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How Indian Employees can Benefit from Netherlands' Income Tax & Immigration Incentive Schemes
The Netherlands has had Income tax and Immigration incentive schemes to attract skilled foreign workers. One of the latest developments to make the Netherlands more attractive to Indian employees is that the India-Netherlands Social Security Agreement (SSA) has also entered into force, with effect from December 2011 (this was signed in 2009).
Now, Mobility Managers in companies can plan international assignments of Indian employees to the Netherlands in such a way so as to take advantage of all these schemes under the Immigration, Income tax and Social security laws. Let's examine these further now.
Under the Dutch Immigration laws, to attract highly skilled foreign employees to the Netherlands, a special scheme exists for so-called "knowledge migrants". An employer is not required to apply for a work permit on behalf of the knowledge migrants. The employer only needs to apply to the Immigration authorities for a residence permit on behalf of the employee.
The salary requirement for individuals to qualify for the knowledge migrant scheme is indexed on an annual basis. As of 1 January 2012, the annual gross salary threshold to qualify under the knowledge migrant scheme for employees who are 30 years' old and above is EUR 51,239 (EUR 50,619 for 2011), and for younger employees is EUR 37,575 (EUR 37,121 for 2011). The residence permit is granted for a maximum period of five years under this scheme.
Dutch tax law provides a favorable tax regime ("the 30%-facility") for experts hired from abroad. Under the 30% facility, the employer may pay the employee a tax-free allowance up to a maximum of 30% of his employment income as remuneration for additional costs incurred in connection with his assignment to the Netherlands (referred to as "extraterritorial costs"). By applying the 30%-facility to the employment income, the maximum Dutch tax rate of 52% can be reduced to effectively 36.4%.
To qualify for the 30%-facility, the employee should have expertise based on several factors such as highly qualified and specialised education, relevant experience and knowledge that is scarce in the Dutch labor market.
There have been some significant changes to this scheme with effect from 1 January 2012, including the following:
--> In order to restrict the beneficiaries of this scheme, the criteria will include a taxable salary of more than EUR 35,000, this is net of the 30% tax-free allowance (subject to certain exceptions in case of PhD students, etc).
--> The facility granted under the new rules, will be applicable for a maximum of 96 months (as against 120 months under the earlier rules).
--> The relevant criteria will be continuously assessed to determine eligibility to the scheme, e.g. if the employee's salary at the end of a calendar year does not exceed the relevant level, the 30% facility will be withdrawn with retrospective effect from 1st January of that year.
--> An interim test will apply to employees who have been granted the 30% facility on or after 1 January 2007, and will take place 60 months after the commencement of the facility. If the employee does not qualify under the new criteria, the 30% facility will be withdrawn.
An important difference between the Immigration and the Income tax schemes mentioned above which should be noted is that the gross salary needs to be considered for the knowledge migrant program while for the 30%-facility, it is the taxable salary which is relevant.
Dutch social security comprises National Insurance contributions and Employee Insurance schemes contributions, as follows:
--> National insurance (including old age pension, survivor's benefits and exceptional medical expenses)
--> Unemployment insurance (including disability and redundancy insurance); and
--> Health insurance
Under certain circumstances specified in the India-Netherlands SSA, Indian employees on assignment in the Netherlands, and their employers will be able to claim exemption from the above mentioned Dutch social security contributions for the assignment period (at least upto five years) based on a Certificate of Coverage issued to the employees by the Employees' Provident Fund Organisation (EPFO) in India.
To avail of this exemption, the employer would be required to continue contributing to the Indian Provident and Pension Funds in respect of the relevant employee as an "International Worker" during the period of posting in the Netherlands. The SSA can lead to significant costs savings for Indian companies which send employees to the Netherlands on international assignments.
There are some interesting aspects arising from the above changes, which need to be considered by Mobility managers, including the following points which are discussed below:
Impact of the interim test under the new 30% facility on the existing Indian assignees working in the Netherlands.
--> In cases where the employer bears the employee taxes and social security costs in the Netherlands, such amounts borne by the employer would be part of the employee's gross salary. In case an exemption is claimed from the Dutch social security contributions under the India-Netherlands SSA, the employee's gross salary would be accordingly reduced. However, the implications of such reduction would need to be reviewed in the light of the minimum gross salary requirements under the knowledge migrant scheme, and in the light of the minimum taxable salary requirements under the new 30% facility.
--> For assignments after 1 January 2012, an application under the new 30%-facility must be made. However, it needs to be examined whether a new application will be required for an employee who has got the 30% facility under the old rules, if he comes back to India and travels to the Netherlands on a new assignment with the same company after 1st January 2012.
As is evident from the above, there are several cross-linkages between the Immigration, Income Tax and Social security laws and regulations which should be carefully examined. There are approximately 20,000 Indians in the Netherlands and Indian companies would do well to make full use of the above schemes for the existing employees as well as for new employees being sent to the Netherlands.
Economic Times, New Delhi, 03-05-2012