For years, foreigners who move to the Netherlands to work have been eligible for a tax break which allows them to receive 30% of their salary tax free for a certain period. Widely known as the ‘30% ruling’, the tax break is intended to attract highly skilled workers to the Netherlands (in employment areas where there is a scarcity of skill) and serve as a reimbursement for the costs those employees incur from travel expenses, visa applications, finding accommodation, and so on.
The 30% ruling was previously available to expat employees for a maximum of 8 years but from 1 January 2019 the Dutch government shortened that eligibility period to 5 years. With the new regime now in effect, it’s worth making sure your business, your payroll, and your employees understand how it work.
What is the 30% Ruling?
The 30% ruling is intended to attract ‘specialist’ workers to the Netherlands to fill skill shortages, however, not all foreign workers are eligible for the tax regime. In order to qualify for the 30% ruling, employees must meet the following criteria:
- The employee must be recruited or transferred from abroad, and must not have resided within 150km of the Dutch border for 18 of the last 24 months prior to hiring.
- The job the employee performs must be for an employer registered with, and paying payroll tax to, Belastingdienst, the Dutch tax authority.
- The employee must be paid a salary of at least €37,000 per year. This minimum salary requirement is the primary factor for determining a job’s skill ‘scarcity’.
- Employer and employee must have a written agreement that the 30% ruling is applicable to the job.
Some exceptions apply to the criteria. Phd and Masters graduates have a lower minimum salary limit of €28,125 and do not have to be recruited from abroad if they graduated from a Dutch university within 12 months. Scientific Researchers at universities and trainee medical specialists have no minimum salary limit.
Re-Evaluating the 30% Ruling
In 2017, the Dutch government reevaluated the way the 30% ruling was implemented and discovered that of the expat employees who used the tax break, only 20% used it for the full 8 years. The majority of that 20% of employees using the ruling for 8 years, did end up staying in the Netherlands and taking up long-term residency. The wider results of the evaluation were published in the government’s ‘Confidence in the Future’ document.
Following the findings of the review, the Dutch government decided to adjust the length of time for which the 30% ruling could be applied for expatriate employees - from 8 years to 5 years.
Implementing the Changes
The new 30% ruling period came into effect on 1 January but for expat employees currently working under the regime, transitional rules have been introduced:
- For employees with 30% ruling periods ending in 2019 or 2020, no changes will be implemented - the tax regime will expire as expected.
- Employees with 30% ruling periods due to end in 2021, 2022, or 2023 under the previous rules, will instead have their regimes end on 1 January 2021 - in other words, they will receive their 30% tax break until 31 December 2020.
- Employees with 30% ruling periods due to end in 2024 will see their regimes end 3 years earlier than their original end date.
For more information about the Dutch tax system and its incentives, browse activpayroll’s Global Insight Guide to the Netherlands.