One of the risks of working with an independent contractor, is that the Dutch Tax Authorities may deem the relationship to actually be an employment agreement. If so, the Tax Authorities will claim payroll taxes and social premiums. In the Netherlands, this risk was mitigated by requesting the contractor to provide a valid VAR declaration before the work started.
A contractor could ask the Dutch Tax Authorities to grant such VAR declaration. This is a declaration of independent contractor status. It confirmed that the contractor was an actual contractor and indemnified the company hiring the contractor for claims by the Tax Authorities.
The VAR declaration for contractors was abolished on May 1, 2016. The system of the VAR-declaration has now been replaced with model agreements provided by the Tax Authorities for each sector or professional field. These model agreements can be used by companies that want to engage a contractor.
Companies can use the model agreements that are made available on the website of the Dutch Tax Authorities. These model agreements provides assurance that the relationship with the contractor will not qualify as an employment agreement. However, this is only the case if the agreement is carried out in practice exactly as described in the agreement.
The main difference between the VAR declaration and the model contractor agreement is that the model agreements offer less security. The VAR-declaration indemnified the company hiring the contractor for claims by the Tax Authorities. The model agreements, on the other hand, only offer protection from such claims if carried out exactly as described in the agreement.
Instead of using a model agreement, companies can submit their own envisaged agreement to the Tax Authorities. The Tax Authorities will then assess the agreement. If approved, such agreement offers the same protection as a model agreement from the website.
The Tax Authorities try to assess submitted agreements within six weeks. In practice, this is approximately 11 weeks.
The first data made public show that most agreements submitted to the Tax Authorities are rejected. Approximately a quarter of the agreements submitted in the first three months were approved.
Please don’t hesitate to contact me, should you want to know more about this subject.