Legal stuff to keep in mind when building yachts
Beautiful ships are designed and built in the Netherlands. A whole range of companies work together to get the job done, such as shipyards, contractors, owners, ship agents and crew staffing companies. People from all over the world are involved. This means that, during the lengthy building process, stakeholders are confronted with a myriad of legislation. It can be quite a feat to figure out which rules apply and how to comply with them. Especially since this requires knowledge of different areas of law.
Kirsten Boele, Muhyadin Mohamud and Robert Bosma have advised many clients in the yachting industry about compliance with the relevant rules and regulations, each from their own areas of expertise. Though from different firms, they regularly work together to provide their clients with comprehensive legal advice. In this blog, Kirsten, Muhyadin and Robert share a number of important do’s and don’ts and other important things to keep in mind when building yachts.
Employment
Ø Do the prep work
Time is seldomly on your side in large projects, but make sure you reserve some time to adequately analyse what type of workers will work in or visit the shipyard, when they will do so and what kind of work they will carry out. There are different groups of workers such as yard personnel, personnel from contractors, representatives of owners and crew members (right before or after sea trials). While all these people work at the same yard, it is important to realise that different rules may apply to them. It is a common misconception that waiving your liabilities in a contract with your client, means that you cannot be held liable by the workers or be sanctioned by the government. You still can. Make sure you know which rules apply so you can be compliant and avoid problems.
Ø Assess before you sign
If you post workers or have workers at your yard, it is important to do a risk assessment and see how the work can be organised and can fit within the larger ship building project. While it is not always possible to address all risks, running a calculated risk is always better than being confronted with an unforeseen problem. It allows you to take necessary or desired amendments to the scope of the work or price. It is important to note that Dutch law will often apply to the work and employment contracts, even if workers come from outside the Netherlands or outside the European Union. Even if the employment contract contains a choice of law for another jurisdiction, all Dutch mandatory employment regulations often still apply and must be observed. Do yourself a favour and do not skip the assessment phase and conclude employment agreements too quickly. Allow for last minute amendments for compliancy purposes.
Ø Pay specific attention to work hours and minimum wage
The maximum work hours and minimum rest hours may vary from worker to worker. Do not label a worker on board a ship under construction a ‘seafarer’ too easily to allow for extensive work hours. Instead, investigate what truly corresponds with the applicable legislation and make sure there is an accurate work and rest hours administration available at all times. It is important to take note of the statutory minimum wage and minimum holiday pay in the Netherlands. As per 1 January 2024, the statutory hourly minimum wage is € 13,27 gross per month for workers aged 21 years and older.
Ø Prepare for a possible visit of the Netherlands Labour Authority
The Netherlands Labour Authority regularly inspects shipyards. The inspectors often do friendly inquiries on site but be aware that the Authority may follow up with an extensive investigation report that will serve as the basis for sanctions. Sanctions may include fines, forced back payments, publication of investigation results or even a shutdown of work. Forewarned is forearmed, so duly prepare your people on sight for such an inspection.
Immigration
When foreign nationals are flown (or sailed) into the Netherlands to work on a shipbuilding project, Dutch immigration law comes into play. Foreign nationals are required to have the appropriate visa and work-authorisation for carrying out work-related activities at a shipyard. Interaction with multiple government agencies is required. The Dutch Immigration and Naturalisation Service (IND) is responsible for assessing residence permit applications. The Employee Insurance Agency (UWV) is the agency that reviews work permit applications. The Netherlands Labour Authority issues penalties for working without the required documents. Below a few immigration-related topics are highlighted so that these do not come as a surprise.
Ø Right of residency ≠ right to work
If a foreign national is allowed to stay in the Netherlands, this does not automatically mean that this person is allowed to carry out work-related activities. A Schengen visa or visa waiver does not include a work authorisation (nor does having a work authorisation entail a Schengen visa or visa waiver). It is important to keep this distinction in mind when working with foreign nationals.
Ø Nationality is key
Knowing the nationality of a foreign worker is key for determining the individual’s immigration process. Citizens of the EU, EEA and Switzerland are allowed to remain in the Netherlands and work in any capacity without any (prior) immigration permission being required. Foreign nationals who are not citizens of the EU, EEA or Switzerland may require:
a Schengen visa or residence permit to enter and stay in the Netherlands, depending on the length of their stay; and
a work authorisation, depending on the type of activities that they will be performing in the Netherlands.
What these requirements entail is explained below.
Ø Residency
A visitor can stay in the Schengen area, including the Netherlands, for a maximum of 90 days in every period of 180 days. With the EU-tool ‘Schengen Calculator’ visitors can calculate their remaining visitor days in Schengen.
Depending on the nationality, a Schengen entry visa is required during this period.
Citizens of EU, EEA and Switzerland do not need an entry visa and they can, under certain conditions, prolong their stay.
For other citizens, whether an entry visa is required depends on their nationality. The lists with the exempted and non-exempted nationalities are set out in Regulation (EU) 2018/1806.
