Tax Considerations for Netherlands Contract under UK Limited Company

[northernladuk]

Also, I've done some calculations and I would be about 10% better off going with the hybrid option than the full payroll option.

Sounds fantastic. Fill your boots.

[Andy Hallett]

When you say part payment you are now declaring all your income for the purposes of Dutch taxation. I am not aware how you can split your income like this, who's the payroll company?

[m0n1k3r]

There are four entities in the chain - me, the payroll company, the agency, and the client. Standard setup I guess. What they've told me is that if I did not pay tax due, it would fall to the agency and they have a special tax certification in NL that they are very protective of.

So, what they've offered is to do part payroll and part payment to my limited company. The amount that would be payroll (the larger amount) is enough to qualify me for the 30% ruling. Both the payroll company and the agency are accepting of this hybrid option, whereas the agency was fully against the fully limited company option for the reasons you mentioned.

Also, I've done some calculations and I would be about 10% better off going with the hybrid option than the full payroll option.

The Dutch tax authorities are quite rabid. Large, established companies send invoices and gets paid as normal because the customer trusts the company to follow the rules. When it comes to smaller companies and especially foreign ones, they want certainty. You will have to register the company with the Dutch tax authorities, possibly set up a branch and maintain separate Dutch bookkeeping for the branch, and set up Dutch bank accounts. Specifically a 'D' account. The customer or agency then pays 30% of the invoice into the D account and 70% into the ordinary account of the company. Only the Dutch tax authorities can withdraw from a D account, so once you have filed monthly returns, they take whatever is due to them and pass the remainder on to your company.

It is worth doing if your intention is to retain funds in the company to grow the business. It is not worth doing if your intention is to withdraw everything to you personally, as most contractors do.

One area of concern is your business in Mauritius. You must check the tax treaties between the UK and Mauritius and between the Netherlands and Mauritius. If it can be shown that the business there is managed and controlled by you in the UK and/or Netherlands, it is technically tax resident in the UK and/or the Netherlands even though it may also be tax resident in Mauritius. Tax treaties may contain clauses that state that such companies should only be taxed in Mauritius regardless, but that is not for certain. You would normally offset foreign taxes against UK or Dutch taxes, but if the tax rate in Mauritius is 0% that would just mean that it would be exposed to full UK corporation taxes (and probably a fine for not registering it as a foreign branch in time). If there is somebody in Mauritius managing the business there on a day to day basis, then it is managed from Mauritius and everything should be fine unless it can be shown that the arrangement is a sham.

[Guest22]

The Dutch tax authorities are quite rabid. Large, established companies send invoices and gets paid as normal because the customer trusts the company to follow the rules. When it comes to smaller companies and especially foreign ones, they want certainty. You will have to register the company with the Dutch tax authorities, possibly set up a branch and maintain separate Dutch bookkeeping for the branch, and set up Dutch bank accounts. Specifically a 'D' account. The customer or agency then pays 30% of the invoice into the D account and 70% into the ordinary account of the company. Only the Dutch tax authorities can withdraw from a D account, so once you have filed monthly returns, they take whatever is due to them and pass the remainder on to your company.

It is worth doing if your intention is to retain funds in the company to grow the business. It is not worth doing if your intention is to withdraw everything to you personally, as most contractors do.

One area of concern is your business in Mauritius. You must check the tax treaties between the UK and Mauritius and between the Netherlands and Mauritius. If it can be shown that the business there is managed and controlled by you in the UK and/or Netherlands, it is technically tax resident in the UK and/or the Netherlands even though it may also be tax resident in Mauritius. Tax treaties may contain clauses that state that such companies should only be taxed in Mauritius regardless, but that is not for certain. You would normally offset foreign taxes against UK or Dutch taxes, but if the tax rate in Mauritius is 0% that would just mean that it would be exposed to full UK corporation taxes (and probably a fine for not registering it as a foreign branch in time). If there is somebody in Mauritius managing the business there on a day to day basis, then it is managed from Mauritius and everything should be fine unless it can be shown that the arrangement is a sham.

Thank you for your comprehensive reply. Let me provide some more detail.

First, the Dutch payroll company has referred to the part payment to my limited company as a 'management fee'. I'm not sure of the significance of this. Second, per your second paragraph, I intend to fully retain funds in the company until after I leave NL. Based on this, would I still need to register the company with the Dutch tax authorities, and would I still have to create a business and/or G (not 'D' btw) account in NL under a Dutch branch of my company? I assumed the payroll company would just pay into my UK business bank account for the 'management fee' part (I will check this with them).

