30% ruling benefits

As mentioned above the 30% ruling allows highly skilled employees, recruited from other countries to receive up to 30% of their salary as a tax free allowance. This is to help with extraterritorial costs and compensate foreign employees for living costs, which in many cases are higher than their home country. Extraterritorial costs are expenses incurred by the employee whilst relocating to or from the Netherlands. More information is available here from the Dutch government, regarding which expenses are considered extraterritorial cost.

In short there two ways the 30% ruling can be applied.

1. An employee can receive up to 30% of their salary as a tax free allowance
2. An employee can have their extraterritorial costs fully reimbursed as expenses.

For up to five years, each year a choice can be made by the employer and employee, to either reimburse extraterritorial costs tax free or alternatively apply the 30% tax ruling to their salary. This choice is made when filing their tax return for the first quarter of each tax year, for the five year period.

The examples below illustrate the potential benefits of using the 30% ruling.

Without the 30% ruling

Gross salary € 1000
Tax € 500,- (50%)
Net salary € 500

 With the 30% ruling

Gross salary € 1000,-
30% scheme € 300,-
Subtotal € 700,-
Tax € 350 (50%)
Net salary = € 350 + € 300 = € 650

Current criteria

If you as an employer are planning to make use of the 30% ruling for the benefit of your highly skilled foreign employees, you must make sure that the following criteria are met.

1. The employee must be considered a highly skilled migrant, possessing skills or expertise that are in limited supply or unique in the Dutch labour market. More detailed information can be found here regarding who may be considered a highly skilled migrant.
2. The employee must be in salaried employment at your company.
3. The employee’s salary must meet the minimum income standard in their area of expertise. Age and education level may also need to be taken in to account, More information about specific expertise can be found here. Good to know, doctors training to become specialists and workers involved in scientific research in certain research facilities, do not have to meet this criterion.
4. The employee must have been recruited from abroad or transferred within a multinational company
5. The employee must not have lived within 150 km of the Dutch border for at least 16 months out of the preceding 24 months prior to their relocation to the Netherlands.
6. Finally of course an application has to be made to the Dutch tax administration, and the decision has been made giving permission for you to use the 30% ruling.

Changes to the 30% ruling

Many changes to the 30% ruling were announced in the Dutch parliament on budget day 2024. These changes could have significant fiscal consequences for many people who currently benefit from the 30% ruling, as well those planning to do so in the future. As of 2027 the 30% facility will be reduced to 27% and higher minimum income standards will be introduced.

How you will effected by the changes will depend on when you started using the 30% facility.

• If you began using the 30% facility before 1st January 2024, the employee can still receive up to 30% of their salary tax free for five years. The income standard also remains the same at € 46,107. This figure will be corrected annually for inflation.
• For those who began using the 30% tax facility after 1st January 2024, 30% of their salary will still be tax exempt in 2024,2025 and 2026. The income standard remains at € 46,107 subject to annual inflation correction.
• From 1st January 2027 employees may receive 27% of their salary tax free. The new income standard will be € 50,406, subject to annual inflation corrections.
• For those under the age of 30 who hold a master’s degree, the income standard will be increased from € 35,048 to € 38,388 as of 1st January 2027. This figure will also be subject to annual inflation corrections.

When will the changes take effect?

The changes mentioned above are expected to take effect on 1st January 2025, although this date is not yet final as the new measures must first be passed by the upper and lower houses of the Dutch parliament. More information is available here from the Dutch government regarding other possible changes to the 30% ruling, the step by step reduction and transitional agreements for example.

How does the 30% ruling affect my tax liability?

If you live in the Netherlands, you are in principle liable to tax domestically. This means that in the Netherlands your worldwide income is taxed. With the 30% ruling you get the opportunity to opt for partial foreign tax liability. This means that you remain liable to tax domestically and can make use of the deduction options in box 1. A number of provisions (profit from a substantial interest and income from savings and investments; boxes 2 and 3) are regarded as foreign tax liability.

How does the 30% ruling affect my pension accrual?

The 30% ruling affects the pension base and the calculation basis for holidays, end-of-year bonuses and employee insurance premiums. A WW benefit is calculated using gross salary minus the 30% ruling. This means that any unemployment benefit will be lower. Pension payments over the 30% can be supplemented under certain conditions.

What about the car allowance and the 30% ruling?

The car allowance has an influence on the 30% ruling. With a company car you can take into account 70% of the list price. You can add 70% of the list price and include it as the basis for the 30% ruling.

Applications for the 30% tax facility

Applications on behalf of a foreign employee to use the 30% facility must be submitted within 4 months of the first work day of the employee, using this form from the Dutch tax administration. A list of supporting documents required with your application is provided on the application form. Applicants should receive a decision within 10 weeks.

Further information

If you have questions or concerns over the proposed changes to the 30% ruling and the effect they could have on your situation, please don’t hesitate to contact us here at Moneywood. We have many years of experience supporting expats as they negotiate the Dutch tax and legal system, we are here to help.