If a longer stay in the Netherlands is necessary, a residence permit is required. Permits can have different ‘residency purposes’ (for instance: work in paid employment or as a highly skilled migrant), and each purpose comes with its own eligibility conditions. Be aware that applying for a residence permit may trigger tax and social security obligations. In addition, only citizens from certain countries are allowed to apply for a residence permit, while staying in the Netherlands. Others need to apply for residency and await the decision outside the Netherlands. The processing time can take up to 90 days. Foreign nationals who do not have the necessary visa or residence permit risk deportation and an entry ban for the EU for two years.
Ø Do not forget the sponsor (duties)!
Generally, a sponsor is required when applying for a residence permit. A sponsor can be any company, legal entity or an establishment thereof which is registered in the Dutch Trade Register and made a written statement confirming to sponsor a particular migrant worker. A sponsor has specific sponsor duties, such as:
reporting duties: sponsors must report certain events to the IND within two or four weeks, such as moving office, termination of employment, departure and if the migrant worker ceases to meet conditions for eligibility; and
record keeping duties: sponsors must keep documents and information for up to five years after termination of sponsorship.
The IND can impose penalties to a maximum amount of € 3.000,- per violation of sponsor duties.
Ø Work authorisation
Any foreign national who is not a citizen of the EU, EEA or Switzerland and who will work on Dutch soil (either at a shipyard or on a ship in Dutch waters) requires a work authorisation, unless the work is waived from the work authorisation requirement. There are many exemptions. In the building process, two exemptions regularly apply:
attending business meetings (for a total of 13 weeks in a 52-week period);
regular seafarer work (for the daily care and maintenance for the ship, its cargo and passengers).
If no exemption applies, a work permit is required. This must be applied for with UWV. There are quite stringent conditions for a work permit such as that the employer must have made an effort to recruit staff locally or within the European labour market first, and must be able to demonstrate that no suitable candidates are available from within the EU. The worker may not commence work before the work permit is issued by UWV and the processing time is approximately five weeks.
The Netherlands Labour Authority may impose penalties upon employers, varying from written warnings to fines of up to € 8.000,- per worker per violation of the Foreign Employment Act. This Act uses a broad definition of employer: it covers every entity involved in the contracting of workers (from the staffing crew company to the commissioner of the yacht).
Ø Use the ITR-option
Further, it is possible to request UWV to issue adequate work authorisation on a project-level based on the International Trade Regulation Scheme (ITR). A project may be admitted to ITR if it involves trade, services or cooperation between a company based in the Netherlands and a company or independent contractor based outside the Netherlands. Several conditions apply and the processing time for an application may take up to five weeks. Once the project is admitted, workers can commence work provided that the work is properly notified with UWV.
Tax and payrolling
Taxes are a fact of life, but nobody wants pay more of them than necessary or be confronted with surprise taxations after the fact. Knowing what to be vigilant of is key if you want to reduce tax and social security burdens. Here are a couple of topics that you will want to have sorted out. By taking the appropriate steps, potential tax and social security burdens can be significantly reduced, and the taxes due will not come as a surprise.
Ø Social security
Employers may need to pay Dutch social security for crew members working in the Netherlands, especially if the employer lacks a base in a social security treaty jurisdiction, making a temporary non-cover request impossible.
Ø Take home pay
Often times in contracts with crew members a ‘take home pay’ is agreed. As a result, the employer carries the tax burden, not the crew member. What happens in cases like these is that the tax that is due on the salary is added up to the net salary (i.e. the ‘take home pay’), so that the taxation base can be determined. This leads to a higher tax due.
Ø Permanent establishment & payroll taxes
It is important for employers to realise that the presence of a so-called permanent establishment can affect the employers payroll tax obligations.
If a permanent establishment is deemed present for an employer, this may trigger the obligation to withhold payroll taxes on the crew members salaries. It is not always directly clear whether there is a permanent establishment. In some cases, it comes down to the interpretation of relevant facts. For example, the presence of crew members with offices and lodging at their disposal could lead to discussions with the tax authorities on the presence of a permanent establishment. The outcome is important, as it can affect the payroll tax obligations of the employer.
Ø Intermediary companies
While sometimes a debate on the facts is possible, there are situations in which this is not the case. An example is when a crew member is put to work through an intermediary (a crew staffing or payrolling company). In cases like these a permanent establishment is deemed present, period.
In conclusion
Building a ship takes a lot of work and requires a ton of preparation. Make sure you do not skip the legal stuff, it can cost you dearly. In need of advice? Feel free to contact us, we are happy to help you sort things out.
Kirsten Boele is a partner at Wybenga Advocaten in Rotterdam and is a specialist on maritime employment law.
Muhyadin Mohamud is an associate at Everaert Advocaten in Amsterdam and is specialised in immigration law.
Robert Bosma is a founding partner of Broadstreet.nl specialised in international tax issues.