Author: Mr. M.A. (Maxim) Boschman LL.M
Senior Manager Tax, specialized in (international) payroll taxes at Londen & Van Holland
The Dutch economy is mainly driven by human recourses (HR), knowledge and innovation. In order to attract foreign employees who bring specific knowledge to the table, the Dutch tax rules provide a favorable tax regime. This regime is called ‘the 30%-ruling’ and is applicable if certain conditions are met.
Dutch wage tax system and the 30%-ruling
In principle, everything (in money or in kind) reimbursed, given or provided to employees in that capacity is considered wage, subject to Dutch wage tax and social security contributions. Fortunately, there are certain exceptions, exemptions and benefits that could be enjoyed tax-free otherwise (e.g. have a nil-value for wage tax purposes).
One of these specific exemptions is for extraterritorial expenses, so these could be reimbursed, given or provided to the employee tax-free. Extraterritorial expenses are expenses in relation to the employees’ relocation to the Netherlands. In order to reduce the administrative burden, the employer and employee could choose not to reimburse the actual expenses, but instead go for a more pragmatic (and often more beneficial) solution by considering a maximum of 30% of the employee’s salary as fixed tax-free reimbursement for extraterritorial expenses. By applying this 30%-ruling, the actual amount of expenses is no longer relevant. It is beneficial for the employee because he/she receives 30% of the agreed salary tax-free, and is beneficial for the employer because it can pay a higher net salary without extra costs. Moreover, there are no social security contributions due by the employer on the 30% tax-free part of the salary. It goes without saying that if the actual extraterritorial expenses are higher than 30% of the salary, it is more beneficial to reimburse/provide the actual amounts instead of applying the 30%-rule.
Conditions of the 30%-ruling
The 30%-ruling could only be applied if all conditions are met. These conditions are strictly interpreted and assessed by the Dutch tax authorities. In short:
- The employee has to be hired from abroad, i.e. has its residence outside of the Netherlands on the moment the employment agreement comes about and does not already live or work in the Netherlands.
- The taxable salary (after 30%-ruling application) is above a certain threshold.
• for employees younger than 30 and with a masters degree c. € 32.000
• other employees c. € 42.000 (2023 figures).
- In the 2 years directly prior to the employment, the employee must live at least 16 months at more than 150 kilometers from the Dutch border.
- The application of the 30% ruling is agreed in an addendum to the employment contract.
If all conditions are met and the ruling is applied for and granted, it can be effectuated via Dutch payroll for a maximum period of 5 years. In this period, the employee’s salary is formally reduced, resulting in (at least) 70% salary that is subject to Dutch wage tax and social security contributions, and (at most) 30% tax-free allowance. The ruling could also be applied to bonusses and additional taxable payments as well.
Another benefit of the 30%-ruling is that the eligible employee has the choice to be treated as partial non-Dutch tax resident for the period he/she qualifies for the 30%-ruling. As a result, the employee will be considered by the Dutch tax authorities as foreign tax payer regarding savings and investments. Therefore, they are exempted from paying Dutch taxes on certain savings and investments, like bank accounts.
Upcoming changes for 2024
Up to and including 2023, the 30%-ruling application is uncapped, meaning that very large salaries have very large 30%-ruling benefits. This will be changed as of 2024. As a result, the 30% ruling could only be applied on taxable wage up to € 233.000. The ruling could not be applied to any payments above this amount, so the maximum tax-free amount as of 2024 will be €69.900, even if the employee’s salary is much higher. The cap amount is likely to change each year as of 2024.
There will be transitional legislation in force for employees who applied the 30% ruling in December 2022. These employees are not affected by the cap until 2026. For any employee that has to deal with the cap at some point, it may be beneficial to reimburse, give or provide the actual extraterritorial expenses instead of applying the pragmatic 30%-ruling. We strongly recommend to contact the author at Londen Van Holland for appropriate advice in such cases.
Besides the cap, other changes have been proposed recently. The proposals include further retrenchments of the ruling, like a reduction of the tax-free percentage (30% in the first 20 months, 20% in the next 20 months and 10% in the last 20 months of application). Furthermore, the abolishment of the choice to be treated as partial non-Dutch tax resident is suggested as of 2025. These proposals are not yet final, so on the moment of writing, it is unsure if and insofar these proposals will become law.
For more information on the 30%-ruling, its application, consequences or any other (international) tax topics, please do not hesitate to contact me via [email protected]
Disclaimer: this article is based on both the applicable and expected Dutch wage tax legislation on the moment of writing. This legislation may change. Although this article is written with care, it must be treated as informative and not as conclusive advice. When in doubt, please always contact us for specific tax advice.
About the Author: Maxim studied Dutch tax law at both Maastricht University and Leiden University, and he graduated with a master’s degree. He started his career in 2013 and extensive experience has been built over the years by working as tax lawyer at a big-four firm and as corporate tax lawyer on the global headquarters of a multinational company. Maxim is NOB-registered, i.e. member of the Dutch Association of Tax Advisors.
Maxim specializes in HR-Tax: all (international) tax related matters with respect to employment, personnel, and rewards. He mainly advises employers, but also has a lot of practice advising on employee-level.
Email: [email protected]
Know more about the author: https://www.integra-international.net/find-an-integra-firm/find-firm-profile/name/maxim-boschman/