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Tax Exemption in The Netherlands – A Guide for Overseas Employers

Many countries where you might assign employees have special tax regimes for expat employees, which take into account the fact that expats are not residents and need special consideration for tax liability. 

In some countries they may have a special flat tax rate for expats, or will exempt some part of compensation from taxation.  This is the case in The Netherlands where there is a 30% exemption from tax, meaning that 30% of the salary can be exempt as a tax free allowance.  This 30% ruling is intended to cover the relocation and extra cost of the assignment to the employee, so if it is taken any additional expense reimbursement will be taxable.

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If this is your first time assigning employees to The Netherlands, how will you make sure that they qualify for the exemption?  How will you include the exemption amount in payroll to claim the exemption?

Here is an example of how one of our clients faced these same questions:

Client Case Example

Context:

We had a client with an expat on assignment to The Netherlands that wanted to know if they would qualify for the 30% tax exemption under the Dutch rules.

We explained to them the basic requirements:

  • The employee must be an expat, non-resident assigned to The Netherlands from the home country or abroad.
  • The employee must be 30 years old.
  • The employee needs to provide proof that they have lived at least 2/3 of the past 24  months outside The Netherlands prior to employment, and at least 150 kilometers from the Dutch border.
  • The employee’s salary is at least EUR 37,743 euros per year (after the exemption is deducted, so a gross salary of EUR 53,919).
  • The exemption can only be used for five years of cumulative employment in the past 25 years.
  • The 30% amount is actually paid as an expense reimbursement, and therefore not subject to tax or social contributions.

Solution:

We confirmed with the employee that he met these criteria, and then informed our client that he qualified for the 30% exemption, and it could be paid as a reimbursement tax free.

Need More Information about The Netherlands?

This is a clear example of the value of having in country experts and resources to guide you when assigning employees abroad.  You may need more information about payroll and tax in The Netherlands such as:

How do you document that your employee meets the criteria for the 30% exemption?

What is the right format to list the exemption in payroll as a reimbursement?

Does the employee have the option to forego the exemption and claim direct relocation expenses?

Our local employer of record can set all of this up for you and answer any questions you or your employee may have about the Dutch tax rules, as well as immigration requirements, benefits, and labor laws in The Netherlands.  We make international employment simple.

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