8. Salary sacrifice scheme
This series addresses the most relevant topics regarding the 30 percent ruling. In this post: Tax planning via a salary sacrifice scheme
Employees who have the 30% ruling can receive a tax-free reimbursement for international schooling. As a reimbursement of international school fees is a significant employer cost, not all employers provide such additional benefit. At the same time there is no income tax deduction possibility for the employee. A salary sacrifice scheme can provide a solution that provides a saving for the employee, at no extra cost for the employee.
How does it work?
Employer and employee can agree that the employee accepts a (temporary) reduction of his salary in return for a tax free reimbursement of the international school fees. That way, the employer is not confronted with extra company costs (with the exception perhaps of more administration and costs from a tax advisor) whilst the employee has the benefit of the tax saving on the amount of gross salary that was exchanged for the tax-free reimbursement of international school fees. Depending on the level of income, the employer may actually have a cost saving as well due to a reduced basis for social security and pension and thus lower contributions.
For a better understanding of the principles and potential cost savings, see below example.
Example A (normal situation)
Employee has the 30% ruling. His salary, before reduction of the 30% ruling, is € 100.000. He pays international school fees of € 20,000 per annum. Without a salary sacrifice scheme, he is taxed at follows
|Salary||€ 100,000||€ 100,000|
|Deduction 30%||€ 30,000 –|
|Taxable salary||€ 70,000|
|Wage tax / social security (assumption)||€ 25,000||€ 25,000 –|
|Net salary||€ 75,000|
|Deduct: international school fees||€ 20,000 –|
|Net spendable salary||€ 55,000|
Example B (situation after salary sacrifice)
A salary sacrifice scheme is implemented. Now, the outcome is as follows:
|Deduct: salary reduction (school fees)||€ 20,000 –|
|New salary||€ 80,000||€ 80,000|
|Deduction 30%||€ 24,000 –|
|Taxable salary||€ 56,000|
|Wage tax / social security (assumption)||€ 18,000||€ 18,000 –|
|Net spendable salary||€ 62,000|
The benefit of the employee in this example is € 7,000 (€ 62,000 minus € 55,000).
The salary sacrifice scheme is not necessarily only applicable for employees with the 30% ruling but also for those employees who are also recruited from abroad but could not obtain the 30% ruling on the basis of either (i) not meeting the salary norm, or (ii) not meeting the 150km condition. These employees can receive a tax-free reimbursement of the actual ET costs that includes also double housing and home leave.
Employees, who could not obtain the 30% ruling for other reasons than not meeting the salary norm or the 150km condition, do in principle not qualify for a tax-free reimbursement of ET costs. Examples of such non-qualifying categories of employees include employees who were not recruited from abroad (but locally hired whilst they did not have a 30% ruling with their previous employer) and employees who have spent too much time working or staying in the Netherlands in the past on the basis of which there would not be any period left under the rules of the duration period of the 30% ruling.