In principle, it is assumed that everything paid from the employer to the employee is a form of salary. However, there are also tax-free reimbursements an employer can provide to their employees. This is governed by the work-related costs scheme (werkkostenregeling).

Tax-free margin

The Werkkostenregeling uses the concept of tax-free margin (or also called free space), which is the amount you can reimburse free of tax rates.

The tax-free margin in 2022:

Taxable salary Free space rate
The first €400.000 1,7%
Above €400.000 1,18%


The tax-free margin in 2023:

Taxable salary Free space rate
The first €400.000 3,0%
Above €400.000 1,18%


This means that the employer can reimburse any expense incurred by the individual employee but that they must remain below the threshold or face the prospect of paying an 80% levy on everything above the margin.

In light of the effects of COVID-19 the tax-free margin under the Werkkostenregeling had been temporarily increased in 2020 and 2021. For 2020 and 2021, the margin increased from 1.7% to 3% for the first €400.000 of the total salary bill. Over €400.000, the margin is 1.2% in 2020 and goes back to 1.18% in 2021.

What is not salary

Some expenses are however not seen as salary and as such are outside the scope of the Werkkostenregeling. There are three types of payments that do not form part of the Werkkostenregeling and are not included in the total salary bill. These are exempted salary, zero valuations and specific exemptions. You can find information about these exceptions in chapter 22 of the Payroll Taxes Handbook.

Exempted salary

Exempted salary is tax free, but not at the expense of the tax-free margin. Exempted salary is an ‘intermediate cost’ where the employee pays for something on behalf of the employer.

Examples are reimbursing an employee when he paid for advertising on their credit card, providing a laptop for an employee and paying for a training for an employee.

Small gifts that are not related to job performance are also seen as not in the scope of the Werkkostenregeling. An example here would be flowers sent to the employee for their birthday.

Zero valuations

Zero valuations are provisions valued at €0 and therefore tax-free. Nil valuations are also not at the expense of the tax-free margin. Often this will cover benefits that are used in the workplace that would not ordinarily be used elsewhere. Examples of a zero valuation would be coffee provided in the office, a car parking space, facilities in the home office or work clothes like overalls and personal protective equipment.

Specific exemptions

Some items are specifically exempted from the Werkkostenregeling and are not there is no need to pay tax. This applies specifically for meals in the company canteen, childcare arranged by the employer and housing at the workplace.

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