Brexit and personal income taxation
The European Union (EU) and the United Kingdom (UK) have been negotiating an post-Brexit association agreement, for some time now. The UK government’s refusal to extend the transitional period, in combination with the current problems surrounding the negotiations, have increased the likelihood of the UK leaving the EU without a deal.
We are currently in a transitional period, during which the fiscal consequences for Dutch businesses are limited by the fact that the existing EU rules, in principle, remain applicable to the UK. We previously published an article about the transitional period on our website: [link] However, the transitional period will end on 31 December 2020. This will inevitably have a number of consequences.
At the moment, the British tax system is subject to many European Directives and Regulations. Furthermore, the UK is still bound by the judgements of the European Court of Justice. As a result of the UK leaving the EU, a completely new fiscal playing field will arise after Brexit. This will not just affect businesses with ties to the UK. A number of tax rules for individuals and employees are also set to change. We have listed the most important changes below.
Qualifying non-resident taxpayers
Residents of other EU Member States who earn almost all their income (more than 90% of their worldwide income) in the Netherlands, can obtain the status of a qualifying non-resident taxpayer. This entitles them to the same deductibles (e.g. mortgage interest deduction) and tax credits as residents of the Netherlands.
As soon as the UK has left the EU, UK residents who earn almost all their income in the Netherlands, will no longer meet the requirements of the qualifying non-resident taxpayer status, which means that they can no longer use Dutch deductibles and tax credits. It is possible to be considered a qualifying non-resident taxpayer during the transitional period, but not after this period ends on 31 December 2020.
Action: If you live in the UK and earn income in the Netherlands, assess the consequences for the qualifying non-resident taxpayer status.
Protective tax assessment upon emigration
When a resident of the Netherlands emigrates to another country, the Dutch tax authorities aim to safeguard the right to levy taxes on any income of that resident that has not yet been taxed. In that case, a so-called ‘protective assessment’ is issued, in order to safeguard the tax claim regarding elements such as the unrealised capital gains relating to the shares of a substantial shareholding, as well as pensions and annuities.
Upon emigration to another EU Member State, the Dutch tax authorities automatically provide a deferment of payment with regard to the protective assessment. This will no longer be the case for protective assessments resulting from an emigration to the UK, once the UK has left the EU. In this case, the emigrating taxpayer will have to provide collateral for the future payment of the assessment in order to obtain a deferment.
Action: If you intend to emigrate to the UK, assess the consequences for your personal income tax position.
An EU Regulation is in place for the coordination of social security within the EU. This Regulation prevents a double social security liability, and double premiums being due if a resident of an EU Member State works in another EU Member State.
During the transitional period, the current social security rules remain applicable to employees from the UK working in the EU, and vice versa. Once the transitional period ends, the Regulation will, however, no longer apply to the UK. This may lead to difficulties.
It is expected that the UK and the EU will negotiate new arrangements during the transitional period, with regard to social security. These new arrangements would come into force once the transitional period ends. Hopefully, more information about new arrangements will be announced in the coming months.
Action: Reassess situations in which employees live in the Netherlands but work in the UK, and vice versa, from the perspective of social security. This also applies to situations in which employees live in the UK or the Netherlands, and work in multiple EU Member States as well as the UK.
The end of the transitional period on 31 December 2020, will also have consequences for labour law. From that date onwards, European fundamental rights and European labour law will no longer apply to the UK.
For example, the Posted Workers Directive and the European Directive which prevents double coverage by supplementary occupational pensions, will no longer apply to the UK. This change may leave employers in the UK, who post employees to the Netherlands, facing double coverage and double expenses in this area.
After the transitional period, the European Directive regarding information and consultation for businesses with a European Works Council, will no longer apply to the UK. Employees from the UK will therefore no longer have a vote in a European Works Council. Also, the number of British employees will no longer be relevant for companies with a European Works Council, when it comes to the determination of the number of seats.
Lastly, the free movement of workers will no longer apply to the UK. This includes, amongst other things, the rights of residence and travel for workers and family members, and the right to employment in another EU Member State. If you want to learn more about the consequences of Brexit for the free movement of workers, please read this article.
Action: Reassess posting of British employees to the Netherlands with regard to consequences in the area of labour law.
Feel free to contact us
Baker Tilly has extensive expertise in the areas of wage taxes, labour law and taxation. If you have any questions regarding cross-border labour and income, we have the knowledge and experience to provide you with excellent advice on all relevant aspects.