How the VAR do I work under the Dutch-American Friendship Treaty

Publicado el domingo, 6 de febrero de 2011

An American friend of mine received this residence permit under the Dutch-American Friendship Treaty last November. And since then he has been kinda at a a loss as to how to interpret the rules and regulations that apply. And a combination of language barriers and lack of experience from his advisors turned it into a jungle of conflicting information.

So I gave him the answers below to his questions, which I post here for two reasons. First, it might help you if you are in a similar situation. Second so that you can correct it from any inconsistencies or errors. You will notice that I use the Dutch concepts in quotations marks. Understanding the translations of the Dutch words in the right context is part of the problem in understanding my friend is facing.

Q: What does it mean to be “Zelfstandig Ondernemer”? Do I need to own a business then?
A: The residence permit itself carries a note saying it is granted under the Dutch-American Friendship Treaty and that the bearer is allowed to work as “Zelfstandig Ondernemer”. This translates to working as a Self Employed person. It does mean literally that you own your own business, but does not mean that you need to own a legal entity like a Private Limited Company (in Dutch: BV – Besloten Vennootschap) or set up an association of partners under a firm name (the loose translation of the Dutch VOF – Vennootschap Onder Firma).

It is much more simple than that. You will be considered “Zelfstandig Ondernemer” if you register yourself as such in the Chamber of Commerce (in Dutch: Kamer van Koophandel). You can do so by filling in this form, which is offered in English. From then on you are a “Company”, or in other words “you own a company”. So below when talking about your Company I’m referring to your business activities.

So there is no need to “own” any shares, or enter into partnerships with other persons. In fact, it is better not to do so, because it can be costly, and your liability is shared directly with either other individuals (the VOF construction) or indirectly through a legal entity (the BV construction).

Q: Do I need to use a “Verloningsbureau” (a payrolling company)
A: No. The terms of this type of residence permit clearly states that you cannot be on the payroll of any Dutch company, see the requirement of being self-employed. This means that you should not use a pay-rolling service because you will have no legal grounds to ask for the refunding of excess income tax that is being deduced from your pay by the pay-rolling company.

To give you some background, the way it works in the Netherlands is as follows:\

If you are on someone’s payroll you agree on your gross salary. And from that gross salary the employer pays the taxes you owe for you, so that you will only see your net salary on your bank-account. The amount of tax deduced is mentioned on your payment slip, and on the basis of this you can then ask for money back – if applicable, at the end of the year when you give your income tax statement.

On top of you gross salary the employer also pays something called the “Loonheffingen”, or Payroll Levies. As an employee you never see it, but they can be as high as 40% of your net salary.

As a self-employed person you will receive all income generated on your bank-account, including what you will have to pay in taxes at the end of the year, and what an employer would have to retain as “Loonheffing”. Tax calculation will then be done on the basis of your turnover, and a series of deductions, including the Self-Employed deduction to determine your “income before tax”. Your mileage may vary on what this will end up being, but one thing is sure: using a pay-rolling company will make it more difficult in the end for you to clear accounts with the tax-man. So don’t use it if your are working under the Dutch-American Friendship Treaty.

Q: Should I administer all my income through my company
A: Yes, as stated above being self-employed means that you are your own company, and carry a company name under which you do the activities that generate your turn-over (income). All proceeds from  your activities should be invoiced under your company name.

Q: So how do I write and invoice? Are there any rules that apply?
A: Invoicing requires an administration. In other words: a binder that your religiously keep up to date. Do that, and then at the end of the year it will be easy to find someone to help you file taxes. Do it not and you find yourself roaming the deepest pits of bureaucratic hell with red tape coming out of your nostrils for at least 6 months. Just so you get the picture.

An invoice has the following mandatory items:

  1. Your company name (as registered in the Chamber of Commerce) and address.
  2. The invoice date
  3. The invoice number (you must give consecutive numbers to your invoices starting with “1” for the first invoice of the year. Usually numbers will include the year itself to make it easier to file them so for this year 2011 they would look like: 2011001 – 2011002 etc.
  4. Description of services and amount without VAT (in Dutch: BTW)
  5. Amount of VAT over the total amount invoiced. Check which VAT applies, normally it is 19% but for some services it is less. When in doubt use 19%.
  6. A line saying they need to pay-up in 15 days (in Dutch: “Gelieve deze factuur binnen 15 dagen te betalen”). You will need that should you need to send a reminder, and in some cases a debt-collector should it come to that.

Q: I do some teaching at schools who are VAT exempt, how do I invoice in these cases?
A: You still use the invoice format you have made, but then at the line where you mention VAT you say 0%. It is good practice to mention the VAT number (BTW Nummer) of the school on your invoice, and to ask the school for a written confirmation which states the BTW Number and the fact that they have a VAT exemption. Otherwise, you may run the risk of having to pay the VAT from your own money should they not be VAT exempt, or should the tax-man decide they are not. The more you have in written confirmation the better.

Q: So what the f**k is the VAR. That stuff is scary.
A: No it’s not. At least, not for you if you handle it well. The VAR is the “Verklaring Arbeidsrelatie” or the Statement of Employment Status. It is a letter which the tax-man will give you on request which states that you are carrying out the activities under your own name – as a self-employed person. Not giving this to your customer is scary for the customer, here is why:

Suppose you have a gig every Thursday at a restaurant. You will invoice the restaurant owner for you activities, and before he or she will pay you she will ask for a VAR. Without it, the restaurant runs the risk that at the end of the year the tax-man decides that you have actually been employed by the restaurant for a year (yes they can and have been known to do this). This would mean that the Payroll Levies (Loonheffingen) mentioned above will have to be paid over the full year that you were playing there.

To mitigate this risk the restaurant owner asks for the VAR. This way they have document proof that they requested your services as a self-employed musician. Since it was the tax-man who handed you the VAR in the first place, the restaurant owner will be safe.

You can request a VAR using this link, or ask at the Chamber of Commerce to point you in the right direction. Usually you will receive it within a week, and it is valid for a full year. Make photo copies, so you can hand it over on request.

Q: What if I play with a full band, and the other band member get paid through me. In other words, what I write the full invoice to the restaurant and then settle with the guys afterwards.
A: This is fine, but now you find yourself in the situation where the VAR is scary! You need to get a VAR from the guys, and preferably receive an invoice from them, or at least get them to sign a receipt. The paperwork sounds horrible, but you need to make sure that the tax-man does not decide that your bass-player was actually your employee over the past year. Should the tax-man decide that, then you may be levied the “Loonheffingen” over everything you’ve paid, and much more red tape (the roaming of the deepest pits of bureaucratic hell, described above”).

Costs, like the costs of fellow musicians will be deduced from your turnover before you arrive at the amount over which you will need to pay income tax. So document it and put the receipts etc. in your binder!

If your read this and have more questions, just add a comment and we will look at it. It will help to make this post complete. Also, if you have experience as a foreigner with a restricted residence permit and find that something here is not complete, just let us know.