Tax benefits in the Netherlands for foreign employees – 30%-ruling
The 30%-ruling
In order to attract foreign companies and their employees to The Netherlands, a beneficial tax facility has been introduced in Dutch tax law: the 30%-ruling. By benefiting from this tax incentive, either the tax burden for the employee or the cost for the employer can be reduced. Moreover, the social security cost can be limited if the income does not exceed certain amounts and a resident employee can optimize his personal income tax position by choosing to be treated as a partial non-resident tax-payer.
What exactly is the 30%-ruling?
The 30%-ruling is a Dutch wage tax law facility and is open to employees who come from abroad to work in The Netherlands and meet specific conditions. As the employee is assumed to incur extra expenses for working outside his home country, his employer may give him a fixed tax-free allowance in view of these "extraterritorial expenses" up to 30% of his wages".
Conditions of the 30%-ruling
| - | The candidate for the 30%-ruling must have the status of employee; statutory directors and supervisory directors of a Dutch company may also qualify, selfemployed persons do not. |
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The employee must be recruited from abroad by or seconded to a ‘withholding entity', i.e. an employer running a Dutch wage tax administration, which can also be a non-resident company seconding employees to The Netherlands. |
| - | The employee must have specific skills which are not or scarcely available on the Dutch labour market which the employer must be able to demonstrate. If an employee - at a middle or higher level - who has worked within the group of companies for more than 2.5 years -, is sent to the Netherlands on the basis of "job rotation", he is assumed to have the required scarce specific skills. |
| - | Employer and employee together must file an application for the 30%-ruling with the Dutch tax office through a special application form. The tax office will review the situation and give a formal approval. It is possible to appeal against a negative decision. |
N.B. !!! In order to apply the 30%-ruling as of the first working day, the application must be filed within four months as of the start of the employment. If the request is filed too late, the ruling can be applied as of the month following the month in which the application has been filed only. It is possible to meet this deadline by filing a formal application if for whatever reason it is not possible to file a complete application package in time.
Fixed cost allowance - agreement in writing (addendum)
The basis on which the 30%-allowance is calculated is the taxable wages, which may include all wages from present employment. The 30%-ruling cannot be applied on termination payments or pension benefits.
Tuition fees for international schools can be reimbursed tax-free in addition to the 30%-allowance. Any other additional allowances for extraterritorial expenses (e.g. double housing expenses, home leave, etc.) cannot be paid tax-free if the 30%-allowance is paid.
In order to not increase the cost for the employer, the contractual gross salary must be reduced with the 30%-allowance. For practical reasons, in the payroll administration an administrative split into taxable wage and tax-free 30%-allowance can be made, taking the original gross salary as a basis. The condition is that employer and employee agree in writing that the 30%-ruling will be applied as well as that the consequences of reducing the contractual gross salary will be implemented correctly in the payroll calculations. Such agreement should preferably be laid down in an addendum to the employment/secondment contract. Wording for such addendum, approved by the Ministry of Finance, is available.
N.B. !!! The split of the wages into taxable wages and tax-free 30%-allowance is not allowed if parties do not sign such addendum!
Maximum period ten years
The 30%-ruling is granted for a period of ten years at a maximum. The ten years-period is reduced with periods of earlier presence or working in The Netherlands. After five years, a reevaluation of scarce specific skills should be made.
Extraterritorial expenses
If an employee does not satisfy the conditions of the 30%-ruling or the actual exterritorial expenses exceed the fixed amount of 30% of the wages, the actual extraterritorial expenses can be reimbursed tax-free, but in that case evidence will have to be delivered by the employer.
Partial non-resident tax status
If the employee comes to live in The Netherlands and becomes a resident tax payer he can - if the 30%-ruling has been granted - choose to be treated as a partial non-resident tax payer, his tax liability in The Netherlands thus being limited. He has to report his worldwide income and is entitled to deductibles; income from investments is not taxable. US citizens have a special status.
Rina Driece, Loyens & Loeff Rotterdam
+31 (0)10 224 6 424
rina.driece@loyensloeff.com
