An employer can provide their employees with tax-free allowances via the so-called Work Expenses Scheme (WKR). This can be done under what's referred to as the free space. Most employers choose to provide their employees with a gift bag or Christmas present at the end of the year, however.
The employer is also allowed to add this amount as an additional payment to their employees’ payslip, so that they can decide how to spend the gift freely. This also applies to contractors when they are employed by their own BV and on the payroll of their own business.
In 2025, the free space is 2% for salaries up to €400.000 (and 1,18%, if it is more). The free space is based on the taxable salaries of all the employees together and can be used for any kind of tax-exempt allowances, remunerations, or provisions.
For example, your taxable salary is around €80.000 gross per annum. Assuming that the company has multiple employees, and the annual salary of all employees together is €800.000, the average tax-free percentage for all employees is then less than 2%.
If an employer has 10 employees with a total salary of €800.000 euros per year, there is a tax-free space of €12.720.
| Taxable salary | Calculation | Free space |
|---|---|---|
| €400.000 | €8.000 | |
| €400.000+ | 1,18% × €400.000 | €4.720 |
| Total | €12.720 |
We could assume that this free space of €1.272 (€12.720 /10) is related to your employment income only. Your employer could decide to provide you with this extra amount during or at the end of the year as a gift, without any tax implications.
The employer could, however, give you a lower or higher amount as well. There is no obligation for an employer to give their employees a certain amount.
There is a condition, however, which is that the allowance is customary. This means that the allowance may not deviate by more than 30% from what is normal in comparable circumstances.
The tax authorities consider allowances of up to €2.400 per person per year to be customary. For payments below € 2.400, it is therefore not needed to check whether the payment deviates by more than 30% from what is normal.
If your employer is happy with your excellent service, they could decide to give you a tax-free amount of € 2.400, regardless of whether this matches with your annual salary.
Note that this exemption is on top of the standard expenses your employer can cover tax-free, like travel expenses, study costs, etc. These expenses fall under the so-called targeted exemptions under the Work Expense Scheme.
Do you need tax advice? Taxsight has many years of experience in local and International tax matters, and will be happy to help. Contact their team by calling +31 (20) 261 3221 or emailing info@taxsight.nl.