Foreign employees that are hired to work in the Netherlands often have to deal with a lot of additional costs. Think about medical checks and vaccinations, double housing or travel expenses. The Dutch government therefore offers a tax exemption for these expats, the so called 30% ruling. Let us explain this further.
The 30% ruling, what is it exactly?
The 30% ruling is a beneficial tax dispensation for foreign employees that are hired to work in the Netherlands. This dispensation is acknowledged to employees that have to deal with the so called extra-territorial costs caused by the fact that they are moving to the Netherlands for work.
Depending on various conditions, the employee is exempt from paying tax on up to 30% of his/her income from employment. Or practically, the salary agreed upon between the employee and employer will be reduced by 30%. In return, the employee should receive a 30% allowance as reimbursement for expenses.
This government measure helps them to cover these extra-territorial costs and it’s seen as a way to make it more attractive for highly skilled workers to come working in the Netherlands. Employees who arrive here will be able to apply the tax break for up to 5 years. (This has changed from 8 years to 5 years as per the 1st of January 2019).
Who is eligible for the 30% ruling?
The following conditions have to be met to be eligble for the 30% ruling:
- There has to be an official employment relationship;
- The employer must be registered with the Dutch tax office;
- An agreement has to be set up between the employer and employee that this 30% ruling is applicable;
- The employee must be recruited or transferred from abroad. More specifically, the employee must have been living more than 150km from the Dutch border for the last 18 out of 24 months (at the time of hiring);
- The employee’s remaining taxable salary meets the minimum requirements which is €39.467,00 in 2022;
- If the employee is younger than 30 years old and has a Dutch master or equal grade from another country, the fiscal salary has to be at least €30.001,00;
In general, the 30% ruling is applicable to employees on a payroll. However, if you’re coming to the Netherlands to start your own business, you may also be eligible for the 30% ruling if you set up your enterprise as a limited company (BV) and you put yourself on the payroll.
Scientific researchers working at specific scientific organisations are always eligible for the 30% ruling.
So how does it work?
The employer and employee will jointly apply with the respective Dutch tax authorities to be eligible for the 30% rule, for both wage-tax and employment insurances.
The most common way for the Dutch 30% ruling to be applied is that the employee agrees to a salary reduction of 30% and in exchange, this percentage will be reimbursed as tax-free on the payslip. This can include holiday allowance, company car, and other benefits. However, the employee must still meet the salary requirements after this reduction.
Apart from that, the employee always needs to be aware that when applied, this 30% benefit may cause that entitlements towards pension, social security etc. will reduce on a prorate basis.
Practical examples of the 30% ruling applied:
An employee, 40 years old, receives a gross salary of €80,000 which meets the minimum salary requirement for the full 30% ruling. Deducting his salary with 30% means that his taxable salary will be €56,000. He receives a tax-free allowance or reimbursement of €24,000.
An employee, 40 years old, receives a gross salary of €45,000. If the 30% ruling would be taken into account in full, his taxable salary would be €31,500. Because this is lower than the minimum salary requirements, the full 30% ruling cannot be applied. In this case, the employee can only benefit from the 30% ruling partially, for a maximum amount of (€45,000 -/- €39.467) €5,533.
An employee, 32 years old, receives a gross salary of 35,000. His taxable salary is already lower than the minimum requirement for the 30% ruling and therefore this dispensation cannot be applied.
The employer is not obliged to apply the 30 ruling to the employee’s salary. It is possible for the employer to partially or fully profit of this benefit. This usually only happens when employees are unaware of the 30% ruling benefits and it’s therefore important to discuss this issue before employment contracts are signed.
Other things to consider:
- If an employee switches to another job he/she can apply for a continuation of the ruling. However, the conditions regarding specific skills and salary requirements still have to be met and the employee starts the new employment within three months of terminating the previous one.
- When the application is submitted within 4 months after the start of the employment, the 30% ruling becomes effective retroactively. If the application is submitted later than 4 months, it will become effective as per the first day of the following month. The tax authorities will reduce the total duration of the ruling by the period you have already resided in the Netherlands.
- If an employee benefits from the 30% ruling, he/she can easily switch his/her foreign driver’s license to a Dutch license without having to retake the driver’s test
Can we help you?
Are you an expat and you want to know if you’re eligible to the 30% ruling? Or are you an employer and you need to know the ins and outs about this tax exemption? Our HR experts in our Dutch office are happy to give you decent advice. Fill out the contact form below or call us directly: +31 85 2010 004.
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