Recent changes business climate Netherlands
Recent changes business climate Netherlands

Recent changes in the business climate in the Netherlands

When deciding whether or not to establish a company or subsidiary in the Netherlands, the legal form of the business is one important issue, another is the people who will be working for the company. More specifically, do you want employees or contractors? There is a big difference between the two.

Employment

An employment relationship has three main features: the work is performed personally, for which the employee is paid and a relationship of authority exists between employer and employee. An employee is protected by law to a great extent in the Netherlands. Main examples are the following: an indefinite contract cannot be terminated without prior approval from the UWV or a cantonal court, a transition allowance must generally be paid after two years of employment, minimum wages apply, a collective labour agreement may be applicable and notice of termination cannot take place during the first two years of illness. An employer is always obliged to withhold payroll taxes.

Contractor

A contractor does not have to perform the work personally, and there is no relationship of authority between employer and employee. A contractor is in other words independent. An agreement with a contractor can be terminated by giving notice, generally no compensation is due and termination is possible at all times. The company does not have to withhold payroll taxes. One can therefore understand that many companies hire contractors instead of employees. A contracting relationship can be ended easily and is therefore more flexible. However, how can one be sure that the contractor is indeed a truly independent business person? Until May 1 2016, contractors obtained a so called VAR from the Dutch Tax Authorities. If the contractor was in possession of a VAR, the company could be sure that it did not need to deduct and remit wage taxes and social security contributions.

Recent changes

The VAR no longer exists, at least will no longer exist from May 1 2017 onward. Until that time companies may adapt to the new legislation which came in to force on May 1 2016. The wet DBA was introduced on that date, entailing the reassessment of work relationships. A system of model contracting agreements was introduced. These model agreements have been approved by the Dutch Tax Authorities in order to gain security about the character of the working relationship. A company may also submit its own contract for approval by the Tax Authorities. If this contract is approved by the Dutch Tax Authorities or if one uses the model contracts, a company can rest assured that it will not be liable retroactively for the payment of payroll taxes. However, even then a company must make sure that parties act according to an independent contractor relationship and not according to an employment relationship.

A final note on statutory directors

The recent changes also apply in the case of statutory directors. These directors however have a relationship of authority with the general meeting, meaning that they will mostly work as employees. The general meeting appoints and dismisses statutory directors, taking in to account the notice period. No prior approval of UWV or a court is necessary.

Conclusion

Make sure you know whether you want an employee or a contractor and get legal advice when in doubt. The consequences can be grave if a company opts for an agreement but does not act according to this agreement.

GMW lawyers has experts who can help you work it out. Meet our lawyers or start a conversation with us.