The 30% ruling is a tax incentive offered by the Dutch government to expatriate employees possessing specialist skills / expertise that are either absent or scarce in the local marketplace.
The ruling involves tax relief in the form of a 30% tax free allowance on the annual salary. Those expat employees who qualify for the ruling will have their gross salary adjusted to that of a 70% taxable salary, in that 30% of wages are exempt from both payroll tax and personal income tax. The formula for calculating the tax free allowance on gross salary is: 30/100 X 100/70 and results in a maximum effective tax rate of 36.4%.
Minimum Salary Requirement
The Dutch Ministry of Finance changed the 30% ruling as of 1st January 2012 in terms of the qualification of ‘scarcity of skilled labour’ in the local marketplace. An additional weighting factor of a ‘minimum salary requirement’ was thereafter to be included in the equation. Under this development of the ruling, foreign employees of Dutch companies must be in receipt of a taxable salary in excess of €35,000 (excluding the tax free allowance) in order to be eligible for the 30% tax allowance.
The ruling stipulates that any incoming employees to the Netherlands must have been living at a distance of no less than 150 km from the Dutch border prior to the commencement of their new contract. The tax authorities will require proof that you have lived in a place beyond this distance for a minimum period of 2 years before granting any tax free allowance.
30% Ruling – Duration
The maximum duration of the ruling for expatriate employees is 8 years. Expat employees who were granted the 30% ruling prior to 1st January 2012 can benefit from a maximum term of 10 years. Any period of previous employment in the Netherlands during the last 25 years will be offset against the maximum term of the ruling.
Change of employer
Should the expatriate employee change employer during the term, it is possible to reapply for the 30% ruling. This can be achieved as long as the new employment contract is signed within three months of termination of the previous one.
Under the new legislation, only payments made before the end of the employment period are eligible for consideration. Bonus payments, holiday allowances, benefits in kind and company car all fall under the ruling; any severance payments however are explicitly excluded. If you are made redundant, it is therefore important to:
- Ensure that any outstanding bonus payment, holiday allowance, salary payment etc. are transferred to your account as soon as possible
- Provide a breakdown of the redundancy package so that it can be determined which part should be considered as payment of bonus and outstanding holiday allowance, and which part is regarded as severance payment
Employed or Self-employed
To be eligible the expatriate has to be in an employment situation. If the expat is self-employed it will not be possible to claim the 30% ruling. However, should the expat establish a UK Limited Company or Dutch B.V. and become an employee of that company, he / she would be considered to be in an employment position and consequently be eligible for the ruling.
30% ruling – Start Date
Should the application for the ruling be submitted within four months of the first day of employment, any decision will become effective retroactively. If the application is submitted after four months of employment, it will become effective as of the first day of the month following the application.
Partial Non-resident Status
An expatriate who qualifies as a resident for tax purposes in the Netherlands can opt to be treated as a ‘partial non-resident’ taxpayer under the 30% ruling. As a partial non-resident taxpayer, the expatriate is not required to report any investment income to the tax authorities (other than income derived from Dutch real estate); there is also an exemption from ‘wealth tax’ in the Netherlands.
The 30% ruling is granted to foreign employees in the Netherlands as compensation for expenses incurred while working outside of their home country. Such expenses may include:
- Cost of water, gas, electricity etc. (if pricesin the Netherlands are higher than in the country of origin)
- Application costs for residence permit, visa, driving license etc
- Weekly hotel expenses if expatriates still live in their homeland
- Various housing costs
- Travel expenses to and from the country of origin
- Telephone calls to the country of origin
- Expense involved in the funding of education for expatriates’ children at international schools
If you have any further questions on the 30% ruling or seek a more detailed explanation on how it effects your tax position in the Netherlands, please contact us at: firstname.lastname@example.org