The choice moment between reimbursement of actual ET expenses or application of the 30% rule is coming up again. Eastwing gives the trade-offs and tells what deadlines you should be alert to.
The 30% rule, also known as the “expat rule,” is a favorable tax measure for foreign employees coming to work in the Netherlands. Its purpose is to attract employees with scarce specialties.
Workers often incur higher costs when they move to the Netherlands to work here. Buying new household goods, storing some of the contents in the home country, and so on. Moreover, the price level in the Netherlands may be a lot higher than in the home country. Such costs are called extraterritorial costs (‘ET costs’). Through the 30% rule, ET-costs are reimbursed tax-free, without having to provide all kinds of receipts. This saves a lot of administration.
Employer and employee can jointly submit a request for the 30% rule to the Tax Office, provided the employee meets the conditions of this rule. Once granted, the employer may provide untaxed reimbursement of up to 30% of the gross salary to the employee. This means that the employee does not have to pay tax on up to 30% of the gross salary (including vacation pay, 13th month/bonus, mobility budget, etc.). Thus, the employee is left with a higher net wage at the end of the month to cover the additional costs.
Choice: ET expenses or 30% rule
The employer can also choose to reimburse the actual ET costs. Since 2023, the employer must make that choice again each year: reimburse the actual ET costs or use the 30% rule.
That moment of choice is almost upon us. In the first pay period of 2025, the employer must choose which allowance is most advantageous to the employee (or employer, in the case of a net pay arrangement). This choice applies for the rest of the year – or as long as there is still a valid 30% ruling.
The choice is made when filing the payroll tax return for the first payroll period. It is important to remember this: if in retrospect, at the end of the year, it appears that the employer made a wrong choice and reimbursing the actual ET-costs would for example have been more advantageous than applying the 30%-ruling, then this can no longer be corrected via a correction notice. Correcting the already submitted payroll tax return is only allowed in case of an incorrect or incomplete return. A wrong choice is not considered incorrect or incomplete. The employer can only revise its choice in the first payroll period of the following year.
“The choice is final: if reimbursing the actual ET costs afterwards does turn out to be more advantageous, you cannot revise it. So have a conversation with your employee about the expected costs.”
Employees entering the workforce during the year
Different rules apply to employees who join during the year. These are as follows:
- If the application for the 30% ruling is submitted to the Tax Office within 4 months of the start date of employment, the decision will be issued retroactively per the start of employment. In this 4-month period of application, the employer can choose per pay period (usually: per month) whether to reimburse the actual ET-costs or to apply the 30%-ruling. Per the 5th pay period, the employer makes the choice that applies for the rest of the year.
- If the application for the 30%-ruling is submitted to the Tax Authorities after 4 months of the start date of the employment, the decision will not be issued retroactively but as of the first of the month following the month in which the application was submitted (i.e. application made on November 17, the decision will be issued as of December 1). In this case, until the effective date of the decision, the employer may only provide untaxed reimbursement of the actual ET expenses (since there is no entitlement to the 30% rule). From the start date of the 30% ruling, the employer makes the choice that applies for the rest of the calendar year.
Example 1
Jack (34) starts at his new employer in the Netherlands on March 1, 2025 and meets the conditions of the 30% rule. A gross salary (including monthly vacation pay) of €5,100 per month was agreed between employer and employee. The 30% application was submitted on April 16, 2025 and the decision was issued retroactively as of March 1, 2025. Jack has €980 per month in ET expenses. In the month of March 2025, he incurred additional ET expenses of €2,800 in total. The employer must make the choice of what is most advantageous for the employee.
The (provisional) salary standard in 2025 is €46,660 per year. The salary standard is a continuous test and must be achieved each year for the duration of the decision.
A year should be set at 260 working days and a month at 65/3 working days (21.67 working days per month). The regular wage norm in 2025 is € 46,660. For the period March to December 2025, the recalculated norm is € 46,660 / 260 * 65/3 * 10 months = € 38,884 (rounded). This means that a monthly wage norm of € 46,660 / 260 * 65/3 = € 3,889 (rounded) applies.
