In the Netherlands, the number of deductions for tax purposes an individual can claim in one's PIT return are limited. Business expenses may however (in part) qualify for a tax-free reimbursement by the employer, such as moving expenses, telephone expenses, commuter and business travel, school and tuition fees, etc. Nonetheless, when filing a Dutch tax return, an individual may be able to claim a fixed annual amount for commuting by public transport relating to earning employment income.
The actual costs relating to an assignment to the Netherlands incurred by a foreign employee may be reimbursed tax-free provided that these expenses can be proven. These so-called extra-territorial costs basically include all costs that the employee would not have incurred had he or she not been assigned to the Netherlands. Costs that qualify as extra-territorial costs (not exhaustive) include:
- double housing
- language courses, and
- home leave.
If certain conditions are met, a foreign employee working in the Netherlands may be granted the so-called '30% ruling'. Under this ruling, a tax-free reimbursement amounting to 30% of the income from active employment can be paid to the employee. The 30% reimbursement is intended to cover all extra-territorial costs. If the 30% ruling is applied, the actual extra-territorial costs may not be reimbursed tax-free in addition to the 30% reimbursement. If the actual extra-territorial costs are higher than the 30% reimbursement, the higher costs can be reimbursed tax-free.
To qualify for the 30% ruling, the foreign employee should have specific expertise that is not available or is scarce in the Dutch labour market.
This is based upon the following salary norm (for 2021):
A general (gross) salary norm amounting to EUR 38,961 (i.e. EUR 55,659 including tax-free reimbursement of 30%).
A lower (gross) salary norm amounting to EUR 29,616 (i.e. EUR 42,309 including tax-free reimbursement of 30%) applies to individuals with a Master's degree (MSc) who are younger than 30 years of age.
No salary norm is applicable for scientific personnel and researchers at educational institutions and (subsidised) research facilities.
Furthermore, the employee should have lived outside a 150 kilometre radius of the Dutch border during more than 2/3 of a 24-month period before taking up Dutch employment in order to qualify for the 30% ruling.
For university doctorates hired within a year after obtaining their PhD, a relaxation of the conditions was introduced.
Please note that it has been proposed to cap this scheme up to the norm of the Standards for Remuneration Act (2022: 216.000 euros). This new measure will be phased in over the course of a transitional path of three years starting 2024.
The 30% ruling may, as of 2019, apply for a maximum period of 60 months. However, periods of prior stay in the Netherlands will, in principle, be deducted from this maximum duration period. The 30% ruling must be applied for within four months of starting the Dutch employment. If not applied for within this time, the ruling, if granted, will not apply retroactively as of the beginning of the Dutch employment, but only as of the month following the month in which the application was filed. The 30% ruling may only be applied if the employee is included in a Dutch wage tax administration.
Under the provisions of the 30% ruling, employees who are, based on facts and circumstances, considered as resident taxpayers may opt to be treated as partial non-residents.
The 30% ruling will end when the conditions are no longer met. Furthermore, the 30% ruling lapses at the end of the next wage tax period following the wage tax period in which the Dutch employment/assignment was terminated (usually the end of the next month). The 30% ruling cannot be applied on post-departure income (after the settlement period mentioned above). Hence, the 30% ruling can, in principle, not be applied on bonuses and equity income that becomes taxable after having left the Netherlands (regardless of whether the right to such benefit already vested during the Dutch employment period).
30% ruling and COVID-19
If an employee of a Dutch company or organisation does not live in the Netherlands, it is possible that this employee has been working from home for a longer period of time and has not been in the Netherlands during the calendar year 2021. This can have consequences for the applicability of the 30% ruling. Although in many situations the 30% ruling continues automatically, in some cases the employee might need to apply for a new decision.
Work-related costs scheme
Under the work-related costs scheme, the employer may reimburse expenses tax-free, up to a fixed percentage of the total fiscal wages of one's employees (the work-related costs budget). The work-related costs budget in 2021 was temporarily increased to 3% for the first EUR 400,000 of the total fiscal wages and 1.18% for the remaining amount of the taxable wage bill. In 2022, for the first EUR 400,000, the work-related costs budget has been brought back to 1.7%. In case the work-related costs budget is exceeded, the employer needs to pay wage tax in the form of a final levy of 80% on the amount in excess of the budget. Under the work-related costs scheme, reimbursements and provisions are broken down into five groups:
No wage/intermediary costs
Reimbursements of costs that do not form a (taxable) wage benefit for the employee, because they are directly related to the business of the employer. The reimbursement of these costs will not be included in the work-related costs budget. This also includes benefits and provisions that do not qualify as wage based on the wage tax law (Wet op de loonbelasting 1964), e.g. employers’ contributions to approved/qualifying employee pension plans.
Mandatory taxable wage
Benefits or provisions, not included in the work-related costs scheme, that are obligatorily taxed on an employee level, such as the company car and taxable reimbursements.
