Allocation of income
In cross-border situations where allocation of income may be required, it is always a good idea to get a professional involved for assistance. We provide such assistance by means of consultancy, calculations or income tax preparation service.
Situations in which income allocation may be required
In general allocation of income for correct income tax return filing, may be required if a payment is received from an employer for work that is physically performed in more than 1 country, in situations where tax liability arises in another country than your country of residence. Below, we listed some common situations where allocation may be required:
- Resident taxpayer, working part of time in another country
- Being non-resident taxpayer and working part of your time in the Netherlands
- Being assigned by employer from or to the Netherlands and receiving bonus payment (or allowance) that relates to a period which overlaps work in different countries
- Equity plan vesting / exercise (stock options, RSU, ESP, LTI, STI) with a vesting period that overlaps work in different countries
When does tax liability arise
In most situations (most countries), the base rule is that you are taxed where you live (country of residence). In some situations however, if (partly) performing your work physically in another country, it is possible that the work country may also levy tax on the income related to the work you performed there.
In which situations that is the case is arranged in Tax Treaties between the country of residence and the work country. The exact details may differ from Treaty to Treaty, but the applicable Article generally describes 3 situations.
The country of work may tax you on employment income for work that is physically performed in the country of work if:
- the taxpayer has physically stayed or worked in the other country for more than 183 days in the calendar year or tax year or a 12 month period that initiated or ended in the year and/or;
- the employment income is paid by or on the behalf of an employer that is based in the work country and/or;
- the payments are borne by a permanent establishment or base of the employer in the work country.
Allocation of income
Income should be allocated on the basis of worked days (where things are arranged concerning sick days, maternity leave, vacation days etc) in the period for which the wage was paid. Even in case of a formal salary split, if not arranged differently, allocation on basis of actual worked days is usually required. For monthly wage, the worked days in the concerning month are used for the allocation, for an annual performance bonus, the period that the bonus relates to is concerned.
Other related subjects that may be relevant
Since you are interested in information regarding allocation of income, the following related subjects may also be relevant to you:
- Non-Dutch payroll income
- Double taxation relief (for resident taxpayers)
- Exclusion of income (for non-resident taxpayers)
- Social security arrangements
Feel free to contact us in case you have any questions and/or remarks.