Generally all remuneration provided by an employer to its employee (whether in cash or in kind) is subject to Dutch wage tax. An exception to this principle is provided by the so-called Work-Related Costs Scheme (in Dutch: Werkkostenregeling).

Under the old Work-Related Costs Scheme (as in force until 1 January 2011), certain reimbursements and benefits were either qualified as exempt or valued at nil - provided that all additional statutory conditions were met – as a result of which no Dutch wage withholding tax was triggered in respect of these reimbursements and benefits.

As from 1 January 2011 a new system of tax-free allowances and benefits in kind has been adopted in the Netherlands with the principal aim to ease the administrative burden on employers.

Under this new regime, designated work-related costs of an employer may amount up to 1.4% of its total wage bill for tax purposes without triggering any Dutch wage withholding tax. Where the designated work-related costs of an employer do exceed the threshold of 1.4%, the excess will be taxed at a final levy of 80% for the account of the employer. Furthermore, the new regime still includes a system of (only a few) specific reimbursements and benefits in relation to which no actual wage tax is levied as they are either qualified as exempt or valued at nil.

In respect of the years 2011, 2012 and 2013 a special transitional regime applies pursuant to which the employer can choose before 1 January of each calendar year to fall either under the 'old' or the 'new' expense allowance scheme. The new work-related costs scheme as introduced on 1 January 2011 will become mandatory for all employers as from 1 January 2014.

In view of the above employers are well-advised to review their current policies on remuneration in kind and reimbursement of work-related costs. Should such review lead to the wish to change (part of) those policies, please be advised that any remuneration or reimbursement qualifying as an employment benefit may only be changed with each individual employee's consent, unless there is a sound business interest for the change(s), which interest is of such overriding nature that the affected employee's interest in keeping the benefit as it was, should be set aside. This is a very strict test to meet. Please contact us if you require further advice.