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Doing business in the Netherlands 34Extraterritorial costsThe extraterritorial costs consist of the following,among other things:• extra cost of living because of the higher cost ofliving in the Netherlands than in the country oforigin (cost of living allowance);• the cost of an introductory visit to theNetherlands, with or without the family;• the cost of the application for a resident’s permit;• double housing costs (for example hotel costs),because the employee will continue his or herresidence in the country of origin.The following aspects are not covered by the extraterritorialcosts and can therefore not be compensatedor granted untaxed:• the overseas posting allowance, bonuses andcomparable compen sations (foreign servicepremium, expat allowance, overseas allowance);• loss of assets;• the purchase and sale of a house (reimbursementof house purchase expenses, agent’s fee);• the compensation for higher tax rates in theNetherlands (tax equalization).If the employee has children, the employer is entitledto offer the employee tax-free compensationfor school fees at an international school in additionto the 30% rule. Other professional costs can becompensated untaxed based on the normal rulesapplicable to the Wages and Salaries Tax Act (Wetop de loonbelasting).If the extraterritorial costs add up to more than30%, then the actual costs that have reasonablybeen incurred can also be compensated tax-free. Itmust however be possible to demonstrate that thecosts incurred are justifiable.To be able to make use of the 30% rule, theemployer and the employee must jointly submit anapplication to the Foreign Office of the tax authoritiesin Limburg (Belastingdienst/kantoorBuitenland). If the application is approved, the taxauthorities will issue a decision.The decision is valid for a maximum period of 8 years.Should the request be made within 4 months afterthe start of employment as an extraterritorialemployee by the employer, the decision shall beretroactive to the start of employment as an extraterritorialemployee. If the request is made later, thedecision shall apply starting the first day of themonth following the month in which the request ismade. The eight-year period is reduced by previousperiods of stay or employment in the Netherlands.In addition, the employee with the 30% ruling canalso submit an application for registration as a partialforeign taxpayer for tax purposes in theNetherlands. This entails that he will be entered as aforeign taxpayer in Box 2 and 3. In that case, as a foreigntaxpayer the income to be reported is limited toDutch source income and not to its worldwide(investment) income.6.7 Value Added Tax (VAT)The Dutch turnover or value added tax system isbased on the European Directive concerning tax onadded value. Tax is due the Added Value (VAT or‘BTW’ in Dutch). This entails that tax is charged ateach and every stage of the production chain and inthe distribution of goods and services. Businessescharge one another VAT for goods and/or servicesprovided. The company that charges the VAT isrequired to pay the VAT amount to the tax authorities.If a company is charged VAT by another company,it is entitled to deduct the VAT amount fromVAT due on the company’s part. By doing so, the systemensures that the end user is effectively responsiblefor paying the VAT.Foreign companies that perform taxed services inthe Netherlands are in principle also liable to payVAT. Those companies, too, will be required to paythe VAT due in the Netherlands and will thereforealso be able to claim the VAT invoiced to it by Dutchcompanies. The VAT system entails strict invoicingrules. The rules are determined by the mandatoryEU Directive on VAT Invoicing rules and implementedby EU Member States in their national VATLaw.