The amount of a number of specific reimbursements or provisions will not fall within the work-related costs budget, e.g. travel expenses (up to EUR 0.19 per business kilometre with a private car), removal expenses, and extraterritorial expenses. Please note that the 30% ruling (expatriate tax regime) remains applicable for the reimbursements of extraterritorial expenses.
Furthermore, a new specific exemption has been added to the work-related costs scheme. As of 1 January 2022, a tax free allowance of EUR 2 per day worked from home has been introduced. In other words, this home-working allowance of EUR 2 per day can be provided to the employee tax free. It should be noted that it is not possible to apply both the exemption for a homework allowance and the exemption for commuting costs (to the fixed place of work) for one and the same working day.
Additionally, we note that the tax-free travel allowance is expected to be increased in the coming years. Per 1 January 2023, the expectation is that the tax-free travel allowance will be increased from 19 cents per kilometre to 20 or 20,5 cents per kilometre. The exact amount is yet to be determined. Per 1 January 2024 the allowance will be increased to 23 cents per kilometre.
These reimbursements and provisions formally fall within the work-related costs budget, but they are assessed to nil. As a result, they do not fill the work-related costs budget.
The amount of reimbursements or provisions fall within the work-related costs budget.
In addition, in case an individual is liable to tax in the Netherlands, but does not have a Dutch or foreign employer who withholds Dutch wage tax, one's Dutch taxable income needs to be determined based on Dutch tax rules and would include reimbursements and benefits in kind. As a consequence, a deduction for the work-related costs budget can be applied in one's Dutch PIT return.
Residents (as well as partial non-residents and qualifying non-residents) are entitled to claim deductions mainly relating to their personal or family circumstances, including maintenance payments to a former spouse (i.e. alimony).
Residents (as well as partial non-residents and qualifying non-residents) are entitled to claim deductions relating to charitable donations (deductions for certain expenses are capped or subject to thresholds).
Education expenses to be replaced with the STAP-budget
Residents (as well as partial non-residents and qualifying non-residents) can claim deductions for educational expenses up until 31 December 2021. In 2022, these education expenses will be replaced with the STAP-budget. From 1 March 2022 onwards, employees and jobseekers can, under conditions, apply for a STAP-budget of a maximum of EUR 1,000 once a year to take a course or programme to increase their employability.
Medical and disability expenses
Residents (as well as partial non-residents and qualifying non-residents) are entitled to claim deductions mainly relating to their personal or family circumstances. These include expenses arising from sickness or disability, and weekend expenses of handicapped close relatives (deductions for certain expenses are capped or subject to thresholds).
Life insurance premiums
Life annuity premiums are only tax deductible if the taxpayer can prove that one has a lack in the pension rights/pension capital built up to date.
Mortgage interest expenses
Mortgage interest payments in relation to the financing, renovation, or maintenance of the primary residence may be deducted from box 1 income. In order to qualify for this deduction, the property needs to qualify as the taxpayer’s primary residence. To determine the net amount of the deduction, a deemed income is taken into account. Generally, 0.45% (2022) of the value of the property is taken into account; however, for properties above EUR 1.11 million, a rate of 2.35% applies to the surplus. Under conditions, the former of future primary residence may qualify for the deduction as well. In addition, if there is no or a low amount of mortgage interest payable (i.e. the principal was paid off), the deemed income may be disregarded, which would imply no deduction and no deemed income.
The interest paid on mortgage loans concluded as of 1 January 2013 can only be deducted if the full mortgage loan is paid off. The new conditions can be summarised as follows:
The interest on (mortgage) loans will only be deductible if the mortgage is fully repaid within a maximum period of 360 months (contract also required).
These loans must be repaid periodically on the basis of an agreed pattern (e.g. linear/annuity). For foreign loans, proof needs to be provided (strict deadlines apply).
For loans that do not meet the above-mentioned conditions and where the transitional rules are not applicable, the mortgage interest deduction will no longer be allowed.
Transitional rules may apply to mortgage loans concluded before 1 January 2013 if certain conditions are met. For these mortgages, the interest paid can be deducted for a maximum period of 30 years, irrespective of whether the mortgage loan is (not) being paid off during this period. The transitional rules could, under certain conditions, even apply to mortgage loans concluded after 1 January 2013.
As of 1 January 2014, the maximum effective tax rate against which the mortgage interest is deducted is lowered. The result is that in the year 2022 the mortgage interest paid can be deducted against a (maximum) tax rate of 40%.
Generally speaking, there are no standard personal allowances in the Netherlands. Nonetheless, there are levy rebates that lower the amount of tax due. Different levy rebates may apply, dependent on the taxpayer’s situation (see Levy rebates in the Other tax credits and incentives section for more information).
Losses of specified venture capital investments may also be deducted by residents and partial non-residents if certain conditions are met. The deduction in box 1 in this respect was abolished on 1 January 2011; however, transitional rules apply to existing loans on 31 December 2010.