Tax Considerations for Netherlands Contract under UK Limited Company
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    Question 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:
    1. Under my own BV (Netherlands limited company).
    2. Under my UK limited company.
    3. Via a payroll company.
    4. Part payment to my BV or UK limited company and part payment (€200) from the payroll company.
    5. Under a sole proprietorship.

    This is what I understand about the Netherlands (mainly from EAFS, Contractor UK and SJD):
    • 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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    Have you asked Mossak Fonseca?
    Last edited by northernladuk; 7th April 2016 at 07:30.
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    Quote Originally Posted by northernladuk View Post
    Have you asked Mossak Fonseca?
    No, but I see they're a Panama-based company and their services described here may be useful for me. Is this what you were hinting?

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    Well I'm not so sure you are going to get anything from the accountantcy section of a contractors forum I'm afraid. This is where contractors come to discuss our issues with the help from some friendly contractor specialist accountants. That lot is not only far TL;DR, the answer is probably going to be hugely complicated and highly specific. Good luck getting an answer here.
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    Quote Originally Posted by northernladuk View Post
    Well I'm not so sure you are going to get anything from the accountantcy section of a contractors forum I'm afraid. This is where contractors come to discuss our issues with the help from some friendly contractor specialist accountants. That lot is not only far TL;DR, the answer is probably going to be hugely complicated and highly specific. Good luck getting an answer here.
    Accounting / Legal. Better in Business / Contracts forum?

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    Quote Originally Posted by Neo View Post
    Accounting / Legal. Better in Business / Contracts forum?
    I believe General would be the best place TBH. More jet setting global businessmen in there than here it appears.

    But what I meant is the general population here are contractors. It's for us to come and chat about our problems. With that set up you are going to need a specialist so need to post where clever but slightly weird accountant types congregate. PoF, mumsnet, accountweb and the like.
    Last edited by northernladuk; 7th April 2016 at 08:45.
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    Quote Originally Posted by Neo View Post
    Accounting / Legal. Better in Business / Contracts forum?
    Moved to B&C.
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    What I would add is the 183 day rule is only one criteria for determining whether you are taxed on worldwide income. The 183 day rule applies when you have no home anywhere else.

    If you do not move permanently to the Netherlands and return to the UK every weekend or every two weeks and you keep up your social life, then you will remain UK tax resident i.e. paying only tax on Dutch income.

    This is what I did in Luxembourg and Switzerland, where I was exempted from worldwide income tax as I was an international commuter.

    Obviously they expect you to pay Dutch tax on Dutch income.

    When I did this I was expected to produce proof of travel back to my home country, rental agreement/house ownership and proof of ties eg friends and family. If you have a wife or partner in the UK then it will be assumed you remain UK resident even after 183 days.
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    Dutch want tax from day1, invoicing via your uk limited is a fantasy by the agent involved, the end client will make sure of this (otherwise tax defaults falls to them) go payroll

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    Quote Originally Posted by tarbera View Post
    Dutch want tax from day1, invoicing via your uk limited is a fantasy by the agent involved, the end client will make sure of this (otherwise tax defaults falls to them) go payroll
    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.

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