If you are willing to work in the Netherlands and have a specific and scarce expertise, you may end up being rewarded by the Dutch government with a significant tax break! If you meet the conditions of the Netherlands 30% tax ruling, you and your employer can apply for it. If granted, 30% of your pay check will go net into you pockets because it is treated as a tax free allowance for so-called extraterritorial expenses: extra expenses that you make because you wanted to work abroad. And if that is not enough already, you also do not have to pay tax on your worldwide income from savings and investments.
What are the most important conditions of the 30% ruling?
If you want to qualify for the 30% ruling are that you must be recruited from abroad and that you should have a specific expertise that is scarce on the Dutch labour market. The distance between your residence before you were hired and the Dutch border must be more than 150 kilometer. This should be so for 16 of the last 24 months before your first workday. Therefore, Belgians and Luxembourgers, some Germans and some Frenchmen are excluded. A court case is still pending to see if this is against EU law or not, but it seems that this will stand the test. The 150 kilometer condition does not apply for PhD’s who start working within one year of finishing. To qualify, the PhD must meet this condition before the start of their PhD.
According to the Dutch tax laws, if you have a specific expertise or not is easy to measure in Euros. People with specific expertise are paid well, and if you earn more on an annual basis than € 36,705 in 2015, you meet this condition. If you are under 30 years of age and have a degree that is or is comparable to a Master’s degree from a Dutch University, the salary requirement is lower. So in fact you can easily calculate if you are entitled to the Dutch 30% ruling. Some researchers and medical trainees do not have to calculate anything, because for them no salary requirement at all exists.
The Dutch tax administration can deny you your 30% tax ruling if your specific expertise is not scarce enough. In practice, this method is only used for excluding people in very specific sectors such as professional athletes. The reasoning is that these jobs all pay very well so this specific expertise is not always scarce. For professional football players for example extra conditions apply, such as that they must have played in most of the recent international games for their country.
Changing employment and the 30% ruling
If you change jobs, you have to apply again and this usually is not a problem. Sometimes people change employment and find out they were entitled to the 30% ruling with their previous employer. Alas, they cannot apply the ruling in their old job anymore, but for their new job they can make a new application.
Duration of the 30% tax ruling
The validity of the 30% ruling is 8 years, but the duration is shortened with the time that you were in the Netherlands before you started working there in the last 25 years. This disqualifies a lot of Dutch people coming back from abroad. Not all time spent here is deducted from the validity period. Some periods of sort stay are disregarded.
No tax on savings and investments
Dutch people pay 1.2% on their income from savings and investments. So in 2015 they should make very good investments indeed to get any real return on their money at all. This causes a lot of complaints these days, and likely the Dutch government will do something about this soon. If you have the 30% tax ruling, you will smile whenever people talk about this. This is because you are exempt from this tax. You will only have to pay this tax on the value of real estate in the Netherlands not being the house that you live in.
Some expats who do not come from the European Union of the European Economic Area cannot change their driver’s licenses to a Dutch one. As the old one expires after 185 days, that is a problem. If you are in this situation and you hold the 30% ruling, you do not have to take a new driver’s test and can get a Dutch driver’s license without any problems. Another small advantage of the 30% tax ruling!
Are there any disadvantages of the 30% ruling?
There are almost none, but yes, there is a disadvantage. If you should lose your job, you are not entitled to any unemployment benefits on your tax free part of your income. That is because due to the 30% ruling, you employer did not pay any unemployment premiums on that part of your salary. In the past, you normally also did not build up pension rights on the tax free part. This has been changed so now the Netherlands 30% ruling should not cause a pension gap anymore.
By Mark Bastiaans, Tax advisor of Dutchtaxadvice.nl