Non Dutch resident director – minimum salary requirement
The Dutch personal income tax law includes a provision with respect to a deemed income (“gebruikelijkloonregeling”) for director-owners. This provision can result in double taxation if the director-owner is a non-Dutch resident and his company is established in the Netherlands. On 18 November, 2016 the Dutch Supreme Court determined that under certain conditions this Dutch provision cannot be effectuated, thereby limiting the cases of double taxation.
Below we will briefly point out the Dutch deemed income provision for director-owners and the risk of double taxation, after which we will present the practically relevant conclusions of the judgement of the Dutch Supreme Court.
Deemed income provision – non Dutch resident director
Simply put, barring exceptions, the deemed income provision states that director-owners need to declare a certain amount of income from employment. In 2016 this amount was €44.000, in 2017 €45.000. This amount doesn’t actually have to be paid out and therefore is a fictitious wage.
Non-Dutch resident director – Double taxation
This can result in double taxation for a non Dutch director of a company established in the Netherlands. For instance, in case the deemed income is not actually paid out as wage, but is distributed to the director-owner as dividend income and this dividend is taxed in his or her country of residence. The Dutch will tax this progressively as income from employment (box 1 of the Dutch personal income tax act), while the other country will tax this income as well. Resulting in a double taxation of the same income.
Dutch Supreme Court
The Supreme Court ruled that the application of the deemed income provision is limited in certain cross-border situations. From this we can derive the following practical conclusions:
- If a tax treaty is agreed between the Netherlands and the country of residence of the director-owner before 1997, then the Netherlands is not allowed to tax this deemed income.
- If a tax treaty is agreed between the Netherlands and the country of residence of the director-owner as per 1997, then the Netherlands is not allowed to tax this deemed income if the country of residence of the director-owner did not express to be informed nor accepted the deemed income provision.
In case you are taxed based on the deemed income provision as a non Dutch resident director-owner of a company established in the Netherlands it is advisable to check whether this is done against the ruling of the Dutch Supreme Court. It is possible to object to a final assessment as long as it is not irrevocable. Please note that this may have consequences in your country of residence.
If you have any questions or need assistance with respect to the above, please do not hesitate to contact MFFA Tax Advice.
More info about the services of MFFA Tax Advice?
MFFA Tax Advice can assist you with:
- Expat taxation in the Netherlands
- File tax declaration in the Netherlands and the US (jointly)
- Application 30% ruling
- Wage tax / compliance in the Netherlands
You can contact us through our contact form or call +31 (0)85 00 30140.