The Netherlands is known for its progressive policies. The country is the first to make working from home a legal right. A leader in IT and telecommunications, the Netherlands stands out as one of the most dynamic economies in the European Union. With the 17th largest economy in the world, the country is home to over 17 million people.
The Netherlands has some of the highest taxes in the entire world, which makes performing payroll in the country tricky. Understanding the complex national tax system, including the tax deduction rates for foreign businesses, is a must for setting up payroll here.
Employers expanding in the country have a few options: establish a subsidiary or entity, use a PEO service that outsources payroll, or partner with a global EOR service like Via that handles the entire global HR and payroll process
This article gives companies who plan to expand to the Netherlands an overview of how to set up and deduct payroll in the Netherlands, as well as some of the options they have of running payroll.
The payroll cycle in the Netherlands is monthly. Employers normally pay employees on the last day of the month. Employers can send payments to employees' bank accounts via direct deposit or write a papercheck. Employers need to give their employees a breakdown of their deductions and payment through a pay stub as a record they can verify.
In the past, companies hiring employees in the Netherlands needed to establish a subsidiary, entity, or branch office prior to hiring their first employees. Today, companies ranging from small startups to major enterprises also have the option of outsourcing payroll through a PEO or using a global EOR service like Via that handles the entire HR and payroll process.
When setting up payroll in the Netherlands, companies need to make sure they are deducting wage tax (income tax), social security, and healthcare contributions.
To get started setting up a Dutch payroll, you will need to register as an employer with the Dutch Tax and Customs Administration. If your company's registered office is in another country, you will first need to register with the Tax and Customs Administration. Make sure that you are registering with all of the proper Dutch authorities.
Once registered with both agencies, you will receive:
Payroll tax number
Payroll tax return letter
A letter stating what sector you are active in, which is necessary to pay employee insurance contributions
The Netherlands has some of the highest taxes in the European Union. However, all of these taxes contribute to the extensive social security system, which provides many key benefits to employees.
Payroll taxes for the Employee Insurance Agency (social security fund) are split between contributions from both the employees and employer. The Dutch social security system covers healthcare, pension, leave, and disability.
Employer payroll contributions break down as:
5.49%-7.05% for Invalidity insurance fund
0.34%-5.34% for Unemployment insurance fund
6.75% for Health care insurance
0.21%-3.36% for Work resumption fund
0.17%-2.72% for Sickness Benefits Act
0.5% for Child care premium
The total employer social security contributions falls somewhere bewteen 13.46%-25.72%.
Employee payroll contributions break down as:
17.9% for Old age pension
.1% for Orphans and widow/widower pension
9.65% for Long term care
Up to 2.70% for General unemployment fund
The total employee social security contributions adds up to 27.65%-30.35%.
In the Netherlands, the standard corporate income tax rate is a flat 25.8%. All companies must pay this standard income tax rate annually when they are calculating their deductions at the end of the year.
The standard value added tax (VAT) or sales tax in the Netherlands is 21% for almost all goods and services.
However, some items are exempt from the standard VAT rate. For certain professions like healthcare, childcare, education, insurance and banking, there is a 0% VAT added to goods.
The Netherlands has the highest income tax in the entire world, but that money goes directly into the social programs that are set up for Dutch residents. The country has 3 different types of income boxes, each with separate tax rates. Income tax (or wage tax as it is called in the Netherlands) is set up on a progressive scale and depends on the employee’s gross salary. The wage tax starts at 2.3% and goes all the way up to 52%.
To figure out employee income tax deductions, use this deduction calculator from the Dutch government website to get a general idea of tax contributions.
To pay Dutch employees from a foreign country like the United States, there are a few payroll solutions besides opening an entity.
Foreign companies can use a remote payroll system that runs out of the parent company, team up with a third-party that offers outsourced payroll (like a PEO), or partner with a global employer-of-record service like Via that handles the entire process.
For companies that have a commitment to opening an entity or establishing a business presence in the Netherlands, running payroll internally makes sense. However, this option requires setting up an entity, which can take a few months and requires in-depth knowledge about tax laws, as well as a large amount of investment capital.
In addition to managing compliance, you will need to hire an internal HR team to manage your business. This is a good option for larger companies that have a commitment to expanding in the Netherlands.
Another option is to use a PEO service that handles payroll and hiring, or to use an internal payroll processing company. These services handle all of the payroll and make sure the right deductions are being made.
However, PEO services and internal processing companies are considered partners with the parent company, and do not take full responsibility for legal compliance. If anything were to go wrong, the parent company is still held liable. Partnering with a PEO is considered a co-employment model, so the parent company will still need to set up an entity within the country.
Finally, you can hire employees using a global EOR service like Via. EOR services handle global payroll, benefits, and compliant onboarding. An EOR service already has established entities in the Netherlands.
Many companies want to hire employees in the Netherlands, but are unsure of how to navigate the complex social security and payroll requirements. Via makes hiring Dutch talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, work permits and visas, and more. We have a local team of lawyers and on-the-ground experts that understand compliance as you expand abroad.
As your employer-or-record/entity in the Netherlands, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in the Netherlands with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.