An extra little something is always welcome among your employees. In most cases they do not have to pay any taxes over the gifts received (so that they really remain gifts). As an employer, however, you might have to pay the so-called eindheffing (deduction at source). This is a tax construction that names you – the employer – responsible for paying taxes over the gift, rather than the person who actually receives the gift. And yet, since January 2015, there is a tax regulation in place that lets you be generous tax-free. Under certain conditions, that is.
Werkkostenregeling (WKR) allows you, as an employer, to use up to 1.2% of the total gross salary on gifts and compensations for your employees, tax-free. This is commonly referred to as the margin (vrije ruimte) and can cover things like Christmas packages, birthday gifts, bicycle plans or gym memberships. Keep in mind that the total price of the gift including VAT is what counts here. If you have used up your entire available margin, eindheffing tax of 80% will apply to whatever sum is above the budget.
For example, you give one of your employees a bicycle worth € 1.000. If you still have some margin budget left, then the € 1.000 is tax-free. If, however, you have already used up your entire budget, you will have to pay tax of 80% over it.
Also, you cannot give these gifts on any random day. Belastingdienst, the Dutch tax office, recognizes these occasions: the end of the employment, commonly recognised holidays, anniversary of the employer, anniversary of employee’s service to the company and their personal occasions, such as birthday, marriage and childbirth.
Considering that the eindheffing tax of 80% is significantly lower than the highest grossed up salary and income tax (108.33%), it can be profitable for an employer to declare compensations and benefits under their WKR. To prevent this, there is an anti-abuse regulation in place – the so-called gebruikelijkheidscriterium. Based on this, employers may declare employee compensations and benefits under their WKR, as long as the total sum of these is not significantly (at least 30%) higher than what is common in similar situations. This rule is not very specific and might cause confusion, so the tax office states that declaring compensations and benefits for up to € 2.400 per employee per year is in any case acceptable.
Example: You give your employees Christmas gifts. You decide to give your director a very nice watch worth € 25.000. This amount is considerably higher (more than 30%) than average value of gifts that other employers gave their directors in similar situations. The amount that is above those 30% has to be treated as the director’s wage.
There are several things that cannot be declared under WKR. Firstly, there is a noodzakelijkheidscriterium, a norm put in place to allow you to provide your employees with the necessary means they need to perform their tasks (such as computers, phones, tools, courses) without them being subject to tax or eating into your margin budget. Beside that, there is a discount of up to 20% on products of your own company that you can offer to your employees, also tax-free (but not exceeding € 500 per employee per year). Thanks to this, you do not need to worry that your employee discounts will fill up your margin budget. However, any further discount that you give to your employees above the limit will either need to be declared as wage or be deducted from your margin budget.
By: Veronika Bacova