Directors and board members
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Directors and board members – International taxation
Directors and members of the supervisory board are taxed on their worldwide income in the Netherlands if they are considered tax residents in the Netherlands. This is also the case for those who perform their activities abroad, for example for an international entity. The remuneration has to be included in the annual tax return. In order to prevent double taxation on such remunerations countries concluded specific rules in tax treaties dealing with the allocation of taxing rights.
Directors and board members – interpretation
The Dutch tax authorities will in most cases state that a director or commissioner is someone at the top of the hierarchy of the business effectively managing the business (director) or supervising advising the board (commissioner). Alternatively, the Dutch tax authorities may follow the interpretation of resident country of the entity.
Wage or directors’ fee?
Taxing country for director’s fees
In essence, allowing for a deduction means a tax credit on the Dutch tax payable on the remuneration. In case the foreign tax is less that the Dutch tax payable, part of the remuneration is taxed in the Netherlands. If the exemption method applies, there is no tax due in the Netherlands. Usually, a deduction applies for directors’ fees. However, under specific circumstances the exemption method may be applied. This is the case if the director or commissioner is confronted with a heavier tax burden than a regular employer under comparable circumstances. In practice, the exemption method applies inter alia for Dutch resident directors and commissioners of companies established in the United States, United Kingdom, Belgium and Germany.
Please note that the above only applies to two-country situations. If more than two countries claim taxing rights, e.g. because are performed performed in multiple countries, additional analysis is required.