Salary Split

For employees and directors with international responsibilities a salary split is a legitimate and often attractive instrument to reduce income taxes. In many cases it is even the –legally and fiscally correct- consequence of a factual situation. On this page, we will elaborate on the conditions and benefits of an international salary split.

Salary split – general outline

An international salary split applies if the salary of an employee is attributed to two or more countries. It can arise in several ways. As an example, there is a salary split situation if an employee enters into a formal employment with a company in another country (host country), while his employment with his formal employer in his home country will continue. Consequently, this employee will most likely become liable to tax in the host country, while he continues to be liable to tax in his home country. Double tax treaties and/or local tax law should prevent double taxation to occur.

Employee versus director

For the determination of the tax consequences of a salary split, distinction should be made between employees and statutory directors. For an employee, a salary split situation may occur if he physically performs employment activities in the other country, in addition to his activities in his home country. For someone who receives a director’s fee in his capacity as statutory director of a company in the host country, based on most tax treaties, physical presence is not required for a salary split to exist.

Examples salary split situations

The above general outline includes only one salary split situation. A salary split may, however, also occur among others in the following situations.

1. The employee is formally employed with an employer in his home country, but also physically works in the host country while maintaining an economic employment relationship with a company in the host country.
2. The employee spends more than 183 days per calendar year/12-months period in the host country, without having an employer in the host country.
3. The employee is employed with an employer located in another country than his home country, while he works in that country and other countries.
4. The employee is working for the permanent establishment of his employer in the host country.
5. Someone who is statutory director of two or more group companies in different countries.

The situation under 1 typically occurs within international groups and in secondment situations, where employees employed by one group company perform activities for group companies in other countries. If the relation between the employee and the company in the host country can be considered an economic employment relationship a salary split also occurs.

An economic employment relationships occurs if the employee is working under supervision and for the account and risk of an employer, without having a formal employment agreement with that employer.

International transfer pricing rules

If companies that belong to the same international group deal with each other, from a corporate tax perspective the taxable results of the various group companies must be calculated at arm’s length. In practice this implies that if a company provides services to other group companies, such as the provision of staff, the related costs are to be cross charged. As shown above this may have an effect on the tax position of an employee.

The Netherlands and salary splits

If the employee is residing outside the Netherlands, and while being covered for social security in his home country a salary split with the Netherlands can be attractive. In case the salary to be attributed to the Netherlands does not exceed EUR 48,000 and the 30%-ruling is applicable the Dutch average tax rate will only be approximately 7.5% (in 2017).

Salary split benefit

A salary split is beneficial in many cases, but this should always be carefully checked beforehand. If e.g. the employee has substantial tax deductions in his home country or if the average tax rate in the host country exceeds the average tax rate in the home country the outcome could even be disadvantageous.


This example is a simplified illustration of how a salary split works in practice. Tax rates are fictitious.


  • Employee is a resident of the Netherlands
  • Employee is physically working for 50% of his time in the Netherlands, 25% in France for the French group company and 25% in Germany for the German group company
  • He has a formal employment with the Dutch group company
  • He is being paid via the Dutch payroll for 100%
  • For purposes of simplicity social security is disregarded
  • His employment costs are cross charged to the French and German group companies in line with his physical presence in those countries
  • In France and Germany the employee works under supervision of the respective group companies
  • His annual gross salary is EUR 150.000
  • French average tax is 25%
  • German average tax is 30%


Salary split – EUR No salary split – EUR
Gross salary 150.000 150.000
Dutch income tax (60.000) (60.000)
French tax (9.375) 0
German tax (11.250) 0
Double tax relief 30.000 0
Net salary 99.375 90.000

The benefit of the salary split in this example is EUR 9.375.

If you want to know whether a salary split may be applied in your specific situation, please feel free to contact us.

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