Taxation in the Netherlands and Belgium for Split Payroll Arrangements

Navigating the tax landscape for cross-border employment between the Netherlands and Belgium is no easy task. For professionals who live in one country and work in the other, tax compliance can be complex, as each country applies distinct tax laws and social security rules.

In the Netherlands, a progressive tax system impacts both residents and expats based on their income levels, while Belgium has a similar system with additional regional taxes that further affect tax obligations.

This blog will explore how split payroll arrangements can simplify tax compliance, avoid double taxation, and support social security alignment, helping both employers and employees manage cross-border obligations effectively.

Taxation in the Netherlands and Belgium

Taxation for cross-border workers between the Netherlands and Belgium involves navigating distinct tax laws and rates in each country. In the Netherlands, income is taxed progressively, with higher tax rates applied to higher income levels, impacting both residents and expats working in the Netherlands.

Belgium follows a progressive tax system and imposes additional local taxes that vary by region, which can increase the tax burden for Belgian residents working across the border. Unlike in the Netherlands, where local taxes are generally based on factors like property value (if a resident owns a home) rather than income, Belgian local taxes are income-based. For Dutch residents who rent, these local taxes are often incorporated into the rent. This difference adds unique tax considerations for cross-border employees living in Belgium but working partially in the Netherlands.

To prevent employees from being taxed twice on the same income, the Netherlands and Belgium have established an income tax treaty. This treaty allows for income to be taxed primarily in the country where work is performed, with credits to offset taxes paid in one country against those owed in the other. A split payroll setup enables companies to effectively implement this agreement by allocating income based on work location, which ensures compliance with both Dutch tax laws for expats and Belgian tax rules for cross-border workers. By dividing and reporting income correctly, split payroll simplifies compliance, helping both employers and employees maintain an efficient, tax-compliant structure across borders.

Social security implications

For cross-border employees between the Netherlands and Belgium, social security compliance can be as complex as tax obligations. Each country has its own social security system, with different rates and contributions for health insurance, pensions, and other benefits. Employees typically contribute to the social security system of the country where they work; however, for cross-border workers who split time between the Netherlands and Belgium, determining where to pay social security can be challenging.

Under EU social security rules, employees are generally socially insured in their country of residence. However, if an employee works abroad for more than 75% of their time, they are then subject to the social security system of the country where they work. As of July 1, 2023, an exemption applies for remote workers: employees residing in Belgium and working for a Dutch entity can work remotely from Belgium up to 49% of the time without changing their social security coverage, provided the work is exclusively for the Dutch entity.

For instance, an employee who lives in Belgium but spends more than 25% of their work time in the Netherlands may need to contribute to Dutch social insurance. In a split payroll setup, companies can allocate social security contributions based on each country’s requirements, ensuring compliance with Dutch and Belgian social insurance laws. By properly managing social security contributions for cross-border employees, companies help prevent issues such as duplicate contributions and ensure that employees maintain their entitlements in each country’s social security system.

Compliance and legal requirements

For companies implementing split payroll between Belgium and the Netherlands, understanding the compliance obligations in each country is essential. Payroll compliance requirements in both jurisdictions are distinct, with specific rules governing tax reporting, social security contributions, and employment standards. Ensuring that each employee’s income is accurately allocated and reported according to the respective country’s guidelines is key to avoiding potential fines and legal issues.

In the Netherlands, payroll compliance involves adhering to Dutch tax reporting standards, as well as ensuring contributions to social security programs based on the employee’s work allocation. Belgian compliance requirements add another layer of complexity, with additional obligations for local and regional taxes, along with specific social security regulations that apply to Belgian residents. For cross-border workers, meeting these cross-border payroll legal requirements often demands careful coordination to ensure that contributions and taxes align with both Dutch and Belgian systems.

Legal requirements also extend to employment laws impacting payroll in both countries. For instance, labour regulations in each jurisdiction may affect payroll elements such as wage protection, tax withholding, and reporting frequency. By following the employment and tax laws governing split payroll compliance in both Belgium and the Netherlands, companies can better support their cross-border employees and maintain transparent, compliant payroll practices.

Ensuring compliance with Parakar’s cross border payroll solutions

Successfully managing taxation and social security compliance for cross-border workers between the Netherlands and Belgium requires a solid understanding of each country’s unique tax and payroll regulations. Implementing a split payroll arrangement can help prevent issues such as double taxation and duplicate social security contributions, streamlining the process for employers and reducing the administrative burden for employees.

If your company employs cross-border professionals, consider partnering with Parakar to navigate these payroll complexities confidently. Our expertise in international payroll can help ensure your operations remain efficient and legally compliant, allowing you to focus on supporting your employees. Contact us today to discuss how Parakar can tailor a solution to meet your cross-border payroll needs.