I've checked the tax treaties. There is a double taxation treaty between UK and Mauritius, but none between NL and Mauritius. But, like I mentioned, I don't intend to take funds from the company until after I leave NL. The way I take funds from the company after that is off-topic, but, to explain, I will either pay CT of 20% in UK or employ services of my Mauritius company to reduce operating profit and pay CT of 15% in Mauritius. When I withdraw dividends (from either the UK or Mauritius company), I intend to be resident in Mauritius at that point and I will pay 0% income tax due to the Mauritian Diaspora Scheme and the fact that you don't pay tax on dividends in the UK when non-resident. This is how I did it for the last dividends I drew. I took them earlier this year while resident in Mauritius.

I'm honestly not completely sure of how viable some of the UK-Mauritius arrangement is, though and whether it ultimately works out economically better, especially versus certain risks. Paying dividends from my UK company while resident in Mauritius definitely yields no tax in UK and 0% tax in Mauritius - of that I'm certain. But employing services in Mauritius to reduce operating profit is where I need to analyse further as to whether it's worth it. The key in all of this is to keep the Mauritian Diaspora Scheme alive because I become deregistered if I'm non-resident in Mauritius for more than two years, otherwise I must bring in a certain income in Mauritius to maintain registration. So this is part of the reason I want to employ services of my Mauritius company - just to transfer money across and keep the Mauritius company as a going concern for the purpose of the Mauritian Diaspora Scheme, even if it doesn't change my net income. There are other benefits to the scheme such as not having to pay 5% tax when purchasing a property in Mauritius (their equivalent of stamp duty).

The other option, which I need to speak further to my accountant about, is paying all the money in the UK company to myself as a salary while resident in Mauritius. I believe I then don't pay tax on it in the UK and only pay tax on it in Mauritius (which is 0%). This will certainly keep my registration on the Mauritian Diaspora Scheme, but I definitely need to chat to my accountant about this as salaries normally have to be paid monthly, and I'm not sure the timing would work for me.

#complicated

[Graemsay]

I've not worked in the Netherlands for six or seven years, but my understanding was that you were liable for Dutch tax on the entirety of your earnings whilst there.

On top of that, all the parties in the contract chain were liable to pay your tax if you didn't. For this reason, people tend to be very keen for you to be compliant.

There used to be the 30% ruling for expats, which allowed you to claim a portion of your salary tax free in recognition of the costs of living overseas. There was talk of it being scrapped, but it's still mentioned on the Belastingdienst's website, so it looks like it's still available.

With the 30% ruling, you'll probably retain about 65% to 70% of your income after tax.

Personally, I'd be looking at setting up a local company or branch of your UK company to handle taxes, rather than any offshore shenanigans. Payroll services tend to change 5% of income, which is an awful lot for a fairly simple job.

If you're being employed by an overseas agency, and it's a short term project, then you might be able to avoid Dutch taxes. I did last time I was over there. But you'd need to speak to an accountant to make sure you're compliant, and I can't remember the details.

[m0n1k3r]

Thank you for your comprehensive reply. Let me provide some more detail.

First, the Dutch payroll company has referred to the part payment to my limited company as a 'management fee'. I'm not sure of the significance of this. Second, per your second paragraph, I intend to fully retain funds in the company until after I leave NL. Based on this, would I still need to register the company with the Dutch tax authorities, and would I still have to create a business and/or G (not 'D' btw) account in NL under a Dutch branch of my company? I assumed the payroll company would just pay into my UK business bank account for the 'management fee' part (I will check this with them).

I've checked the tax treaties. There is a double taxation treaty between UK and Mauritius, but none between NL and Mauritius. But, like I mentioned, I don't intend to take funds from the company until after I leave NL. The way I take funds from the company after that is off-topic, but, to explain, I will either pay CT of 20% in UK or employ services of my Mauritius company to reduce operating profit and pay CT of 15% in Mauritius. When I withdraw dividends (from either the UK or Mauritius company), I intend to be resident in Mauritius at that point and I will pay 0% income tax due to the Mauritian Diaspora Scheme and the fact that you don't pay tax on dividends in the UK when non-resident. This is how I did it for the last dividends I drew. I took them earlier this year while resident in Mauritius.

