The work-related costs rules will enter into force on January 1, 2011. These rules will replace the current system of tax exempt reimbursements and other benefits. The introduction of the work-related costs rules will not only extensively change the content of the Payroll Tax Act of 1964; it will also mean that the Payroll Tax Implementation Regulations of 2001 will be replaced with the Payroll Tax Implementation Regulations of 2011 (“PTIR 2011”). The Ministry of Finance recently published the draft PTIR 2011 for consultation. Furthermore, changes to the work-related costs rules were proposed in the bill recently submitted to the Lower House regarding the Miscellaneous Tax Measures Act 2010.
Overview of the work-related costs rules system
Expense reimbursements and other benefits are, in principle, taxable. In practice, however, no tax is due if the reimbursements or benefits are designated by the employer as part of a “final levy,” and these amounts do not exceed 1.4% of the total taxable salary (this is called the general exemption, or “fixed exemption”). In addition, certain benefits are deemed to be exempt from tax. There is also no tax due when the benefit is valued at zero. Exempt benefits and zero-rated benefits are thus not included in the general exemption.
Benefits in kind that exceed the general exemption of 1.4% and that are not exempt or zero-rated are taxable. Taxable benefits in kind are, as a general rule, taxed at their fair market value. As of 2011, this will be, in principle, the invoice amount (including VAT). Certain types of benefits in kind will, however, deviate from the general rule, and be valued in another manner. Provisions for this are stipulated in the draft PTIR 2011.
Draft PTIR 2011
The most important changes apply to the types of benefits in kind that are deemed zero-rated or valued at an amount below fair market value.
Zero-rated benefits
Under the work-related costs rules, the following salary components are valued at zero if they are wholly or partially used or consumed at the workplace.
- Benefits that are not usually used or consumed other than in the workplace (the use of workplace facilities, the company parking lot, etc.);
- Reasonable benefits that originate directly from the policy on working conditions that the employer implements based on the Working Conditions Act (a computer screen shield, specially insulated or protective gear, back and shoulder massages, etc.);
- Reasonable refreshments provided to the employee that do not form part of meals (coffee, tea, snacks, etc.);
- Clothing made available to the employee, if the clothing is, for the most part, suitable only for wearing while performing work duties (such as uniforms and work jackets worn in the building), as well as clothing that must be left at the workplace. A logo is not considered, in itself, as sufficient to qualify as zero-rated;
- Appliances/tools made available to the employee, which include computers and certain apparatus, tools, and attachments that are used more than 90% for business purposes (notebooks, net books, tool boxes, etc.). Professional literature that is provided at the workplace also falls under the meaning of “tools” and is subject to this provision;
- Communications devices made available to the employee – other than computers and similar apparatus – used more than 10% for business purposes (smart phones, etc.).
Other zero-rated benefits
The following salary components are, under certain conditions, also valued at zero:
- Public transportation and reduced rate tickets;
- Below-market interest arising from employee loans related to the employee’s principal residence;
- Below-market interest arising from employee loans related to the purchase of a bicycle, electric bicycle, or electric scooter;
- Health insurance plans managed directly by the employer.
Fixed valuations
A number of types of benefits in kind are valued at below fair market value. This lower value is set at a fixed amount. Under the work-related costs rules, the following salary components are set at fixed values if they are wholly or partially used or consumed at the workplace.
- Meals: The fixed value has not yet been announced, but it will be in line with the current fixed allowance norms for canteen meals;
- Private accommodation located at the workplace: EUR 10 per day, including any use of energy, water, and laundry facilities;
- Shared accommodation located at the workplace: EUR 5 per day, including any use of energy, water, and laundry facilities;
- Fitness and weight training: EUR 200 per calendar year;
- Childcare: Number of hours times the set hourly price.
In addition, the fixed valuation also applies to the interest benefit from a below-market interest rate employee loan to which the zero-rate valuation does not apply. A standard fixed percentage has not yet been announced. Finally, the maximum value for the use of certain employer-provided residences – for example, housing located near the workplace for a pastor or a night porter – is set at 18% of the annual salary.
Miscellaneous Tax Measures Act 2010
The amount of the general exemption for the work-related costs rules is 1.4% of the total salary. The bill states that an adjustment to the total salary can be required if the salary therein also includes salary from previous employment. This latter amount is not included in the base if the total amount of the salary from the previous employment amounts to more than 10% of the total salary. This change aims to prevent unintentional increases to the base for determining an active employee’s general exemption.