Tax‑free mileage allowance increased with retroactive effect

Fuel prices have risen sharply in a short period of time, with drivers feeling the financial impact directly. As part of a broader package of measures to support purchasing power, the Dutch cabinet has decided to increase the maximum tax‑free mileage allowance from € 0.23 to € 0.25 per kilometre. This is applicable immediately, with retroactive force until 1 January 2026.  

What does this measure mean for employers, employees and entrepreneurs who pay themselves a mileage allowance? Our experts discuss the implications and opportunities.

Reimbursement of business travel costs by kilometre

Employers can reimburse employees’ business travel costs in various ways. If you opt for a mileage allowance, you may reimburse business kilometres tax-free up to a maximum amount per kilometre, subject to certain conditions. This also includes commuting kilometres and other business travel.

This maximum amount was € 0.23 but has now been increased retroactively to € 0.25 per kilometre. Up to this amount, the allowance is exempt from wage taxes and social security contributions. If you reimburse more than this maximum, the excess is treated as taxable salary. In some cases, the excess may be designated under the work-related costs scheme (WKR) within the so-called discretionary margin.

The allowance can be applied where employees use their own transport, such as a car, motorcycle or bicycle. A proper mileage administration is required in order to grant a mileage allowance.

If you are an entrepreneur for personal income tax purposes, you may likewise pay yourself a (tax-free) mileage allowance for business kilometres and charge this to your taxable business profits. In that case, you bear the costs for, for example, maintenance and fuel yourself, and the VAT on those costs is not recoverable.

Tax-free mileage allowance increased to € 0.25

The maximum tax-free mileage allowance has now been increased retroactively to € 0.25 per kilometre. The increase was implemented by the Dutch cabinet in response to structurally higher fuel and energy costs, with the aim of supporting employees’ purchasing power. For employers, it also provides additional tax-efficient scope to (partially) compensate employees for increased mobility costs.

Retroactive effect: benefit from 1 January 2026, immediately applicable

The increase in the tax-free mileage allowance applies retroactively from 1 January 2026. It has been implemented through an approving policy decision issued by the Ministry of Finance, allowing the extension to be applied for tax purposes with immediate effect. A formal legislative amendment will follow, but the higher tax-free mileage allowance can already be applied for the entire 2026 calendar year. Corrections may be submitted for pay periods that have already elapsed.

In most cases, the increase is not obligatory for employers. The arrangements set out in employment agreements determine the level of the mileage allowance. If you currently offer a lower allowance, you are generally not required to increase it. If you already offered a higher allowance, a larger portion may now be granted tax-free.

There is, however, an important exception: in some cases, employers are required to increase the allowance based on individual employment agreements or collective labour agreements. For example, where the mileage allowance is linked to the maximum tax-exempt amount.

Make sure you carefully review your agreements, mobility policy and other arrangements to determine whether an increase is required contractually or as a matter of policy. Our experts would be happy to assist you with this.

Assess and implement the increase accurately

The increase allows you to grant employees a higher tax-free allowance. However, make sure that you assess and implement any increase correctly, to avoid errors and missed opportunities.

Do you have questions about processing the increased tax-free mileage allowance in your payroll administration and employment agreements? Would you like to review your employment conditions or mobility policy? Or are you looking to optimise your WKR position? Please contact your Baker Tilly advisor.

The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.