In the Netherlands, employers can provide their employees with tax-free allowances through the Work Expenses Scheme (WKR), often using what is known as the “free space.” While many employers prefer to give gifts like holiday presents or gift bags to employees at the end of the year, another option is to offer this amount as an additional payment, allowing employees to choose how to spend it. This also applies to contractors who are employed by their own BV and are on the payroll of their business.
Tax-free allowance amounts
For the year 2025, the free space under the Work Expenses Scheme is set at 2% for salaries up to €400,000. For salaries exceeding this amount, the free space percentage decreases to 1.18%. The free space is calculated based on the total taxable salary of all employees, and it can be used for various tax-free allowances, payments, and provisions.
For example, if your taxable salary is €80,000 per year, and the company’s total salary expenses for all employees amount to €800,000, the overall tax-free percentage will be less than 2% due to the combined salaries. Here’s a simplified breakdown for a company with 10 employees:
- Total taxable salary: €800,000
- Free space at 2% for the first €400,000: €8,000
- Free space at 1.18% for the remaining €400,000: €4,720
- Total free space: €12,720
This results in a tax-free allowance of €1,272 per employee (€12,720 / 10), which could be given as a tax-free gift by the employer.
Customary amounts for tax-free allowances
There is a condition that the allowance provided is “customary,” meaning it should not deviate by more than 30% from what is considered normal for similar situations. The Dutch tax authorities regard allowances of up to €2,400 per person per year as customary, so for amounts under this limit, it is not necessary to check whether the payment deviates by more than 30%.
For instance, if your employer is satisfied with your performance, they may give you a tax-free allowance of €2,400, regardless of your annual salary.
Additional exemptions
It’s important to note that this tax-free allowance is separate from other standard expenses that employers can cover, such as travel expenses, study costs, etc. These are considered targeted exemptions under the Work Expenses Scheme, and they don’t affect the free space allowance.
