Non-Residential Payroll in the Netherlands
Non-Residential Payroll (NRP) is a clever solution for businesses aiming to expand their teams and employing in the Netherlands without committing to a permanent establishment or incorporating a new legal entity.
At Parakar, we recognize the complexities involved in extending your business to a new country, particularly navigating intricate local and global payroll regulations. Establishing a new legal entity in the Netherlands may not always be the most suitable solution, considering the company’s expansion strategy and financial constraints. Additionally, the commonly adopted Employer of Record (EOR) model may not always be a perfect fit with the distinct requirements of the company and its employees. Hence, NRP emerges as a strategic alternative to both EOR and traditional entity setup, offering a tailored approach to meet specific needs.
It offers a unique opportunity for foreign employers without an in-country entity to engage in “payroll-only” registrations with local tax and social security authorities This enables them to manage a local payroll without registering with the Dutch Chamber of Commerce and without the requirement to file corporate income tax in the Netherlands. Moreover, in certain cases, employees prefer direct employment with the ultimate employer rather than being engaged through a payrolling company.
Advantages of Non-Residential Payroll
- Swift registration: NRP registrations usually conclude within 2 to 6 weeks, varying based on industry and organisational factors. This presents a faster option compared to establishing a limited liability company.
- Cost-effective solution: For businesses with a small workforce in the Netherlands, the expenses associated with setting up a legal entity may surpass the benefits. NRP eliminates the necessity for share capital and annual accounting costs, leading to a reduction in setup expenses.
- Direct employment: With NRP, the parent entity gains the ability to directly employ foreign workers, bypassing the need to establish a legal presence in the host country. This feature provides a level of flexibility and control in the employment process.
The Limitations of Non-Residential Payroll
While NRP offers several advantages, it’s crucial to be aware of its limitations:
- Banking and benefits limitations: NRP does not grant companies to initiate bank account openings or extend employment benefits. Any attempts to do so might be construed as establishing a permanent presence, incurring additional obligations and tax responsibilities.
- Wage tax accountability: Under NRP, employees usually bear the responsibility of directly remitting their Wage Tax to local authorities, deducted from their net pay. This process is overseen by employees during their annual tax filings with the relevant authority. However in the Netherlands businesses do have the option of supporting the employee and filing directly to the authority on their behalf.
- Peril of permanent establishment: As the number of employees or certain job positions increases, there is a heightened risk of being classified as a permanent establishment, potentially leading to additional obligations and tax liabilities.
Permanent establishment VS Non-Residential Payroll
Contrary to NRP, when the employer has a registered business address in the Netherlands it is considered a resident payroll, also referred to as permanent establishment. Having a business address in the Netherlands requires the company to register itself with the Dutch Chamber of Commerce. If no Dutch legal entity was set up, this can be regarded as a branch office. This branch office can have similar obligations to those of a Dutch legal entity.
Non-Residential Payroll (NRP) offers a pragmatic approach to establish a presence in the country without the full commitments associated with a legal entity. However, it’s crucial to assess both the benefits and limitations before deciding which approach best fits your situation. Seeking expert guidance is recommended to ensure an informed choice that aligns with your business objectives.
At Parakar, we are dedicated to providing support and guidance throughout the entire process, ensuring compliance and success in the Dutch market. Reach out to our experts to discover a customized solution that helps you unlock your full potential.
