Payroll tax exemptions

Within the work-related costs scheme (WKR), as an employer you are allowed to provide tax-free allowances and benefits in kind up to 1.2% of your wage bill to your employees. As soon as you exceed this “free allowance”, you owe wage tax on the amount of the excess. That tax is payable by the employer (final levy). The rate is 80%.

But you can further optimise your payroll tax position by using the specific exemptions in payroll tax. If so, additional conditions do apply.

Exemptions

The exemptions that have been in the payroll tax for years concern claims for pensions and the like. These claims are exempt, but once payments are made from the claims, these payments are taxed in most cases.

Also exempt is a lump sum payment on the employee's death (up to 3 times the gross monthly salary).

Probably the most well-known exemption is the anniversary allowance. The employee may receive one gross monthly salary net on employment of 25 years or more and again on employment of 40 years or more. NOTE: the 25 and 40 years must have been completed up to the last day.

Targeted exemptions

Under the WKR, the payroll tax has 10 so-called targeted exemptions. These exemptions apply to both cash and in-kind wages. The targeted exemptions are:

  1. cost of commercial transport (including commuting): a maximum of €0.19 per kilometre or the actual cost of public transport;
  2. temporary stay in the scope of employment and meals: these are expenses during business trips and the meals must be more than incidental to business;
  3. courses and the like, necessary for maintaining and improving the employee's knowledge and skills;
  4. study and training with a view to earning more income for the employee;
  5. move (with sufficient business reasons): up to €7,750 plus the cost of transferring the household effects;
  6. extraterritorial costs: usually via the well-known 30% control, but it is also possible to reimburse the actual extraterritorial costs exempted;
  7. tools, computers, mobile communication devices and the like: if the necessity criterion;
  8. discount on home-grown products: 20% of the purchase value and a maximum of €500 per year;
  9. health and safety facilities: in the workplace or outside the workplace, but related to work (which should be reflected in the employer's health and safety policy);
  10. tools, provided for 90% or more business use.

Nil valuations

Wages in kind have to be valued. The main rule is that the value for payroll tax purposes is equal to the invoice value. That is the amount for which you purchased the wages in kind from a third party. If the invoice value is missing, value the wages in kind at fair value.

However, six types of wages in kind can be valued at nil. Wage components, which you value at nil, could of course count as exemptions. Because this is a valuation, these “exemptions” only apply to wages in kind, not to cash wages. The nil valuations are:

  1. workplace facilities: facilities used in the workplace;
  2. refreshments at the workplace: in addition to coffee and tea, small snacks and drinks after work;
  3. Public transport season tickets, which the employee also uses for work;
  4. workwear: clothing that are (almost) exclusively suitable for wearing at work or have clearly visible logos of 70 cm2 or more (clothing that qualifies as occupational health and safety equipment falls under the targeted exemption; see above);
  5. the interestbenefit of a loan used by the employee to purchase a bicycle (electric or otherwise) or electric scooter;
  6. board and lodging at the place of work, provided that it is in the performance of employment.

In addition to these nil valuations, payroll tax has a number of valuation allowances.

Designate

To qualify for the targeted exemptions and nil valuations, you must designate the wage component for the WKR. You must do this before the employee benefits from the wage component. That you designate a wage component for the WKR is evident from the way you process it administratively. To avoid misunderstandings, you can include in your terms of employment that you designate certain wage components.

Just because you have to pay out a wage item under the collective agreement does not mean it is designated as a final taxable item in the WKR. Nor does it mean that it falls under an exemption or nil valuation. Many CLAs have been screened for this by the Tax Office. You can find these CLA assessments on the website of the Inland Revenue.

Opportunities

In addition to the free allowance, the payroll tax has many possibilities to reward your employees in a tax-friendly way. We briefly touched on these possibilities above. This article does not provide enough space to describe all the conditions. If you want to know more about payroll tax exemptions, take contact with our on.

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