An entity that posts employees to the Netherlands has the option to grant the temporary worker targeted, tax-free reimbursement for actual extraterritorial costs (ET costs).
The Dutch Payroll Tax Act defines ET costs as the additional costs of a temporary stay outside the country of origin in the context of employment.
In practice, an employee is deemed to be temporarily made available to the Netherlands from abroad or is temporarily made available abroad by his or her Dutch employer if he or she normally returns to the country of origin at the end of the work and incurs stay costs that would not be incurred by an employee who has a job in his or her country of origin or who emigrates permanently to another country.
For the purposes of ET cost reimbursement, the Dutch Tax Office considers that the temporariness requirement will be met for the maximum duration of the 30% allowance, i.e. in principle 5 years. However, this period does not play a role in the case of employees living abroad who work in the Netherlands from time to time, (e.g. seasonal workers). For such employees, even after the cumulative stay of 5 years has been reached, it is still possible, under certain conditions, to be reimbursed for the ET costs actually incurred.
The Dutch Tax Office recognises the ‘temporary’ nature of the stay if a number of conditions are met regarding the employing entity, the employee, the content of the employment contract, the conditions of employment and accommodation or transport.
Reimbursement is admissible insofar as it does not exceed an amount that can reasonably be regarded as work-related costs. Under certain conditions, the temporary employment agency may also include the excess as a taxable item in the payroll administration, subject to the so-called utility requirement.
ET costs include, inter alia, double accommodation costs, travel costs and other living expenses related to the employee’s temporary stay outside the country of origin in the context of employment.
In any case, the amount of reimbursement must not exceed the costs actually incurred by the temporary worker. It is up to the temporary employment agency to substantiate/document the costs it reimburses the temporary worker.
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