The 30%-ruling in the administration
If an employer wishes to give an incoming or outgoing employee a tax free allowance, it is important that they process this 30%-ruling in the Dutch payroll administration.
The 30%-ruling applies to the outgoing as well as the incoming employee. For the latter the employer must request approval from the Tax Office for application of the 30%-ruling. The decision applies for a maximum of ten years if this is requested within four months of the commencement of work in the Netherlands. Earlier employment or an earlier stay in the Netherlands can shorten this period. If during the employment the scarcity and expertise requirements are no longer fulfilled, the Tax Office can shorten the duration of the decision after five years. Moreover, for an employee that changes to a new employer under conditions the 30%-ruling still applies. The employer must save the decision of the Tax Office in their payroll administration.
With the application of the 30%-ruling the employer can give 30% of the salary inclusive of relocation costs tax free. Salary from present employment is then all of that which is received from employment.
This means that the 30%-ruling is applied to:
• fixed and variable salary components, such as bonus payments;
• payment in kind including the relocation costs;
• salary that is levied by the Tax Office;
• final salary components that are individually traceable; and
• back payments after the end of the period (for example a bonus). The condition is that at the time of retirement there is an unconditional entitlement to both the tax-free allowance and the bonus.
The employer can not apply the 30%-ruling on salary from previous employment, such as pensions, benefits (VVW/WAO/AOW) and on any severance payments which were granted as compensation to forego revenues.
For a correct application of the 30%-ruling it is also important to know if there are extra territorial costs. What are extra territorial costs exactly? These are the extra costs that an employee incurs for temporary stay outside their country of origin. Costs that he also would have incurred if he did the same work in his own country are not relocation costs.
Examples of extraterritorial costs are:
• the extra costs of living through a higher price level in the country of employment compared to the country of origin, such as food, gas, water, lighting (cost of living allowance);
• the costs for an introductory trip to the country of employment, possibly with the family, for example to search for housing or schools;
• the costs for the request or conversion of official documents, such as residence permits, visas and driver’s licenses;
• the costs for medical examinations and vaccinations for the stay in the country of employment;
• the double accommodation costs, because the employee continues to live in the country of origin (for example hotel costs);
• the (first) accommodation costs. It is up to 18% of the salary from current employment. The majority belong to the extra territorial costs. In general you cannot reimburse or provide costs for furniture as accommodation costs;
• the storage costs for household effects that are not moved to the country of employment;
• the travel costs to the country of origin, for example to visit family or family reunions;
• the additional costs for the completions of tax returns if it is more expensive than the completion of the return by a comparable tax consultant in the country of origin. Here a maximum of € 1000 per employee applies;
• the course fees for learning the language of the country of employment for the employee and for the family members that stay with him;
• the additional (non-business) costs for telephone calls to the country of origin;
• the costs for a request for Social Security exemption, such as an E101-declaration.
Some things are not extra territorial costs and the employer may not reimburse or provide these tax-free. These are the assignment allowances, bonuses and comparable allowances (foreign service premium, expat allowance, overseas allowance), the capital losses, the purchase and sale costs of a home (reimbursement expenses house purchase, brokerage fee) and the compensation for a higher tax rate in the country of employment (tax equalization).
In addition to the 30%-ruling the employer can give the employee an allowance for extra territorial costs for school fees. It must cover the school fees for an international department of an ordinary school. Further the employer can also reimburse tax-free or provide the relocation costs and the costs for the temporary storage and the transport of the household effects, the costs for an introductory visit by the employee to the company in the country of employment and the costs for the request or conversion of a work permit. For car transport costs the employer can give an allowance of a maximum of € 0.19 per kilometre in the absence of extraterritorial costs.
For the processing of the 30%-ruling in the payroll administration it is important that the employer knows which costs fall under extra territorial costs. These are the extra costs that an employee makes for the temporary stay outside their country of origin. Costs that he would also incur doing the same work in their own country are not extra territorial costs. The employer must keep a close eye on this. The introduction of work-related costs from January 1, 2011 means that the employer must be well aware of which tax category cost disbursements qualify. For the extraterritorial costs a specific exemption applies within the work-related costs ruling.