The thirty percent 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 thirty percent 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 seventy percent taxable salary, in that thirty percent 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 thirty percent 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 receive a taxable salary above €35,000 (excluding the tax-free allowance) to be eligible for the thirty percent tax allowance.
Distance requirement
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 before starting 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.
Dutch thirty percent ruling: duration
The maximum duration of the ruling for expatriate employees is 8 years. Expat employees granted the thirty percent ruling before 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 thirty percent ruling. This can be achieved as long as the new employment contract is signed within three months of termination of the previous one.
Redundancy
Under the new legislation, only payments made before the end of the employment period are considered. 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 a 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 thirty percent 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.
Dutch thirty percent 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 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.
Expenses
The 30% ruling is granted to foreign employees in the Netherlands as compensation for expenses incurred while working outside their home country. Such expenses may include:
- Cost of water, gas, electricity, etc. (if prices in the Netherlands are higher than in the country of origin)
- Application costs for a 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
- The expense involved in the funding of education for expatriates’ children at international schools
If you have any further questions on the thirty percent ruling or seek a more detailed explanation on how it affects your tax position in the Netherlands, please contact us at: enquiries@axis-finance.com