Contractual agreement

Based on the 30% ruling, the employer will split  the employee's agreed compensation package into a tax free allowance equal to (a maximum of) 30% of the agreed package and 70% wages (see the benefit calculated).

To allow this split, it needs to be formalized as part of the employment contract between the employer and the employee. This needs to be worded in such a manner that the initial agreed compensation will be reduced resulting in an initial agreed compensation package equal to 100/70 of the new agreed compensation. In addition, the contract must also include that the employee receives an allowance for extraterritorial costs equal to (a maximum of) 30/70 of the new agreed compensation. If not included in the original employment contract, then this agreement can be made in the form of an addendum to the existing employment contract.

Dutch payroll

The salary of the employee must be subject to Dutch wage tax withholding. The Dutch employer usually is considered a withholding agent for Dutch wage tax purposes.

The employer should only process the 30% ruling in the payroll once the 30% ruling is granted by the tax department. The Dutch tax authorities may decide on the request within 2 months after filing. The 30% ruling can in principle be applied with retroactive effect if the application for the 30% ruling has been filed within 4 months after the start of employment.

If the 30% ruling is granted in a new tax year and the salary administration of the previous tax year has been closed, the 30% tax free allowance can be paid out in the following tax year. Alternatively, the 30%-benefit of the first year can be claimed in the income tax return of the employee.