Changes to the 30% ruling for expats
In an effort to attract highly educated foreign talent and experts, The Netherlands has a program called the 30% ruling. Safe for certain conditions, employers can compensate employees who are attracted from abroad for the higher cost of living they may experience in the Netherlands. This tax-free allowance basically amounts to 30% of the employee’s salary.
Dutch parliament recently approved a proposal to amend the widely-used 30% ruling. One of the major proposed changes include a cap on salary income that’s eligible for the 30% ruling. This change is part of the 2024 Tax Plan, which is currently awaiting approval by the Dutch Senate (to be expected in mid-December 2023). There is a significant likelihood these changes will take effect on January 1, 2024, as the Senate votes on the Tax Plan as a whole. These changes would potentially include:
- Maximum salary
- Ending of the partial foreign taxpayer status
- Phasing out of the 30% tax break
From January 1, 2024, the untaxed reimbursement under the 30% ruling will have a maximum income limit. In 2024, the maximum income will be limited at € 233,000, translating to a tax-free allowance of € 69,900 annually. If employees already qualified for the 30% ruling in December 2022, they are exempt from the cap until January 2026.
Ending of the partial foreign taxpayer status
Effective January 1, 2025, those eligible for the 30% ruling can no longer opt for the foreign partial tax status, which basically means that foreign assets are excluded from taxation in Box 2 and Box 3. However, there will be a transition period for employees who are already benefiting from the tax-free 30% reimbursement as of December 2023. They will have the option to maintain their status as foreign partial tax residents until the end of the 2026 tax year.
Phasing out of the 30% tax break
The major change is the "Omtzigt amendment" that introduces austerity measures to the 30% ruling. Under this amendment, the tax-free benefit of up to 30% will be phased out over a 5-year period:
- In the first 20 months of the 5-year term, employees can receive up to 30% of their income as a tax-free reimbursement.
- In the subsequent 20 months of the 5-year term, the maximum will be capped at of 20% of the income.
- In the final 20 months of the 5-year term, the maximum will be capped at 10% of the income
(see the graph for a visualization of the above phasing out criteria)
If employees already qualified for the 30% ruling in December 2023, they will be exempted from the phasing out of the 30% ruling.
What is the effect on your company?
The changes will certainly have an impact on your company and employees using the 30% tax ruling:
- Payroll changes
- Reimbursement of extraterritorial costs
- Maximum income cap
The phased reduction of the 30%-ruling to a 10%-ruling will increase administrative tasks. Every 20 months, the exemption percentage for each employee with a 30%-ruling needs adjustment, requiring updates in the payroll system. The 20-month’s period might pose challenges for employers with monthly or four-weekly payment cycles. A recent position paper from the Dutch Tax Authorities suggests flexibility in either utilizing the exemption until its maximum is reached or evenly spreading it across the months. Each approach has its pros and cons, potentially requiring recalculations and corrections in payroll. It's advisable to address this in the employment contract addendum.
Reimbursement of extraterritorial costs
The proposed 30% ruling changes won't impact the reimbursement of actual extraterritorial costs. Starting January 1, 2023, employers can annually choose to either apply the 30% ruling or reimburse the employee's actual extraterritorial expenses upon expense claim. To go this route, the employer needs to substantiate and track these expenses per employee in the payroll. With the scaling back of the 30%-ruling, it's advisable to assess which option is more advantageous. The proposed 30% changes do not affect the reimbursement of actual extraterritorial costs.
Maximum income cap
For employees earning more than the maximum income, the capping measure reduces the tax-free amount. It's advisable to review existing agreements to clarify whether the additional tax burden will be . Depending on the circumstances, it may be necessary to establish new agreements with the employee and document them in an addendum to the employment contract.
If you need more information about the 30% facility, the consequences of these changes for your employees or assistance in deciding the most beneficial course of action, don’t hesitate to contact Hub van Grinsven (firstname.lastname@example.org) at Maprima Business Support BV.
For more information about the 30% allowance regulation, we refer to our articles in our News Articles section.