If an employee from another country comes to work in the Netherlands, it is possible to reimburse extraterritorial costs to the employee untaxed. Extraterritorial costs are the additional costs of living outside the country of origin. Think for example of double housing costs. In this blog you will find more information about the reimbursement of these costs and the conditions for doing so.
The employer has two possibilities to reimburse the extraterritorial costs of the employees, namely:
- Reimbursing the employee for extraterritorial costs actually incurred; or
- Apply the 30% facility.
It is not possible to apply the 30% facility and to provide tax-free reimbursement for the extraterritorial costs actually incurred. If the employer chooses for option 1, the employer has to to provide proof for the costs reimbursed. The employee does not have to meet additional requirements. If the employer chooses for option 2, the employee has to meet additional requirements, but the costs do not need to be substantiated. The duration of both options is maximum five years.
What is the 30% facility?
The 30% facility is a law fiction to determine the extraterritorial costs. The tax-free allowance amounts to a maximum 30% of the salary, as its name implies.
Which requirements does an employee need to meet?
The employee must meet the following conditions to apply the 30% facility:
- The employee has to be recruited from outside the Netherlands. This means that the employee has to be resident for tax purposes outside the Netherlands at the time the employment contract is agreed. The determination of the fiscal residence as well as moment the contract is agreed upon, are based on the facts and circumstances of the case. In short, to determine the fiscal residence, the centre of the employee’s life is considered;
- The employee has to live at a distance of more than 150 kilometres from the Dutch border in more than 16 of the 24 months prior to the start of the employment in the Netherlands;
- The employee has to possess a specific expertise. This requirement is deemed to be met if:
- the employee is a medical doctor training to be a specialist or is employed as a scientist (subject to further conditions);
- the employee is younger than 30, has obtained a Dutch master’s degree and the salary of this employee exceeds € 30,001; or
- the salary of the employee exceeds € 39,647.
After application of the tax-free allowance, the taxable salary still needs to meet the minimum wage requirement s mentioned in point 3 above. Example: € 45,000 salary for a 32 year old employee. The maximum tax-free allowance comes to € 45,000 – € 39,647 = € 5,353 or 11.9%.
The above is a brief description of the various conditions that apply to the application of the 30% facility. Many factors influence the actual elaboration of the 30% facility. For example, different conditions apply if the 30% facility was applied to a previous Dutch employer and previous periods of residence or work in the Netherlands will influence the duration.
If you have any questions about your situation regarding reimbursement of extraterritorial costs or need assistance in applying for the 30%-ruling, we are happy to assist you. This also applies to providing calculations on this matter.