The Netherlands and Germany have agreed to amend the income tax treaty. The amendment includes a threshold arrangement whereby employees may work in the home country up to a maximum of 34 days per year. It should be noted that this arrangement also applies to civil servants (article 18 of the treaty). This means that these individuals can work in the other country for up to 34 days without triggering income tax liability in that country. On the other hand, there will be a tax liability in the other country is the individual will be working more than 34 days in the other country which shall result in a so-called salary splat arrangement.
A salary split arrangement (also known as split payroll) is a compensation structure for internal employees, where their income is taxed across multiple countries in which they perform work. The primary objectives of a salary split arrangement are to ensure compliance with international tax regulations and to optimize the overall tax burden for both the employee and the employer. However, employees can potentially benefit from lower progressive tax rates or tax-free allowances in multiple countries, which can result in a higher net (take-home) income without increasing the employer’s labor costs. Most importantly, it ensures that both the employer and employee comply with the tax withholding and reporting requirements of all involved jurisdictions. In anyway, keeping track of days worked will become important.
The intended effective date of the amendment is 1 January 2026.
