If you are a multinational employer with operations in different countries, we recommend that you actively look into the option of a “salary split” for your employees. By taking advantage of variances in tax legislation and rates, an optimal tax position can be reached.
On the other hand, when working across multiple tax countries, an employee may miss out on personal deductions or tax facilities that may have been applicable had his or her full salary been taxed in a single jurisdiction. It is therefore important to look beyond payroll and to take the employee’s personal circumstances into consideration during any tax planning.
What is an employee salary split?
A salary split occurs when an employee works in multiple countries for an employer located in a separate jurisdiction to his or her main country of residence (hereafter ‘country of establishment’). In this scenario, all workdays taking place in the country of establishment are taxed in that same jurisdiction, whereas workdays occurring in other countries are taxed in the country of establishment. A salary split also exists when an employee works in multiple countries, and the salary costs are split across different employers (or different branches of the same employer) in those countries.
How does a salary split work?
A Dutch tax resident is taxable on his or her worldwide income. If part of the total salary is taxed in another country, the Dutch tax office will grant an exemption. The tax exemption for income taxed abroad is based on the average tax rate that would have been due if no tax treaty were applicable. If the tax in the other country is lower than the average Dutch tax rate, the employee will benefit from a salary split.
Based on a gross salary of €100,000 and on the following assumptions:
- The employee is a Dutch tax resident.
- The employee is single without children.
- The employee is paid by a Dutch employer.
- The employee executes 60% of their work in the Netherlands, 20% in the UK and 20% in Germany.
- The salary is allocated and invoiced to the company’s British and German branches on a pro-rata basis.
|Avoidance of double taxation||0||-13,630|
|Levy rebates||– 210||– 210|
|German tax||0 +||1,445 +|
Total tax burden
Other things to consider
Employers should be aware that, in the event of a salary split, a payroll or income tax return may need to be filed in more than one country. Furthermore, local registrations, notifications or permits may be required. The social security position and pension of an employee may also be affected by changes in the employee’s contract or work location. As an employer, it is therefore essential to have the full picture before deciding whether or not to carry out a salary split.
How can we help?
Setting up a salary split is a customized process, and it’s never a case of ‘one size fits all’. At Bol International, our tax, HR and payroll professionals have extensive experience helping multinational employers in the Netherlands manage salary splits. Our experts are happy to help you with any questions or concerns you may have.