183-days rule

General memorandum regarding the 183-days rule, (economic) employership and the relevance of cross-charging to the Netherlands.

– July 2019 –


In this memorandum we provide you with the potential wage tax consequences concerning an employee who works in the Netherlands. We focus on the definition of (economic) employership and the aspect of cross-charging of salary costs to the Netherlands. For the purpose of this memo we have assumed that the employee is not a resident taxpayer of the Netherlands (but is considered tax resident in another country) and that he is not registered as statutory director in the Netherlands.

1.  183-days rule in double tax treaties

Based on the 183-days rule as mentioned in double tax treaties, an employee will remain exclusively taxable in the state of residence, if the following conditions are all met:

  1. The employee’s physical presence in the work state does not exceed 183 days in any 12 month rolling period / a tax year / a calendar year (note: specific time frame depends on the applicable tax treaty); and
  2. The remuneration of the employee is not paid or borne by an employer in the work state; and
  3. The remuneration is not borne by a permanent establishment or fixed base of the employer in the work state.

2.  More than 183-days test (condition 1)

If an employee spends more than 183 days of physical presence in the work state (note: for the purpose of this memo the Netherlands is regarded as work state), the employee will be taxable in the Netherlands on salary relating to Dutch work days. Note that 183 days is not counted on the basis of work days only, but all days of physical presence in the Netherlands are counted. In this regard we stress that a part of a day (unless in transit at an airport) is considered a day for counting purposes.

3.  Less than 184 days (condition 2 and 3)

If the physical presence of the employee in the Netherlands does not exceed 183 days during a tax year, the employee may still be taxable in the Netherlands on salary attributable to Dutch work days. This is the case if condition 2 and 3 of the 183-days rule are not met.

Assuming there is no permanent establishment (hereafter: PE) in the Netherlands for whom the work is performed by the employee (and the activities as such also do not constitute a PE in the Netherlands) and thus the 3rd condition is met, it is critical to assess whether the 2nd condition (employership) is also met. When cross-charging salary costs to the Netherlands, this condition may not be met anymore in which case the employee is taxable in the Netherlands on salary relating to Dutch work days. As such, it needs to be determined whether the Dutch (group) entity can be seen as the employer in the meaning of the tax treaty. If not (and also assuming there is no PE), the 2nd condition is met and the employee will not be taxable in the Netherlands.

3.1  Economic employer: general

Hereafter we will discuss in more detail the interpretation by the Netherlands of the 2nd condition of the 183-days rule, more specifically the term ‘employer’ for tax treaty purposes. The element of who is bearing the costs, directly or indirectly (e.g. via cross-charge), plays an important role.

As mentioned before, an employee could be taxable in the Netherlands even when he spends less than 184 days in the Netherlands. This is the case when the remuneration of the employee is paid or borne by an employer in the Netherlands. For determining whether this condition is met, it should first be investigated who qualifies as the employer for the application of the applicable double tax treaty.

The Netherlands apply a material/economical approach to assess whether the Dutch company can be considered as employer in the meaning of the tax treaty. The Dutch Supreme Court (“Hoge Raad”) set criteria to evaluate this. A company can be seen as a so-called economic employer when that company, in relation to the activities performed (in the Netherlands), has the authority to instruct the employee regarding the manner in which the work is performed (i.e. element of power of authority). Furthermore, the company has to bear the risks and profits, coming forth out of the activities performed by the employee (i.e. element of risk). Finally, the company should bear the salary costs (i.e. element of costs); the costs are considered to be borne by the company, in case the costs are cross-charged on an individualized basis, meaning that they can be related to the individual employees concerned, for example an amount per day.

3.2  Economic employer: element of costs / the relevance of cross-charge method

With respect to cross-charging of costs we stress that it should be determined on a case-by-case basis whether costs are borne by or whether the entity bears the salary costs on an individualized basis. However, we provide a few guidelines for a better understanding of the important criteria. In this regard we will make a distinction between the relevance of the direct and indirect cross-charge method. Although it cannot be said that a direct cross-charge is similar to an individualized cross-charge and an indirect cross-charge rules out the qualification as an individualized cross-charge, the cross-charge method can provide guidance for the actual reasons and background of the cross-charge. Knowing this will make it easier to assess whether the 2nd condition of the 183-days rule is met.

