If you’ve ever seriously considered moving to the Netherlands as a foreign person, you’ve most likely heard about the 30% ruling for international people in the Netherlands. The Netherlands is a highly attractive country for expats to live and work — but the 30% ruling is arguably the most enticing.
The 30% ruling is a unique tax advantage that grants foreign workers who meet specific criteria a tax-free allowance. Whether you’re planning to move to the Netherlands or are already living here and believe you are entitled to this ruling, this article will attempt to help you obtain a better understanding of the 30% ruling facility.
What is the 30% ruling?
This 30% allowance is applicable for expatriates who are recruited by a Dutch employer or transferred from an organisation abroad to the Dutch branch office.
The 30% ruling scheme grants the employee with a tax-free cost reimbursement of 30% of their gross salary for the first five years working in the Netherlands. It may also be possible to request additional reimbursement (also up to 30%) for costs incurred outside the Netherlands during the transition period.
Individuals can apply for the continuation of the ruling if they choose to change employers. In that case, the conditions regarding specific skills need to be met and the starting date of the new employment is within three months subsequent previous employment termination.
Conditions for the 30% ruling application
There are certain procedures and legislation that require careful consideration when applying for the 30% ruling facility. To give an overview, these are some requirements that need to be addressed:
- The individual is an employee of a business in the Netherlands
- The employer and employee must agree in writing that the 30% ruling is applicable.
- The employee must transfer or be recruited from abroad to a Dutch employer. They may not already be living in the Netherlands.
- Within 2 years prior to the first working day in the Netherlands, the employee lived for more than 16 months outside the Netherlands, at more than 150 km from the Dutch border.
- The employee must meet the minimum salary criteria.
Benefits of the 30% ruling for employees
Partial non-resident taxpayer: An expatriate will normally qualify as Dutch tax resident and will be subject to Dutch tax on his worldwide income. Under the regime of 30% ruling, the person can opt to be taxed as a deemed non-resident taxpayer. As a result, the individual is only taxable on Dutch source income from substantial interest (Box II) and income from savings and investments (Box III).
Lower tax and social premiums: Only 70% of the employment income of the employee is taxable as 30% is considered as a tax-free allowance. Furthermore, employees coming from EU member states or countries can opt for exemption from the Dutch social insurances and stay insured in their home country.
Exchange of foreign drivers’ license: This is an advantage for expatriates from non-EU countries (EEA and Switzerland included), who can only use their foreign driver’s license for 6 months after their date of registry in the Netherlands. After a period of 6 months, they will need to obtain a Dutch license. Employees covered by the 30% ruling can exchange their foreign driver’s license for a Dutch license without taking a driving test.
Tax-free reimbursement for international school fees: The tuition fees for expat’s children, who are attending an international primary or secondary school, can be reimbursed tax-free by the employer.
Reimbursement for costs incurred abroad: Costs incurred outside of the Netherlands due to the transition process of the international employee may be reimbursed. A few examples of these costs include:
- Relocation expenses at the beginning and end of the assignment period
- Cost of living components included among other meals, gas, water and electricity.
- Expenses for medical examination and vaccinations for the stay in the Netherlands.
- Application for official personal documents, such as residence permit, visas and driving licenses.
- Extra expenses for tax advice.
- Professional education expenses in connection with employment (such as Dutch language classes)
Benefits of the 30% ruling for employers
Attract skilled foreign workers: This attractive financial scheme encourages professionals from abroad with specific skills to move to the Netherlands.
Reduction of salary costs: The employer can facilitate a lower gross salary in agreement with the employee by 30% (with the salary criteria to be met).
Insurance contributions: If the employee is insured in the Netherlands under employee insurance schemes, the employer is not required to deduct employee insurance contributions from the amount of the 30% tax-free allowance.