Under Dutch tax law, extraterritorial expenses can be reimbursed tax-free.
An employer has the option of reimbursing actual extraterritorial expenses or applying the 30% rule if all conditions are met.
If the employer wants to reimburse the actual extraterritorial expenses, the employee must demonstrate these reasonably incurred expenses. The IRS can check them in the employer’s records.
When applying for and granting the 30% rule, the employer can provide a tax-free allowance of up to 30% of the gross salary, including the allowance. In that case, the costs need not be made plausible and no records on them are required.
Effective January 1, 2023, the employer must choose annually whether to apply the 30% rule or reimburse actual extraterritorial expenses. That choice is made in the first month of the calendar year in which the extraterritorial expenses are reimbursed. The election applies for the entire calendar year, as long as the 30% decision runs in that calendar year.
If the employer also reimburses (part of) the actual extraterritorial expenses (in addition to the 30% rule), this is in principle considered taxable wages for the employee.
The following list are examples of extraterritorial expenses:
- Cost of living: additional cost of living because the price level in the working country is higher than in the worker’s country of origin, for example, additional costs for meals, gas, water and electricity
- Costs for an introductory trip to the country of work, possibly with the family, for example to look for a house or a school
- Expenses for applying for or converting official personal papers, such as residence permits, visas and driver’s licenses (the application or conversion of a work permit or 30% rule do not constitute wages)
- Costs of medical examinations and vaccinations for the stay in the working country (including for family members of the employee)
- Double living expenses if the employee continues to live in the home country, such as hotel expenses
- The (initial) housing costs. If the employee receives housing, only the (initial) housing costs above 18% of present employment wages are considered extraterritorial expenses. The rest of the expenses qualify as wages. In general, an employee cannot receive untaxed compensation or allowance from the employer for household contents.
- Storage costs for the portion of the estate that the employee does not move to the working country
- Travel expenses to the home country, such as for family visits or family reunification
- Additional fees for having the income tax return completed, if it is more expensive than having it completed by a comparable tax advisor in the home country
- Language course costs for the employee and for family members residing with the employee
- Additional (non-business) call charges for calling the home country
- The cost of an application for social security exemption, such as an A1 statement or Certificate of Coverage (CoC)
- School fees for an international school or international section of a regular school. This is reimbursed to the employee in addition to the 30% rule if the employee meets the conditions.
The following expenses do not qualify as extraterritorial expenses and the employer cannot provide untaxed reimbursement for these types of expenses:
- Temporary allowances, bonuses and similar allowances (foreign service bonus, expat allowance, overseas allowance)
- Capital/wealth losses in the state of residence
- Costs of buying and selling a home (fees for buying a home, brokerage commission)
- Compensation for higher tax rates in the working country (tax equalization)
