Tax and Compliance — 9 min

Employee tax relief schemes: How do they work? (with examples)

Written by Pedro Barros

July 1, 2024

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Across the globe, different countries offer tax relief schemes that can help your employees reduce their tax rate.

As well as putting more money in your employees’ pockets, these schemes can make it easier to attract top talent in certain roles and/or certain locations. They can allow you to create a more attractive compensation package, and boost your retention rate.

In this article, we’ll look at how some of these schemes work, and touch on the ways Remote can help. So let’s jump straight in.

Jump straight to a key chapter

What are tax relief schemes?
How can Remote help?

What are tax relief schemes?

Tax relief schemes are government programs that reduce the tax burden on eligible workers. They are often created to attract skilled labor to a country, or to incentivize people to work in certain roles or industries.

These schemes vary widely by country, and can target different aspects of taxation such as income tax, social security contributions, or other employment-related taxes.

What are some common tax relief schemes for employees?

As mentioned, many countries provide tax relief schemes. Based on our own experience at Remote, though, here are some of the most commonly requested:

Beckham’s Law (Spain)

Introduced in 2005, the Special Expats’ Tax Regime (SETR) — more commonly known as “Beckham’s Law” — allows foreign workers who are moving their tax residency to Spain to be taxed as non-residents. It’s widely associated with the ex-footballer David Beckham, who benefited from the program while playing at Real Madrid.

Eligibility

Beckham’s Law is designed to attract high-earning foreign talent to Spain. As a result, the eligibility rules are as follows:

The employee must not have been resident in Spain during the five previous tax periods
They must not have obtained income through a Permanent Establishment located in Spain

In addition, the reason for moving to Spain must be due to one of the following:

They are starting an an employment position in Spain (or have been formally posted there from abroad)
They are becoming a director of an entity in which they hold a maximum equity of 25%
They have received a government-approved nomad visa
Their spouse is covered under Beckham’s Law

The application for this relief scheme should be made within six months of the individual starting the position.

What are the benefits of Beckham’s Law?

Instead of being subject to Spain's progressive income tax rates, eligible individuals are taxed at a flat rate of 24% on their Spanish-sourced income (up to a limit of €600,000; any income exceeding this is taxed at a rate of 45%). Note that individuals must still pay other applicable taxes in Spain, such as social insurance.

Despite being residents of Spain, individuals are treated as non-residents for tax purposes. This means they are only taxed on their Spanish-sourced income, and not on their worldwide income.

The scheme is designed to be temporary, and can be applied for up to six tax years (including the year of arrival).

“In general, the SETR is usually recommended for those earning above €55,000, and those who want to reduce their Spanish Wealth Tax liabilities.”
Ana Vieira, VP Tax at Remote

Note that the benefits of Beckham’s Law can be withdrawn if:

The individual’s employment ends
The individual becomes a permanent resident of Spain (beyond the terms specified in the scheme)
There are breaches of or non-compliance with any Spanish tax laws

Creative Tax (Poland)

As the name suggests, Poland’s “Creative Tax” is designed to provide tax relief to employees in creative professions. It allows eligible individuals to declare 50% of their income as tax-deductible, effectively lowering their taxable income.

Eligibility

As mentioned, the scheme is designed for creative professionals, which can include software developers, designers, content creators, journalists, and artists. However, to be eligible, employees must have created a copyrighted work.

What are the benefits of the Creative Tax?

As well as increasing your team members’ take-home pay, the Creative Tax encourages contractors to work exclusively for your company as an employee.

30% ruling (Netherlands)

Under this ruling, eligible expatriates are entitled to receive up to 30% of their gross salary tax-free. This scheme is intended to help compensate for the associated costs of moving to the Netherlands and, by design, encourage skilled workers to move there.

Note that the 30% ruling has undergone several significant changes in recent years. Recipients are now only entitled to benefit for five years (down from eight), and the titular 30% rate has been scaled down as follows:

30% for the first 20 months
20% for the next 20 months
10% for the last 20 months

Eligibility

To be eligible, the employee must:

Be starting an employment position in the Netherlands (or be formally posted there from abroad).
Have specific labor skills and knowledge that is not otherwise available in the Netherlands.
Have not not lived within 150km of the Dutch border for more than 16 of the previous 24 months. As a result, many individuals in Belgium and Luxembourg are ineligible, as are individuals in some parts of Germany, France, and the UK.

Employees must also be earning at least €65,868 per year (although the rate is slightly lower for master’s graduates below the age of 30). This minimum changes each year.

Note that this threshold can also affect how much relief your employee is entitled to. For example, if their salary is €70,000, this meets the threshold. However, the reduction of 30% takes the figure to €49,000, which is below the threshold. As a result, the employee would lose out on €16,868 of tax-free salary.

These rules are slightly relaxed for recent PhD graduates and some professionals in the scientific and medical fields.

What are the benefits of the 30% ruling?

As mentioned, employees can enjoy significant savings over a period of time. They don’t pay income tax on the designated portion of their salary.

To illustrate, say your employee earns €100,000. If they are eligible, the 30% ruling means they would only pay income tax on €70,000 of this, which, under current Dutch tax rates, would mean an income tax bill of just under €26,000.

If your employee wasn’t eligible, the income tax bill would be just under €38,000 — around €12,000 more.

Note that the benefits of the 30% ruling can be withdrawn if:

The individual’s employment ends
The individual no longer meets the eligibility requirements (e.g., their salary is decreased)
There are breaches of or non-compliance with any Dutch tax laws

Other common tax relief schemes

While these are some of the most popular and often-requested tax relief schemes, similar programs exist in other countries. These include:

Non-Domiciled Resident Status (UK). This scheme allows UK residents who have their domicile in another country to be taxed on their UK income only, with the option to exclude foreign income if it is not remitted to the UK. This can result in significant tax savings for high earners with substantial foreign income.

Impatriate Regime (France). This scheme provides tax incentives for employees and executives relocating to France. It provides exemption from tax on a portion of their salary, as well as on certain investment income.

Impatriate Regime (Italy). This scheme offers a 70% exemption on income derived from employment for eligible workers moving to Italy. It is intended to attract foreign talent and former residents who have been living abroad.

Not Ordinarily Resident (NOR) Scheme (Singapore). This scheme provides tax concessions to individuals who qualify as NOR, which often benefits expatriates. Features include time apportionment of income, and tax exemption on contributions to overseas pension funds.

How can Remote help?

At Remote, we can help your people apply for these schemes. When you relocate an eligible team member through our platform, we can work with them to navigate the complex application process, including the completion and submission of all forms and required documentation.

Many of these schemes also add a significant administrative burden to your payroll and HR processes. We remove this burden from your plate, allowing you and your people to reap the benefits headache-free. We do all the calculations and ensure you are fully compliant at all times, giving you peace of mind.

To learn more about how exactly we can help, speak to one of our friendly experts today.