On 19 December 2023 the Dutch Senate accepted the proposed amendments to the 30% ruling. The changes are effective from 1 January 2024. These amendments follow an earlier decision to cap the maximum salary eligible for the 30% ruling, with any income exceeding €233.000 per annum being ineligible for this tax-free allowance (this change is applicable to employees beginning their employment in 2023)..
Decrease to 30/20/10% rule
The first amendment to the 30% ruling will change it into a 30/20/10% ruling over the maximum duration of 60 months. Currently, eligible employees can receive for 60 months a tax-free allowance amounting to 30% of their salary. With this amendment, the employee will only receive their salary 30% tax free for the first 20 months. The second 20 months, they will be eligible for a 20% tax free allowance. The final 20 months of the 5-year facility, they will be eligible for a 10% tax free allowance.
This can result in a dramatic reduction of net salary. For example, in the current situation, if an employee has a salary of 100,000 euros, the tax savings from the 30% ruling over a period of 60 months is 74,250 euros. In the new situation, the tax saving will be 49,500 euros, a reduction of 33.3%. For companies that use the tax equalization method for their seconded employees, this will lead to a drastic increase in costs.
Transitional Law
A transitional law is in place for those who apply the ruling before 1 January 2024, allowing the 30% to be applicable for the duration of the ruling. For employees who will start working in the Netherlands in 2023, we recommend filing a (pro-)forma application before December 31, 2023 to ensure that the old rules are applicable.
The second amendment to the facility is an abolition of partial non-resident taxpayer status. Unlike today, this means that employees will be taxed on their worldwide income, including investment income and substantial shareholdings. This amendment is projected to be implemented per 1 January 2025. As the Dutch way of taxing investment income is different from the way in which investment income is taxed in other countries, this could potentially lead to double taxation
Note: for individuals who receive the 30% facility before the end of December 2023, their non-resident taxpayer status will be abolished per 1 January 2027 rather than 1 January 2025.
Changes to 30% ruling approved on 19 December 2023
Considering the considerable criticism that has arisen regarding this amendment, a motion has been proposed and adopted in the Senate. This is urging the government to devise an alternative that has less adverse effects on the economy. The alternative is intended to be integrated into the Tax Plan for the year 2025.
The current change, effective from 1 January 2024, can therefore be fully or partially reversed through a legislative amendment that takes effect on 1 January 2025.
Since the 30% ruling for new cases remains at 30% for the first 20 months, this may also be a way to reverse the change of the 30%-ruling without affecting the amount of the tax-free allowance. However, whether this will happen remains uncertain for next year.
In a nutshell, what has changed?
Employers may no longer provide unlimited tax-free reimbursement of the extra costs the employee incurs due to moving to the Netherlands via the 30% ruling.
Also, the percentage of the 30% facility will be reduced step by step over 5 years:
- For the first 20 months, employers may pay 30% of the salary tax-free.
- The 20 months after that, employers may pay 20% of the salary tax-free.
- The 20 months after that, employers may pay 10% of the salary tax-free.
Employers do not have to declare the actual costs incurred by the employee when using the 30% rule.
Employers may apply the 30% ruling over a maximum of the salary of the Standard for Remuneration Act (Wet Normering Topinkomens). The amount is set every year.
The employee must meet the conditions for the 30% ruling. Employers must also register their employee with the Dutch Tax and Customs Administration (Belastingdienst, in Dutch) as a user of the 30% facility.
Employers choose each year if you apply the 30% rule or if employers reimburse the actual extraterritorial expenses. Employers must do so when filing the tax return in the 1st payroll period of the year.
In case you are interested to consider 30% ruling for your employees in the Netherlands, in whatever form, we are happy to describe in more detail how we can be of assistance.
