When it comes to sustainability in the workplace, there is a growing appreciation among both employers and employees for eco-friendly employment practices. To this end, promoting the use of (electric) bicycles is an important incentive. However, it is essential to consider the various tax aspects involved in doing so.
The Netherlands is known for its widespread use of bicycles, with 27% of all trips made by bike and even higher percentages in some cities. However, there is still room for improvement in promoting cycling, especially considering that over half of car journeys are less than 7.5 kilometres – a distance that most people would find acceptable to cycle. The increasing popularity of e-bikes also provides an option for cycling longer distances.
Employers can encourage their employees to use bicycles by providing them with a higher travel allowance compared to when using a car. If the reimbursement exceeds €0.21 per kilometer, it can be allocated to the work-related costs scheme or treated as taxable wages for the employee.
Employers can reap benefits when their employees choose to cycle to work, as cycling leads to better employee health and lower absence rates due to illness. Companies may also be able to reduce parking costs when more employees cycle to work. As a result, the government is encouraging employers to provide better facilities for cyclists. To support this, employers can pay a tax-free mileage allowance of up to €0.21 per kilometer to employees who cycle to work, the same rate as staff who drive. Additionally, tax rules for using a company bicycle for private purposes have been simplified since January 1, 2020. Under these rules, employees who use a company bicycle for private purposes must add 7% of the recommended retail price of their bicycle to their taxable income each year. This applies to bicycles, e-bikes, and speed pedelecs provided by the employer.
Another way to incentivize bicycle use is to reimburse or provide employees with electric bicycles. The value of the bicycle can be deducted from the free space of the WKR. In addition, a tax-free travel allowance of €0.21 per kilometer can be provided for commuting. However, if an employee pays for the bicycle from their gross salary, the value of the bicycle will still be deducted from the free space of the WKR.
Employers can also provide an interest-free loan to employees so they can purchase the bicycle themselves. This way, the bicycle does not claim the free space of the work-related costs scheme, and the loan does not constitute a wage advantage. Employers may also make a company bicycle available to employees, but in this case, they become the owners and may face an addition of 7% of the recommended retail price.
There are four tax schemes available for companies to provide bicycles, electric bicycles, or pedelecs to their employees, which include a company or lease bicycle, using part of the gross salary, allowance per kilometer, and interest-free loan. The eligibility of these schemes depends on the situation. If you are a sole proprietor, you can only use the Company Bicycle scheme as you are not an employee. If you want to provide a bicycle to your employees, you can use all four schemes. As a director-major shareholder of your limited company, you are also considered an employee, and thus eligible to use all four schemes.
I will briefly summarize two scenarios. Firstly; using part of the gross salary to provide a bicycle allowance is one of the tax schemes available for companies in the Netherlands. With this scheme, an employee can use a portion of their gross income to purchase a bicycle, and the company provides an allowance to cover the cost. This allowance is indicated as the final-levy wage, and the company does not have to pay tax on this amount, as long as it stays within the discretionary scope of the work-related costs scheme.
By deducting the allowance from the gross salary, both the company and the employee pay less wage tax and premiums. For example, if an employee has a gross monthly salary of €4,500 and wants to buy a bicycle for €1,250, the company can convert €1,250 of the employee’s gross salary into an allowance for the purchase of the bicycle.
In a normal month, the employee would receive a net salary of €2,700 after paying €1,800 in tax. In the month of the bicycle purchase, the employee would receive a net payment of €1,250 in their account, and the gross salary would be reduced to €3,250, resulting in a net salary of €1,950 after paying €1,300 in tax. However, the total amount in the employee’s account would be €3,200, which is €500 more than they would normally receive. The tax savings of 40% on the €1,250 allowance amount to €500.
The advantage for the employer is that they can designate the compensation of €1,250 as the final-levy wage, which means they do not have to pay tax on this amount, as long as they stay within the discretionary scope. Also, the employer pays less employee insurance premiums and employers‘ levy over €3,250 instead of over €4,500, resulting in cost savings.
The second scenario sets out another option for financing a bicycle for employees is through a tax-free kilometer allowance. Employers can reimburse their employees per kilometer commuted to work, with a maximum untaxed amount of €0.21 per kilometer. Another option is to provide an interest-free loan to the employee, which is not deducted from the discretionary scope since it is repaid by the employee. The employee can also repay the loan with the tax-free kilometer allowance. For example, an employee who commutes 4 kilometers to work and receives a €0.15 kilometer allowance per working day could repay a €1,500 loan in approximately 5 years.
In terms of tax implications, employers may reimburse employees for a tax-free travel allowance of €0.21 per kilometer on days when the bicycle is not used for commuting. However, VAT deduction for bicycles is subject to limitations and rules.
Overall, offering a higher travel allowance and providing various options for bicycle use can be an effective way to promote sustainability and reduce carbon emissions.
State Secretary of Finance, Mr Van Rij has communicated to the House of Representatives that employers can reduce their administrative burden by offering a tax-free travel allowance for private cars along with a company bicycle.
The Dutch government introduced a new fiscal addition of 7% of the value of a company bicycle as part of the wage of the employee using it from 1 January 2020. This addition is relatively straightforward for companies to implement if the employee only uses the company bicycle for commuting. However, if the employee uses both a company bicycle and a private car for commuting, this leads to additional administrative burdens for employers. Employers must keep track of how many days the employee travels to work by car or bicycle and how many days they travel by other means.
