Could you be liable for contractors’ unpaid tax or VAT?
Dutch companies are increasingly turning to freelance or contract workers to fill specific skill’s shortages. Many of them are also choosing to use the services of an Employer of Record (EOR). That makes sense; there are many benefits, such as convenience and cost savings.
However, even with an EOR, hiring companies and recruitment agencies may still be responsible for their contractors’ payroll taxes and VAT. Under Dutch chain liability legislation (WKA), if the EOR provider fails to pay the wage taxes, VAT or social security contributions, other parties in the employment chain could be held liable.
Here are three protective measures you can take to limit these risks.
1. Keep full and accurate records
Ensure you properly identify and keep full records of all your freelance and contract workers. That involves keeping copies of passports or EU Identity Cards, proof of address and date of birth, along with Dutch tax registration numbers and timesheets showing the number of hours or days worked. Everyone in the chain – end client, recruitment agency and EOR provider – should keep these records although we are happy to support you to meet these requirements.
2. Screen your EOR provider
EOR providers receive a quarterly statement from the Dutch tax authorities confirming they have paid all the payroll taxes due. Blue Clue is always happy to share this information with our clients. In fact, we would strongly recommend all hiring clients and recruitment agencies request this information from their EOR provider as part of their initial screening process.
3. Use a G account (or Blocked account)
One of the most effective ways of protecting yourself against the risk of liability is by depositing the amount corresponding to the payroll taxes and VAT in your EOR’s blocked account (also known as a G account). An EOR can only use this account for paying payroll taxes and VAT, or for transferring to another G account. In this situation, the end client is not normally held responsible for any non-payment to the tax authorities.
Another option is to use an EOR provider who is NEN 4400 certified and audited every three or six months by the Dutch authorities. This ensures hiring clients or agencies cannot be held liable. However, it is often extremely unpopular with freelancers because their EOR is forced to retain a portion of their monthly income to cover holiday pay.
For that reason, Blue Clue has decided to offer a G-account service to significantly reduce our clients’ liability risk. We are also happy to provide evidence from the Dutch tax authorities that we are fully complying with the law and are up-to-date with all payroll tax and VAT payments each quarter. In order to balance our service to hiring clients and agencies with the demands of our highly-skilled and sought-after freelance and contract workers, we have decided not to become NEN 4400 certified.
If you have any questions about the Dutch chain liability legislation, or about keeping your chain liability risks under control, please get in touch. We are always happy to advise on the best options for Dutch employment contracts.