Tax Considerations for Netherlands Contract under UK Limited Company
I have been offered a contract in the Netherlands and I understand I could work in one of the following ways:
This is what I understand about the Netherlands (mainly from EAFS, Contractor UK
My circumstances
So, based on the above, could I possibly do the following (which is basically option 2 above):
If the above is feasible, then the key factor would be the salary I’d have to pay myself as this would have to be the industry average (I’d say €40k). I would then pay 15% corporation tax on the profits (contract income less salary and expenses), and Dutch income tax on 70% of my salary (given the 30% tax ruling allowance). Using a rate of €600 for argument's sake, by my calculations, this would become:
Comparing this to a similar rate in the UK (£484), this would be subject to 15% corporation tax (by using a similar arrangement with my Mauritius business), income tax and NICs on a minimal salary of £12,000, and then 0% tax on all remaining money paid as dividends at a later date. By my calculations, this would become:
I believe a similar effect could also be achieved under option 4 above, but in this case, in addition to the amount being paid by the payroll company (and subject to Dutch income tax), I will also have to pay myself a salary from the limited company – but, could this be the UK minimum in this case?
I appreciate this is a complicated setup, but I hope I’ve explained it in a way that is easy to follow. I would greatly appreciate anyone's thoughts on the above and experiences they may have had with the Dutch tax system that might shed some light on the viability of what I've set out above. Please note that the 0% tax on UK dividends while resident in Mauritius is possible as I did this earlier this year.
Thanks in advance to anyone who can assist me with this.
- Under my own BV (Netherlands limited company).
- Under my UK limited company.
- Via a payroll company.
- Part payment to my BV or UK limited company and part payment (€200) from the payroll company.
- Under a sole proprietorship.
This is what I understand about the Netherlands (mainly from EAFS, Contractor UK
- Social Security must be paid on gross salaries at 21.2% at source.
- Income tax must be paid on gross salaries at 5.85% to €19,645, 10.85% to €33,363, 42% to €55,991 and 52% for higher.
- I would be eligible for the 30% tax ruling where 30% of my salary would be tax-free.
- My contract is 6 months but likely to be extended, so I may break the 183-day limit where I’m considered tax resident and therefore pay tax on worldwide income.
- UK and Netherlands have a double taxation treaty, so I will only pay tax on rental income on my three UK properties in one country. Which? And do I have a choice?
- If I operate under my UK limited company, I may be able to get an A1 certificate and therefore not have to pay social security in the Netherlands. Feasible?
- When working under a limited company in the Netherlands, a salary must be paid according to the industry average, not the minimum required like in the UK.
My circumstances
- I have three UK properties all generating rental income.
- I pay 0% tax on worldwide income in Mauritius whether or not submitted in Mauritius (under the Mauritian Diaspora Scheme).
So, based on the above, could I possibly do the following (which is basically option 2 above):
- Work under my UK limited company for the contract in the Netherlands.
- Pay myself a salary as per Dutch requirements (industry average?).
- I understand from here that this will be considered a Dutch source, so will be subject to Dutch income tax.
- Reduce the tax liability by applying for the 30% tax ruling.
- Reduce the social security to zero by applying for an A1 certificate.
- Do not pay myself any dividends and keep all the money in the company.
- Pay money from my UK limited company to my software consultancy business in Mauritius for services rendered (this will have the effect of reducing corporation tax of 20% in UK to 15% in Mauritius).
- At some point, become resident in Mauritius and non-resident in UK, and pay myself dividends from my UK limited company, and pay 0% tax on them in Mauritius (no tax is payable in UK in this case).
If the above is feasible, then the key factor would be the salary I’d have to pay myself as this would have to be the industry average (I’d say €40k). I would then pay 15% corporation tax on the profits (contract income less salary and expenses), and Dutch income tax on 70% of my salary (given the 30% tax ruling allowance). Using a rate of €600 for argument's sake, by my calculations, this would become:
- Income tax less credits:
- €2144 (with A1 certificate)
- €6511 (without A1 certificate)
- Corporation tax in Mauritius: €16,500
- Retained income:
- €131.5k (with A1 certificate) (eq. £106k)
- €127k (without A1 certificate) (eq. £102.5k)
Comparing this to a similar rate in the UK (£484), this would be subject to 15% corporation tax (by using a similar arrangement with my Mauritius business), income tax and NICs on a minimal salary of £12,000, and then 0% tax on all remaining money paid as dividends at a later date. By my calculations, this would become:
- Income tax + NI: £1210
- Corporation tax in Mauritius: £18,150
- Retained income: £101,640
I believe a similar effect could also be achieved under option 4 above, but in this case, in addition to the amount being paid by the payroll company (and subject to Dutch income tax), I will also have to pay myself a salary from the limited company – but, could this be the UK minimum in this case?
I appreciate this is a complicated setup, but I hope I’ve explained it in a way that is easy to follow. I would greatly appreciate anyone's thoughts on the above and experiences they may have had with the Dutch tax system that might shed some light on the viability of what I've set out above. Please note that the 0% tax on UK dividends while resident in Mauritius is possible as I did this earlier this year.
Thanks in advance to anyone who can assist me with this.
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