By Caitlyn Buchanan, 17.12.18
The Dutch 30% reimbursement ruling also referred to as the 30% ruling is a tax advantage, available to some expats who have been recruited from abroad for an employment role in the Netherlands. This tax scheme is intended to benefit highly skilled migrants who have moved to the Netherlands for a specific employment role with a Dutch registered company. Upon meeting the required conditions, an employer can grant a tax free allowance equal to 30% of the gross salary subject to payroll tax.
How does the 30% Ruling work?
30% reimbursement ruling results in a tax free allowance, this is as a type of compensation for expenses that a foreign employee incurs when working abroad. The most common way to apply the 30% ruling is for the employer to reduce the agreed salary by 30%. In return, the employee should receive a 30% allowance as a reimbursement for expenses. However, the employer is not obliged to pass on the advantage of the ruling to the employee and in practice, the employer may partially or fully receive the benefit.
The Dutch 30% reimbursement ruling is granted by the Dutch tax authorities after a successful application is lodged by the employer (a Dutch limited company). The tax scheme is then applied by the employer to the salary of the foreign employee through the withheld wage tax. As of 2019 when a ruling is granted it will be applicable for a maximum period of five years.
Requirements for the Dutch 30% Reimbursement Ruling
Expats who have been recruited from abroad for a position in the Netherlands may be eligible for the 30% tax ruling if the following criteria are met:
A successful candidate must be working as an employee, in an employment situation. Self-employed people are not eligible to claim the 30% ruling. However, if an individual were to set up a legal entity, such as a Dutch B.V. (private limited company) and become an employee of that registered company, this would be considered an employment situation and the individual would be eligible for the 30% ruling.
The employer and employee must agree in writing that the 30% ruling is applicable. Because the 30% reduction is based on taxable income this may hinder the employee’s potential for unemployment or disability benefits. The Dutch tax authorities require that both employer and employee are aware of these consequences and state their understanding of this as part of the application. This written agreement can be included as a clause in the employment contract or as an addendum to the employment contract.
Employee is Transferred or Recruited from Abroad
It is only possible to claim the 30% ruling the employees is transferred or recruited from abroad. It must be proven that the employee was residing outside the Netherlands before commencing employment with the current company in the Netherlands. Additionally, the employee must not have lived within 150 km of a Dutch border for more than eight months during the last 24 months prior to employment in the Netherlands.
Highly Skilled Migrant
The employee must have specific skills that are scarce in the Dutch labour market. This is determined by several factors such as salary, age, employment history, education and level of employment. At present this level of skill is based on the minimum salary requirement of no less than €37,296 annual taxable salary (increased from 37,000 in 2018). However, if the applicate has completed a Master’s degree is under the age of 30 the minimum salary is €28,350 (increased from €28,125 in 2017). The salary cannot become less than these amounts after the 30% tax ruling is applied.
Other Benefits of the 30% Tax Ruling
In addition to receiving 30% of their salary tax free, foreign employees can also avail of these other benefits:
- Tax Returns Under the 30% ruling a foreign employee can claim ‘partial non-residency status’ and will be considered as a non-resident tax payer in Box 2 and Box 3 of the tax return, even though they are residing in the Netherlands. In Box 1 foreign employee’s income is considered a resident tax payer so that they do not need to pay income tax on assets in Boxes 2 and 3 (except for real estate located in the Netherlands and substantial shareholding in a Dutch resident BV).
- Driving Licence if a foreign employee has a foreign driving licence, in most cases, they need to retake the driving test to obtain a Dutch licence. However, if they benefit from the 30% ruling, a foreign driving licence can be exchanged for a Dutch license without retaking the test.
Starting your own Dutch business
As previously stated, if an individual were to set up a legal entity, such as a Dutch B.V. (private limited company) and become an employee of that registered company. This would be considered an ‘employment situation’ and the individual would be eligible for tax free allowance provided by the Dutch 30% reimbursement ruling.
Or if an individual is employed in the Netherlands and qualified for the 30% ruling, he/she may also be able to incorporate their own Dutch limited company and retain the benefits of this tax scheme. The construction of the new business should be a BV or payroll company, of which the individual has become a salaried employee. The employee must sign an employment contract with the BV within three months of leaving the previous employer in order to maintain your eligibility for the 30% ruling.