The Dutch parliament recently accepted a new proposal to change the current 30% ruling. The upcoming change in the legislation results in a maximum amount of the tax-free benefit; the 30% ruling will be capped as of January 1, 2024.
The 30% Ruling
The 30% ruling is a tax facility meant for employees who are hired from outside the Netherlands to work in the Netherlands. If the employee meets certain conditions, he or she can receive a maximum of 30% of their remuneration as a tax-free allowance. Consequently, the effective taxable income is reduced with 30%. This is supposed to compensate for extraterritorial costs during the employment for a period of maximum 5 years. Extraterritorial costs (“ET costs “) are considered the extra costs that an employee may incur due to the employment in the Netherlands.
As of January 1, 2024, the tax free amount that can be reimbursed under the 30%-ruling will be capped, which means that the 30% ruling may not be applied to employment income exceeding the “WNT-norm” also known as the “Balkenende standard”. This limit is equal to 30 percent of what a minister in the Netherlands earns. The WNT-norm for 2024 amounts to Euro 233.000 euros, resulting in a maximum tax-free allowance of Euro 69.900.The income that exceeds the limit is taxed at the highest tax bracket 49.5% (2023). In case of a migration year ( either in the year of arrival or departure) or in the year the term of grant expires, the WNT-norm has to be prorated.
Reimbursement of Actual ET Costs
The limitation is not applicable to the reimbursement of the actual ET costs. In this respect it might be more beneficial for the employee to reimburse the actual ET costs if they exceed 30% of the WNT norm. The actual ET costs should however be substantiated with supporting documentation while the 30% ruling can be applied without the proof of extra costs.
A transitional regime applies for employees for whom the 30% ruling was applied to their salary up to and including December 31st, 2022 already. For this group the cap will only apply as of January 1st, 2026 instead of January 1st, 2024.