The salary standard must be achieved annually. This means that the standard must be the employee’s minimum taxable salary. Thus, in the above case, the employee must pay tax on a minimum of €3,889. All gross wages above €3,889 (up to a maximum of 30% of €5,100) may be reimbursed untaxed.
If the 30% rule is fully applied in payroll, the tax-free allowance amounts to €5,100 x 30% = €1,530. But beware: this takes the employee below the salary standard (€5,100 – €1,530 = €3,570). For this employee, therefore, a maximum of €5,100 – €3,889 = €1,211 per month may be reimbursed untaxed in 2025. In this example, we do not take into account possible other wage components, such as pension contributions, a mobility budget, a company car, and bonuses/single payments.
In the first 4 months, the employer may choose per month which allowance is applied, the actual ET costs or the 30% allowance. Jack is entitled to an untaxed 30% allowance of €1,211 per month, which is more than the €980 in actual ET costs. But in March 2025, Jack will have €2,800 in ET expenses. Therefore, it is most advantageous for Jack if the employer reimburses the actual ET expenses in March 2025 and would apply the 30% rule in the remaining months. The tax-free reimbursement for Jack in 2025 is then €2,800 (ET expenses) + 9 months * €1,211 (maximum 30% reimbursement) = €13,699.
“Pay attention to deadlines: had the application been submitted on time, it would have benefited Jack even more.”
Example 2
As shown in Example 1, the most advantageous choice for Jack is to be reimbursed the actual ET costs for 1 month and the maximum 30% reimbursement for the rest of the months. But what about when the ET expenses change? Jack also has an increased amount of actual ET expenses in July, August and September 2025 due to private reasons, namely €5,300 in July, €3,800 in August and €3,350 in September 2025. In this example, the employer is late in submitting the application for the 30% rule and is ultimately granted with a start date of August 1, 2025.
In this case, for the period March 1, 2025 through July 31, 2025, the employer may only reimburse actual ET costs. As of August 1, 2025, the employer must make a choice that applies for the remainder of the calendar year. In this case, Jack could receive a maximum untaxed 30% reimbursement of 5 * €1,211 = €6,055 for the period August through December 2025. However, Jack has €3,800 + €3,350 + (3 months * €980) = €10,090 in actual ET expenses during this period. So in this case, the employer would be better off choosing to reimburse the actual ET costs instead of applying the 30% rule. As a result, Jack is entitled to a reimbursement of € 2,800 + € 5,300 + € 3,800 + € 3,350 + (6 * € 980) = € 21,130 in 2025.
Had the employer submitted the application for application on time, it could have been even more beneficial for Jack. In that case, the employer could have reimbursed the actual ET expenses in March, applied the 30% rule for the months April through June, and reimbursed the actual ET expenses for the months July through December 2025. In this case, the tax-free reimbursement for Jack was €2,800 + (3 * €1,211) + €5,300 + €3,800 + €3,350 + (3 * €980) = €21,823.
In conclusion
We recommend that employers have discussions with employees about expected ET costs in the coming year.
Also keep in mind that with the 30% rule, a capping applies to “high earners. As of January 1, 2024, a capping must be applied to employees with salaries above the WNT norm. Above the WNT norm (also known as the Balkenende norm), the 30% ruling may no longer be applied. Incidentally, transitional law applies here for employees for whom the 30% ruling was applied in the payroll of the last payroll period of 2022 (the period ending December 31, 2022). For this group, the capping will not take effect until January 1, 2026.
There is no maximum for reimbursing ET costs. Keep in mind here, however, that reimbursing the actual ET costs involves more red tape.
The employer must therefore weigh up and ultimately make the choice in the first payroll period to reimburse the actual ET costs or apply the 30% rule in the payroll. Be alert to the applicable deadlines, not only for submitting 30% applications, but also for making the choice. This choice cannot be reversed. And for employees already employed before 2025, that choice applies for the rest of the year.
