday, in addition to 8 paid public holiday days.
Yes, if you would prefer not to set up a separate BV to trade in The Netherlands you can open a branch of an international business. You’ll need to register this with the KVK.
If you open a branch of an overseas business in The Netherlands, the main business can handle all payroll needs. Alternatively, you could outsource your payroll needs to a local company. How expensive this is depends on how much work you expect this business to do.
Non-residents of EU/EEA nations will need a work permit to employed in The Netherlands. The two most common examples are:
• GVVA – a verblijfsvergunning (Dutch residence permit) combined with the right to work for a Dutch business for three months or longer. The GVVA is only open to permanent employees, and the employer will need to prove to the Immigration and Naturalisation Department (IND) that the role could not be filled by a Dutch national
• Kennismigrant – a special dispensation permit for selected, highly skilled vacancies in short supply in The Netherlands. If you can prove to the IND that an employee qualifies for a kennismigrant, there is no need to search for a local counterpart first. This permit will only be issued to employees that earn high salaries