Reimbursement of costs for assistance with filing income tax return for foreign employees

When you recruited employees from another country, you can provide reimbursement for the additional costs incurred due to their stay outside their home country. These extraterritorial costs are eligible for a specific exemption.

When reimbursing these costs, you have two options: reimbursing the actual extraterritorial costs or applying of the 30% ruling. If you reimburse the actual costs for the income tax return of the foreign employee, it will be considered taxable income. However, a part of the specific exemption for extraterritorial costs. The following situations are possible:

1. Does the employee only need to file a tax return in the Netherlands? And are the costs for filing of a Dutch income tax with the assistance of a tax advisor return higher than the costs for filing of a tax return in his home country? A reimbursement of the additional costs will then be considered tax exempted as extraterritorial costs. The remaining amount will be taxable income.
2. Does the employee only need to file a tax return in the home country? In that case, the reimbursement for the costs incurred in his home land will be considered taxable income. If the costs for that tax return are higher due to the employee working in the Netherlands, a reimbursement of the additional costs will be considered tax exempted as extraterritorial costs. The remaining amount will be taxable income.
3. Does the employee need to file tax returns in both the Netherlands and the home country? The reimbursement for the costs of the Dutch tax return will be considered tax exempted as extraterritorial costs. The reimbursement for the costs of the tax return in the home country will be considered taxable income. If the costs for the home country tax return are higher due to the employee working in the Netherlands, a reimbursement of the additional costs will be considered tax exempted as extraterritorial costs. The remaining amount will be taxable income.

The costs for the tax return include the costs of filing of the tax return, applying for a provisional assessment, reviewing of the received assessment(s) by a tax advisor, and any costs related to ensuring the correct form is used for filing.

The following costs are not considered as costs for the tax return:

• Costs for filing an objection and appeal.
• Costs for preparing of the income tax return of the employee’s partner.
• Costs for preparing of a possible foreign tax return.
• Costs for advice on housing and other advisory services.

More from the HBK Update June 2023

• New (temporary) legislation regarding box 3
• Holding on to definitive assessments and objections with income in box 3
• Restructuring box 3 assets before October 1st (valuation date arbitrage)
• Excessively lending act
• Limitations/Abolition of Business Succession Facilities
• Tax authorities will start checking for pseudo self-employment from 2025
• Convert loss from substantial interest into tax credit
• No tax-free allowance for each day working from home
• Repaying Deferred Tax Payments
• MIA and Vamil
• Reimbursement of costs for assistance with filing income tax return for foreign employees
• Co-operating spouses: Co-operating remuneration or co-operating tax deduction?