When hiring a self-employed professional or a freelancer, the client (principal) needs to know if the Dutch tax authorities consider the contractor as a self-employed or a payroll employee. The current way for the client to receive certainty about the contractor’s fiscal status is via the VAR (Declaration of Independent Contractor Status). Based upon the type of VAR granted to the contractor, the client knows who is responsible for the levy and payment of income tax and social insurance contributions.
As of January 1, 2016, the VAR will be replaced with the Deregulation of the Assessment of Employment Relationship Act (in Dutch: Wet Deregulering Beoordeling Arbeidsrelaties, hereafter “WDBA”). Based upon the new system, clients or contractors can submit contracts to the tax authorities and receive certainty about payroll taxes. The processing time for reviewing a contract is expected to take approximately six weeks.
Besides getting certainty on individual contracts, the Dutch tax authorities announced that 40 different model contracts, which will serve as guidelines, will be published in October 2015. Furthermore, the tax authorities intend to publish approved contracts of which they believe are helpful for clients. Based upon the conditions in the contract, the tax authorities will assess the employment relationship between the client and the contractor to determine whether the client should pay payroll taxes. If the contractor performs the work the way it is described in the approved (model) contract, the client can rely on the opinion of the tax authorities. In case of a deviation from a contract, such deviation will not have consequences if the client or contractor can reasonably argue that the deviation is temporary or incidental.
The tax authorities will provide their opinion on the contracts in writing, indicating the period for which it provides indemnity from payroll taxes. The period will in principle amount to five years or when legislation and regulations are amended within these five years. Please note that the opinion of the tax authorities does not constitute a decision that is open for objection.
During an audit, if it seems that the client and the contractor do not work with an approved or a model contract and the activities are qualified as (deemed) employment, the tax authorities will impose an assessment for the additional payroll taxes due. The WDBA increases the client’s responsibility compared with the current VAR system, in which a correction of the personal income tax return and social security contributions can only be imposed on the contractor (except if the client has acted in bad faith).
Clients who work with self-employed professionals and freelancers should be aware of the increase of responsibility (not only in cases of bad faith). An approved or model contract could avoid uncertainties regarding the levy and payment of income tax and social insurance contributions. If you need any help or would like to receive more information regarding the WDBA, Ryan International Tax professionals are available to provide you with more details.
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