I'm honestly not completely sure of how viable some of the UK-Mauritius arrangement is, though and whether it ultimately works out economically better, especially versus certain risks. Paying dividends from my UK company while resident in Mauritius definitely yields no tax in UK and 0% tax in Mauritius - of that I'm certain. But employing services in Mauritius to reduce operating profit is where I need to analyse further as to whether it's worth it. The key in all of this is to keep the Mauritian Diaspora Scheme alive because I become deregistered if I'm non-resident in Mauritius for more than two years, otherwise I must bring in a certain income in Mauritius to maintain registration. So this is part of the reason I want to employ services of my Mauritius company - just to transfer money across and keep the Mauritius company as a going concern for the purpose of the Mauritian Diaspora Scheme, even if it doesn't change my net income. There are other benefits to the scheme such as not having to pay 5% tax when purchasing a property in Mauritius (their equivalent of stamp duty).

The other option, which I need to speak further to my accountant about, is paying all the money in the UK company to myself as a salary while resident in Mauritius. I believe I then don't pay tax on it in the UK and only pay tax on it in Mauritius (which is 0%). This will certainly keep my registration on the Mauritian Diaspora Scheme, but I definitely need to chat to my accountant about this as salaries normally have to be paid monthly, and I'm not sure the timing would work for me.

#complicated

Sorry for the typo re the account name.

If you 'fully retain' earnings while working in the Netherlands, I believe the Belastingdienst will tell you that you cannot possibly work for nothing, as no ordinary employee would do so. You would therefore have to take a decent, normal salary in the Netherlands (at the 30% tax discount) while the company could use the rest for administration expenses and profits (hey, a company gotta live too). The trouble with using a one person Ltd Co abroad is that such companies technically doesn't exist in most places. Most limited companies abroad require at least two directors, and if the company doesn't have that, then it doesn't quite qualify as the equivalence of a Dutch BV when time comes to provide evidence in the case of a dispute. Tax authorities tend to then instead look through your limited company as if it didn't exist and assess the full revenue on yourself personally.

Therefore, I would suggest having one other person, resident in the UK (preferably) or elsewhere but not in the Netherlands also be a director of your company. That should also be the person signing for contracts etc - not you.

I would also suggest producing an employment agreement between yourself and your company that clearly state what your UK salary is. That is also what you will be paid (and pay taxes on) in the Netherlands. Don't make it too low, because they will apply the reasonability test to it.

This is what I would do:

- Talk to the payroll agency re operating payroll for you and paying the remainder to your company.
- Show them your employment agreement.
- You may also have to show them evidence that there are more directors than you (resident in the UK) by means of a Certificate of Good Standing that lists the directors (this, as well as the share capital etc is what a certificate of registration normally contains elsewhere).

If they can do this then fine - you don't have to register with the Belastingdienst and go through all the trouble of setting up bank accounts and operate Dutch payroll (which, by the way, is in Dutch, not English). And then please post the name of that payroll agency here as most of them take the 'all or nothing' approach.

[m0n1k3r]

I've not worked in the Netherlands for six or seven years, but my understanding was that you were liable for Dutch tax on the entirety of your earnings whilst there.

On the entirety of your personal Dutch earnings, and if you stay for more than 183 days, on the entirety of your worldwide earnings for the tax year (calendar year).

Always, always make a distinction between yourself and the limited company. I always cringe whenever I see somebody writing "I am a limited company...". You are not. You are a physical person. A limited company is a legal construct. You may be the 'guardian' of the company by means of being a director (if not 'the' director), you you cannot 'be' a limited company. It is legally impossible. You own and manage a limited company.

Although - it could be interesting if one could actually incorporate oneself, but that would not achieve anything. The limited liability would be limited to the incorporated entity, which would be oneself, which would not make any difference whatsoever.

If you are the sole director of the company that may mean the company profits as well (subject to Dutch corporation tax and offsetable against UK corporation tax) from day one.

Even if you are not the sole director then it may still mean the company profits if you are a director of the company (as you are deemed to be resident in the country after 183 days as well as having the right to tenter into agreements on behalf of the company). This is one of the main reasons why companies who are not one-man companies have it so much easier to operate in other countries than UK contractor companies.

As for my credentials, I am a certified accountant, specialising in international business and cross-border issues, although without knowing more about the specific details and circumstances, this does not constitute professional advice.