Direct cross-charge

In general when the cross-charge reflects an amount (close to the) salary costs of the involved employee whilst the performances on behalf of the Dutch company by the foreign employee is taking into account, this mostly qualifies as a direct cross charge of the salary costs. As a consequence, the condition is generally met that the company bears the salary costs for the purposes of the 183-days rule. An individualized cross-charge on the basis of work performed for the Dutch company may likely result therein that the Dutch company should be seen as economic employer which means that the workdays performed in the Netherlands may trigger personal wage/income tax. Such a cross-charge method suits in situations like hiring out of labour (disposal of an employee from one entity to the other) as opposed to situations of provision of services from one entity to the other.

Therefore, in such cases it is important to assess whether the element of power of authority (e.g. is the Dutch entity allowed to give instructions, is the employee an expert and has such specific knowledge that he can actually not be giving instructions by the Dutch entity?) and risk (e.g. is the employee working on behalf of the Dutch entity?) is also met. Only when all 3 elements (power of authority, risk and costs) are met, the employee is taxable on his salary attributable to Dutch work days.

Indirect cross-charge

An indirect cross-charge, e.g. a cross-charge via a management fee, that is not so strongly based upon the actual employment activities by that employee in the Netherlands but based upon other criteria e.g. turn-over, profit, head-count, etc. will generally not qualify as an individualized cross-charge. Also the indirect cross-charge method is merely applied in case of provision of services rather than hiring out of labour. For example, a cross-charge for the costs (including salary costs of management) of marketing or IT that is based upon a percentage of the turn-over, is not a cross-charge on an individualized basis. Generally, the element of power of authority is also missing in such cases.

3.3  60-day facility

Please note that not all indirect cross-charges automatically take away the risk of economic employership. This especially applies to situations where an individualized cross-charge (for the purpose of labour lending) is clouded by including it in a management fee. In other words, substance prevails over form.

Further to the above, please note that since it is not always easy to determine whether the criteria of economic employership are met, the Dutch Ministry of Finance published in 2010 a Ministerial Decree introducing policy guidelines on the definition of ‘employer’ in the employee article of tax treaties, mostly relevant for cross-border intercompany short-term employments (from the home country legal entity to the host country legal entity). Examples are given under which no employership in the Netherlands is assumed and thus no Dutch taxation arises, e.g. certain management activities solely performed on behalf of and under the supervision of the parent company and not also on behalf of the subsidiary. The principles applied in the examples correspond to those discussed above.

Also important, it is assumed – irrespective of who is actually bearing the salary costs – that the Dutch employer is not considered as economic employer when an employment does not exceed 60 work days over a 12 month period provided that the activities take place in the context of an exchange program, career development or in situations where the employee in question has a specific expertise. This relief is intended in principle for group entities as referred to in the Dutch Wage Tax Act which means that a 1/3rd equity stake is required (however, groups that do not satisfy this requirement, but do present themselves as a group can submit an application to the Dutch tax authorities to request equal treatment).

Whether the 60-day facility can be applied should be determined on a case-by-case basis. When employees fall within the (higher) management of the company, we think that it may be argued that they have specific expertise that is not available in the Dutch company. To gain certainty on this matter, it is possible to ask the Dutch tax authorities for approval. We have experienced in practice that the authorities agree to apply the 60 workdays rule for (senior and middle) management functions but also in a broader context than is formally required by the Ministerial Decree. Obviously, the employees should not work more than 60 days in the Netherlands in a 12 month period.

4.  Employer obligations

In the event that an employee is subject to Dutch wage tax, the foreign, formal employer will in principle be liable to withhold and remit wage tax. In other words, the foreign employer will have to register in the Netherlands and keep a Dutch (shadow) payroll. However, from 1 January 2013, there is a general facility included in the legislation for reversing wage tax withholdings from the home country employer to the Dutch (host country) employer in assignment situations. As such, the Dutch employer can take over the withholding obligation from the home country employer. However, a request should be filed with the Dutch tax authorities in this respect, otherwise the foreign formal employer should still register with the Dutch authorities for the purpose of remittance of Dutch wage tax. For completeness’ sake we note that this facility does not apply to formal salary split situations. In those situations the formal foreign employer(s) still need(s) to register and remit wage tax in addition to the Dutch formal employer.