To simplify the burden of proof for employers, State Secretary van Rij of Finance has introduced a new rule allowing employers to make an individual agreement with employees regarding how many days per week the employee travels by private car and how many days per week by company bicycle. This agreement can form the basis for determining a fixed tax-free travel allowance. The agreement must be tailored to the personal circumstances of the employee and have sufficient realistic value. An occasional deviation from the agreement will not lead to an adjustment of the reimbursement.
The promotion of cycling as a sustainable mode of transportation is not limited to the Netherlands. Many cities and countries around the world have recognized the benefits of cycling and are taking steps to encourage its use. For example, Copenhagen in Denmark is often cited as a model city for cycling, with over 62% of residents cycling to work or school. In the UK, the government has launched initiatives such as the Cycle to Work Scheme, which allows employees to purchase a bicycle tax-free and pay for it through salary sacrifice. In the United States, some cities have implemented bike-share programs and have added bike lanes to city streets to make cycling safer and more accessible. Overall, there is a growing global trend towards promoting sustainable transportation options, including cycling, to reduce carbon emissions and promote healthier lifestyles.
In some countries, tax deductions or credits are available for individuals who use a bicycle to commute to and from work. As of September 2021, here is summarized viewpoint from other countries:
The Netherlands: As mentioned earlier, the Netherlands offers a tax-free bicycle scheme for employees who use a company bicycle for commuting. In addition, the Dutch government has introduced a temporary tax credit for individuals who purchase an electric bicycle between March 2021 and December 2021. The credit is worth 15% of the purchase price, up to a maximum of €1,500.
Belgium: In Belgium, employees can receive a tax-free allowance of €0.24 per kilometer for cycling to work. This allowance can be combined with a tax-free public transportation allowance. In addition, employers can provide employees with a tax-free company bicycle for commuting.
United Kingdom: In the UK, there is currently no specific tax deduction or credit for bicycle commuting. However, some employers offer a „Cycle to Work“ scheme, which allows employees to purchase a bicycle through their employer with pre-tax income.
United States: In the US, there is no federal tax deduction for bicycle commuting. However, some states and cities offer tax incentives for employers who provide bicycle commuting benefits to their employees. For example, in California, employers can receive a tax credit of up to $20,000 for providing bicycle commuting benefits.
In 2023 it is anticipated that a significant number of employees will continue working from home or partially from home, which could lead to potential implications for compensations regarding travel costs to the regular workplace. Furthermore, there is uncertainty on how the combination of travel allowance and homework allowance would work, which we will clarify in the following explanation.
Starting from January 1st, 2022, there will be a specific exemption for general homeworking costs that will compensate for the extra expenses of employees, such as electricity, heating, coffee/tea, and toilet paper. The exemption is designed to reimburse employees up to a maximum of €2.15 tax-free per home working day in 2023. This reimbursement will not affect the free space under the work-related costs scheme, which means that if an employer wants to give a higher compensation to their employees, the multiple will fall into free space. However, the reimbursement must be designated as a final levy component.
It is important to note that the exemption for a home work allowance of a maximum of €2.15 per home work day can only be applied if an employee works from home for only part of the day. Furthermore, a homework allowance cannot be given for the days on which an employer also pays a travel allowance for commuting. This means that if an employee works from home part of the day and the other part at the permanent workplace, only one of the exemptions can be applied, and the employer must choose whether to reimburse the commuting costs or provide a homework allowance. The exemption also does not apply on the days that the employee uses the company car (or bicycle) or a public transport season ticket paid for by the employer to travel to the permanent workplace.
A definition from the distant past applies to the term ‚fixed workplace‘: a fixed workplace already exists if the employee travels to the same location for more than forty days on an annual basis. Employers can reimburse other business travel expenses, such as visiting customers, on an expense claim basis in addition to the homeworking allowance.
Employers can provide a fixed (monthly) allowance if they make agreements about their employee’s travel/home working pattern. They can use the 128/214-day scheme (statutory scheme) for this purpose. This arrangement means that if an employee travels to the permanent workplace for at least 128 days a year, the travel allowance may be calculated on an annual basis as if the employee travels on 214 working days. This formula already takes into account occasional working from home, illness, and holidays. Employers can also apply this scheme to award a fixed homework allowance.
In 2023, an employee can receive a fixed travel allowance if they travel to the office for at least 76 days of the calendar year (3/5 of 128 days). The compensation is calculated over 129 days (3/5 of 214 days). The tax-free fixed travel allowance then amounts to a maximum of €90 per month ((129 days x 40 kilometers x €0.21)/12 months).
For a fixed homeworking allowance, an employee must work from home for at least 25 days of the calendar year (1/5 of 128 days). The homework allowance is calculated over 43 days (1/5 of 214 days). In 2023, the tax-free fixed homeworking allowance will amount to a maximum of €7.70 per month (43 days x €2.15/12 months).
If employees occasionally worked from home before the corona crisis and will continue to do so in 2022 and beyond, the travel allowance will not change. However, employers must monitor more than before whether they still comply with the 128-day rule, and a location registration can help with this. The (new) definition of the permanent workplace also deserves attention, especially if an employer wants to pay a homework allowance. If employers make structural agreements about home working days, whereby the employee works at home one day a week, for example, the travel allowance will change, even if a homework allowance is not granted.