30% ruling | 03
TAX FREE ALLOWANCE
3.1 BASE FOR THE 30% RULING
The maximum 30% tax free allowance is calculated on the basis of the taxable wage from current employment. This includes variable wage components such as bonus payments, income from stock options, and other taxable wages, in cash or in kind. The 30% ruling does not apply to redundancy pay, i.e. income from previous employment or pay during ‘garden leave’. The 30% tax free allowance is maximised at 30/70 of the taxable wages from current employment during the application period of the 30% ruling. The 30% tax free allowance must be agreed separately. The 30% ruling does not apply to wages for which relief for double taxation is granted. Unless agreed otherwise, the 30% tax free salary (allowance) is payable on top of the agreed salary. However, from a budget perspective most employers prefer to include the 30% tax free allowance as an integral part of the remuneration package, in which case the contract of employment must include an addendum specifying that the agreed salary will be reduced in accordance with labour law and in exchange for the 30% tax free allowance. This reduction in salary may affect income-related payments (tax credits, etc.). As mentioned in 1.3 the salary threshold must be met at all times, which may mean that the reduction of the agreed salary and the tax free allowance will be less than 30%. For example, if an employee earns a taxable wage of € 40,000, given that the salary must exceed the salary threshold of € 38,961 after the deduction of the tax free allowance, the tax free allowance is not € 12,000 (30% of € 40,000) but rather €1,038 (€ 40,000 - € 38,962).
The maximum 30% tax allowance is calculated on the basis of the taxable wage from current employment.
3.2 EXTRATERRITORIAL COSTS
The 30% tax free allowance can be paid without the employee having to prove that the costs deemed to be reimbursed through this allowance were actually incurred. On the other hand, if the actual extraterritorial costs exceed the 30% allowance, the employer may reimburse these higher costs on a tax free basis. Extraterritorial costs are defined as the extra costs that are incurred because the employee is living outside his/her own country. These include, for example:
- travelling costs for home leave
- higher costs of living
- cost of finding suitable housing and schools for the children
- double accommodation costs (homes in both countries)
- cost of applying for a residence permit and converting official documents (work permits excluded)
- language courses.
Since the 30% tax free allowance is intended to cover all extraterritorial costs, these extraterritorial costs may no longer be reimbursed tax free in addition to the 30% allowance. Other professional costs relating to the employment that are not deemed to be extraterritorial costs may be reimbursed, in part or in whole, tax free (outside the 30% tax free allowance), in accordance with the provisions of the Dutch Wage Tax Act 1964. For children attending an international school, the school fees may be reimbursed tax free outside the 30% allowance. The school fees can be reimbursed tax free for an international school or an international department of an ordinary school if the following conditions are met:
- the education is based on a foreign system
- the school or department is mainly open to children of foreign employees.
Extraterritorial costs are defined as the extra costs that are incurred because the employee is living outside his/her own country.