Free space temporarily increased to 3% in 2023

From 2024, the temporary increase will expire and the percentage of 1.92% will apply. Tax Minister Van Rij announced this in response to questions about the 2023 tax plan.

What about the implementation of the motion calling for the labor cost regime (WKR) be extended once to 3% in 2023?

As already indicated by the Prime Minister during the General Policy Reflections, the cabinet is carrying out this motion and covering it from the National Growth Fund.

The 2023 Tax Plan Bill already provides for a structural increase of 0.22 percentage points in free space on the first €400,000 of taxable payroll, bringing the percentage to 1.92%.

Increase in labor cost regime: free space increases by 0.22%

Change Note

It will be proposed by means of an addendum memorandum that the free space is temporarily further widened before 2023 to 3% of the first €400,000 of the taxable payroll. From 2024, the temporary
increase and the percentage of 1.92% applies.

Motions passed regarding the expansion of the professional charges regime

Effects increase free space

What are the expected effects of the 0.22 percentage point increase in the first tranche of the free space of the labor cost regime (WKR)?

With a taxable payroll of up to €400,000, the additional discretionary margin resulting from the increase in 2023 will increase to €880 as the taxable payroll increases.

Suppose an employer employs ten employees, the average taxable salary is €40,000, the employer uses this extra space in full and distributes it equally among the ten employees, then the tax benefit for an individual employee is €88 x the marginal tax rate that applies to the employee. Incidentally, it is not mandatory to use the extra free space, nor to distribute it equally among all employees.

3% of employers exceed the free space

How many companies use the WKR on average and how much of the free space do these companies use?

It can be assumed that almost all companies that employ staff use the WKR. Almost all companies reimburse expenses or provide certain things to their employees. About 3% of all businesses exceed free space. For the remaining 97% of all businesses, no recent data is available on the extent to which free space is used.

Employers should only share free space usage data with tax authorities if free space is exceeded. If this is the case, the employer must pay a final levy on the amount of excess free space.

Cost increase of 0.22%?

What percentages is the free space increase in the WKR based on?

Within the framework of the SME budget, 50 million euros are reserved for the extension of the WKR. An attempt has been made to best bridge this amount with a 1.7% free space percentage increase, which applies to the first €400,000 of an employer’s taxable payroll. Due to the restriction to limit the relaxation percentage to a maximum of two decimal places, the relaxation percentage has come to
0.22%. The costs at this percentage amount to 49 million euros.

Donation to employees

Can companies pay an additional €2,000 tax-free to their employees?

Usually, a gift from an employer to his employee will constitute a benefit of the employment relationship and will therefore be considered as wages on which social charges are due. In exceptional cases there could be a gift within the meaning of the Inheritance Act 1956 (SW 1956) where the gift is caused by the personal relationship between employer and employee. The donation then falls under the exemption of €2,274.

No free measurement

Could employees work an additional four hours per week without charge as a free solution?

Working an extra four hours a week without charge is certainly not a free measure, but very expensive
measure. Even if only 1 million of the approximately 7 million employees used it, it would quickly cost several billions. In addition, the measure would most likely lead to misuse through a downward adjustment of the number of contractual hours or wages imposed in other ways to
put in non-taxable wages. It would also make such a measure complex and difficult to apply.

Load relief?

to what extent will SMEs experience this measure as a reduction in load, since the use of free space is voluntary.

Inflation has increased sharply, so that allowances and benefits in kind to employees will be more expensive than before, while the wage bill (and therefore free space) has increased less.

Particularly in companies with few employees or with less well paid employees, the free space will therefore no longer always be sufficient to maintain the usual allowances, benefits in kind and secondments. Even if an employer does not want to use the extra free space for additional payments, he may experience this as a reduction in the load, because the free space is exceeded less quickly.

Additional report memorandum Legislative proposal 2023 tax plan

More free space in 2023 – answers to questions Tax plan 2023