Four steps to freelancing as a Ltd Co. in the Netherlands
Amsterdam styles itself as the start-up capital of Europe. While Rotterdam claims the title of Gateway to Europe. Judging by the co-working spaces popping up across many Dutch cities, the Netherlands is certainly a popular destination for freelancers, entrepreneurs and contract workers from around the world.
If you have ambitions to join them – or to hire them – there are benefits and challenges to both the self-employed and the limited company routes. Which option is best depends on your own particular circumstances. But, if you’re considering working as, or hiring, a contractor in the Netherlands via a limited company, here are four questions to ask first.
1. Freelance consultant or employee?
All freelancers, self-employed professionals and contractors (and their hiring clients and recruitment agencies) need to be certain how their business relationship will be assessed by the Dutch Tax authorities. Is there an employer-employee relationship or not? This is an important question with regard to tax liability, and it applies even if you are using a limited company.
Freelancers and contractors can run the risk of so-called disguised employment. This is a realistic risk if contractors are working in a team and their situation very much resembles that of a paid employee. Under Dutch chain law, if the working relationship is qualified as an employment relationship, everyone in the chain – hiring client, recruitment agency and contractor – can be liable for any payroll taxes and VAT left unpaid by the limited company.
You can avoid the risk of the relationship being qualified as employment with a model agreement that clarifies your income tax status and payroll obligations. As long as the business relationship meets the conditions of the model agreement, the recruitment agency or hiring client cannot be held liable for any unpaid payroll tax by the limited company.
In summary, these conditions are:
• The limited company is registered with the Dutch Chamber of Commerce (KvK) as a non-resident entity to comply with the Dutch Placement of Personnel by Intermediaries rules (WAADI).
• The company directors have registered for a non-resident Citizen Service Number (BSN).
• The company has professional indemnity insurance in place.
2. Are you eligible for the Dutch 30% ruling?
The 30% ruling is a tax advantage for highly skilled migrants working in the Netherlands. The ruling allows employers to offer 30% of an employee's salary to them tax-free, meaning that the employee only pays tax on 70% of their gross Dutch salary. This ruling can also apply if your own limited company pays you a salary that meets the threshold for the 30% ruling.
3. Have you applied for your A1 form?
If you work in multiple EU member states you need to apply for an A1 certificate to certify which social security legislation applies to you. You can only be covered by one EU country’s social security system. There are numerous rules about this, but one that applies to many contractors is the 25% rule; in essence this stipulates that if you spend 25% or more of your working time in your home country, you will be covered by your home country’s social security arrangements.
4. Are you complying with Dutch minimum salary rules?
In the Netherlands, directors and shareholders employed by their own company need to meet the following minimum annual gross taxable salary rules:
• The salary must be a minimum of 75% of the salary of a comparable employee.
• At least 70% of the invoiced amount needs to be paid out as salary.
As a freelance consultant or contractor, your choice of a business structure will depend very much on your individual circumstances. That’s why it’s always a good idea to seek professional advice before starting up in business. If you have any questions, please get in touch. We are always happy to advise on the best options for Dutch employment contracts.