An employee who works for an employer that is not required to deduct tax in the Netherlands may make use of the WKR allowance.
WKR space
Dutch employers may designate allowances and benefits in kind provided to their employees for the ‘free space’ under the work-related expenses scheme (WKR); the WKR allowance. Of the total amount of allowances and benefits in kind so designated, a portion is exempt from payroll tax, and the employer pays payroll tax on the excess in the form of a final levy at a rate of 80%. The untaxed portion of the WKR allowance in 2022 is: 1.7% of the total wage bill up to €400,000 and 1.18% of the total wage bill above €400,000.
Foreign employer
For employees resident in the Netherlands who work for a foreign employer that is not required to deduct payroll tax in the Netherlands, the employer cannot, of course, make use of the WKR allowance. Therefore, the legislation provides that Section 3.84 of the Income Tax Act 2001 that these employees are granted an exemption up to the amount of the untaxed portion of the WKR allowance (which, in 2022, amounts to 1.7% of the gross salary received by the employer, unless the salary exceeds €400,000). The Supreme Court recently confirmed that it is not necessary for the employer to designate allowances or benefits in kind for the discretionary allowance. This is a logical ruling, given that it is not obvious why a foreign employer, who is not obliged to deduct payroll tax in the Netherlands, should have to take Dutch regulations into account.
A foreign employer is liable to withhold tax in the Netherlands insofar as the business is carried on in the Netherlands through a permanent establishment or the employer has requested the Tax and Customs Administration to be regarded as a withholding agent in respect of employees resident in the Netherlands. In practice, the issues described in this article mainly arise in relation to Rhine river crews, pipe-layers and pilots.