The Dutch 30 percent ruling explained
Are you eligible for the Dutch 30 percent tax exemption? Finsens' tax experts explain the rules of the Dutch 30 percent ruling for expats in the Netherlands.
Maybe you've heard of the 30 percent ruling available to employees who move to the Netherlands and want to benefit – but what is it and how does it work? Find out what you need to know about claiming this Dutch tax exemption, and if you qualify while working in the Netherlands.
What is the Dutch 30 percent ruling?
The 30 percent ruling is a Dutch tax exemption for employees who were hired abroad to work in the Netherlands. If a number of conditions are met, the employer is allowed to pay you 30 percent of your salary as a tax-free allowance. The tax-free allowance is considered a compensation for the expenses that the employee has by working outside his or her home country.
Conditions to claim the 30 percent ruling
To be eligible for the 30 percent ruling the following conditions have to be met:
- the employee works for an employer that is registered with the Dutch tax office and pays payroll tax;
- employer and employee have to agree in writing that the 30 percent ruling is applicable;
- the employee has to be transferred from abroad or has to be recruited abroad;
- the employee did not reside within 150km from the Dutch border for the last 18 out of 24 months at the time of hiring;
- the employee's salary is at least EUR 36,889 per annum.
- The employee needs to have expertise that is scarcely available in the Netherlands.
PhD and Master's graduates
Less strict rules apply for PhD and Master's graduates younger than 30 years:
- the minimum salary requirement is EUR 28,041 taxable.
- if the PhD was completed in the Netherlands, the requirement of 'being recruited from abroad' does not have to be met if the candidate is hired within a year of completing his or her studies.
Scientific researchers and medical specialists in training
There is no minimum required salary for scientific researchers who are employed by a university or a research institution that is subsidised by the government. Medical specialists in training also have no minimum required salary.
The requirement regarding scarcity on the labour market will be deemed to be met if the minimum salary requirement is met. The Ministry of Finance indicated, however, that for sectors where every candidate meets the minimum salary requirement, the scarcity test will be applied.
How long can you claim this tax exemption?
The maximum duration of the 30 percent ruling is eight years. Any period spent in the Netherlands over the last 25 years will count towards your duration of claiming the 30 percent ruling.
Financial consequences: How does the 30 percent ruling work?
Having read the above conditions, you may see that you are eligible for the ruling, but what does it actually mean?
The salary you agreed on will be reduced by a maximum of 30 percent. In return you will receive this percentage as a reimbursement for expenses. This is the most common way as it does not influence the salary burden for the employer. However, the employer is not obliged to pass on the advantage of the ruling to the employee. In practice it is possible for the employer to partially or fully take the benefit.
In any case, you must still meet the condition that your salary is at least EUR 37,000. This means that, even if the 30 percent ruling is applicable, reducing your salary cannot result in a salary lower than EUR 37,000. To clarify this rule, see the examples below.
Your salary is EUR 40,000. Therefore, you qualify for the 30 percent ruling. However, if your salary is reduced by 30 percent, this would mean a new salary of EUR 28,000 and a reimbursement of EUR 12,000 – but then your salary would no longer qualify for the 30 percent ruling. In this case, the maximum advantage you could claim under the 30 percent ruling would be a new salary of EUR 37,000 and a reimbursement of EUR 3,000. You still receive an advantage of the 30 percent ruling but not the full advantage.
Your salary is EUR 53,000. Therefore, you qualify for the 30 percent ruling. As a result, your salary could be split between a base salary of EUR 37,100 and EUR 15,900 as a reimbursement. Since the new salary is more than the minimum requirement, you can fully benefit from the 30 percent ruling.
Applying for the 30 percent ruling
Lowering the taxable income will most likely have implications for your potential unemployment or disability benefits, since these benefits are based on your taxable salary. The tax authorities require that both employer and employee are aware of these consequences. This is why the application for the 30 percent ruling has to be done by both employer and employee and an agreement in writing is necessary. This can be done by means of a clause in your employment contract or as an addendum to the employment contract.
What is considered as ‘salary'?
This has been a major discussion point over the last few years. Of course, your gross salary is considered to be salary, but what about your bonus, holiday allowance, company car, redundancy settlement or any other benefits?
Basically, your ‘regular employment income' is the basis for calculating the 30 percent reimbursement. There are regulations regarding pension premiums, but your bonus, holiday allowance, other benefits and company car all fall under the ruling.
A redundancy settlement, however, does not qualify as salary for the 30 percent ruling.
Other benefits of the 30 percent ruling
As well as having 30 percent of your salary paid tax free, there are other benefits.
Under the 30 percent ruling you can opt for ‘partial non-residency status'. Even while residing in the Netherlands, you will be considered to be a non-resident tax payer in Box 2 and Box 3 upon choosing the partial non-resident status, although for Box 1 income you will still be considered a resident tax payer.
As a partial non-resident, you will consequently not pay income tax on assets in Box 2 and 3 (except for real estate located in the Netherlands and substantial shareholding in a Dutch resident BV) and you are entitled to the partnership ruling in Box 1.
If you have a foreign driving licence, in most cases you have to redo your test in order to obtain a Dutch license. However, if you benefit from the 30 percent ruling, it is possible to exchange your foreign driving licence for a Dutch licence without retaking the test.
Important notes and FAQs
Employment or self employed
To be eligible for the 30 percent ruling you have to be in an employment situation. Thus if you are self-employed in the Netherlands it is not possible to claim the 30 percent ruling. However, if you set up a legal entity, such as a BV, and become an employee of that company, you are considered to be in an employment situation and consequently eligible for the 30 percent ruling.
The 30 percent ruling will become effective in retrospect if the application is submitted within four months after the first day of employment. If the application is submitted after four months, it will become effective as of the first day of the month following the month of application.
If you change job you can reapply for the ruling, provided that you still meet the conditions and your new employment contract is signed within three months after termination of the previous.
30 percent rulings granted prior to 1 January 2012
The rules for the 30 percent ruling changed on 1 January 2012. If you are benefitting from a 30 percent ruling that was issued before 1 January 2012, several special rules apply. Especially people who do not qualify under the new legislation can meet certain grey areas in the law. If this is the case, it is advised to contact your tax advisor.
Questions regarding the 30 percent ruling?
Finsens Financial advisers, www.finsens.nl / Expatica
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