5. Reimbursement of extraterritorial and other business costs
This series addresses the most relevant topics regarding the 30 percent ruling. In this post: What are the tax consequences of the reimbursement of extraterritorial and other business costs?
What are extraterritorial expenses?
Extraterritorial costs (or: ET costs) are the extra expenses incurred due to the temporarily stay outside the country of origin in relation to the employment in the Netherlands. The 30% ruling allows employers to reimburse ET costs tax free up to 30% of the employee’s gross salary from current employment.
Upon granting of the 30% ruling, 30% of the gross income from current employment is regarded as ET costs. No proof of expenses or supporting documents is required. This means that if the conditions of the 30% ruling are met, the employee will only be taxed on 70% of his employment income. This results in a substantially reduced effective tax due on salary; the effective maximum rate is reduced to 36.23% (70% x 51,75%).
Extraterritorial expenses and the 30% allowance
Please note however that it is not possible to reimburse ET costs tax free in addition to the 30% allowance. If the employee is provided with such additional ET costs reimbursements, these reimbursements must either be deducted from the total amount of the 30% allowance or added as taxable income. The only exception is international school fees that qualify as ET costs but can in fact be paid tax free next to the 30% allowance. In addition, specific business expenses are also tax-free regardless whether the 30% ruling is applied or not. See our overview of listed examples and its tax treatment of various typical benefits granted to hires from abroad.
|Home leave||ET||Not taxable unless 30% ruling is applied|
|Cost of living||ET||Not taxable unless 30% ruling is applied|
|Moving expenses||Business||Not taxable (specific exemption) up to actual costs bringing over the household goods plus € 7,750|
|Introduction meeting NL employer||Business||Not taxable (specific exemption)|
|Househunting||ET||Not taxable unless 30% ruling is applied|
|Work authorization||ET||Not taxable unless 30% ruling is applied|
|Residence permit / driver’s license||ET||Not taxable unless 30% ruling is applied|
|NL income tax return||ET||Not taxable unless 30% ruling is applied (taxable benefit is actual costs but capped at € 1,000)|
|Temporary storage in home country||ET||Not taxable unless 30% ruling is applied|
|Temporary storage in host country||Business||Not taxable (specific exemption)|
|Double housing||ET||Not taxable unless 30% ruling is applied|
|Language course||ET||Not taxable unless 30% ruling is applied|
In case the actual ET costs exceed the 30% allowance, the employer can decide to not apply the 30% ruling and to reimburse all actual ET costs instead. This may, for instance, be cost efficient in the start of an assignment where normally a higher amount of expenses are made than later on. Note that if the actual ET costs are reimbursed, these expenses have to be proven by receipts upon request of the Dutch tax authorities.