The Dutch House of Representatives recently accepted a new proposal to reduce the current 30% ruling. The 30% ruling may be reduced considerably as of January 1st, 2024 if the proposal is also adapted by the Dutch Senate.
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, a maximum of 30% of the remuneration can be received 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 60 months. Extraterritorial costs (“ET costs “) are considered the extra costs that an employee may incur due to the employment in the Netherlands.
Tax Free Percentage Considerably Reduced
As of January 1st, 2024, the ruling may still be applied for a period of 60 months and the 30% tax free allowance can be applied for the first 20 months. After the first 20 months however, the tax free amount that can be reimbursed will be reduced to a maximum of 20% of the remuneration. Finally, after the next 20 months, the maximum tax free allowance will be reduced to a maximum of 10% of the remuneration.
Partial Non-resident Tax Status Abolished
A resident of the Netherlands has to report worldwide income whereas a non-resident only has to report Dutch-sourced income. Under the 30% ruling, a qualifying employee can elect to be considered a partial non-resident taxpayer of the Netherlands. As such, the employee will in principle only be subject to tax on Dutch sources of income.
Dutch sources can be considered employment income, income derived from Dutch real estate property, or a substantial share hold in a Dutch company. Consequently this partial non-resident tax status may result in a tax saving compared to Dutch tax residents as personal income from non-Dutch sources is not subject to Dutch income tax.
The election for the deemed partial non-resident tax status under the 30% ruling has now been abolished as of January 1st, 2025.
Transitional Rules
A transitional regime applies for employees for whom the 30% ruling was applied to their salary up to and including December 31st, 2023 and they will not yet be effected by the reduced tax free percentages. Furthermore these employees can still elect to be considered partial non resident tax taxpayer up to and including December 31st, 2026.
