Shortening of maximum term for 30% expat tax ruling postponed

The Dutch government’s plans to shorten the period in which employees recruited from abroad are given a 30% reduction on wages tax, have been postponed by 2 years. Known as the 30% ruling, the tax reduction currently applies to expats (highly skilled migrants) in the Netherlands for 8 years, but the current coalition government had planned to reduce that term to 5 years as of January 1, 2019.

However, an evaluation of policy measures for businesses has caused the government to postpone its plans by 2 years. What remains, is that the reduction in the 30% ruling term will enter into force as of January 1, 2021, both for new and for existing cases.

30% wages tax reduction

The 30% ruling is a tax policy in place to make the Netherlands an attractive employment destination for highly-skilled migrants. Under the regulation, employers may pay out a maximum of 30% of contracted salary tax-free to employees recruited from abroad who work in The Netherlands temporarily. That is intended as a tax-free reimbursement for extra costs these employees incur in living as migrant staff, such as the costs of travelling back home, housing and cost of living.

Currently, foreign employees can benefit from the 30% tax break for up to 8 years after entering the Netherlands for work. The government had planned to shorten that period to 5 years. Other conditions part of the 30% ruling were set to remain unchanged.

Ramifications of shortening term for tax reduction

Postponing the term reduction is being presented as a policy measure to boost the investment climate.

Many foreign employees that fall under the ruling have complained that a shorter term for the ruling would substantially increase their tax burden as of January 1st, 2019, and affect financial arrangements, such as mortgage and repayment of study loans, they made based on a net salary that includes higher earnings thanks to the 30% ruling. Many indicated they planned on leaving The Netherlands, for example for Germany, where wages for highly-skilled migrants are higher and taxes lower. In any case, the measure to shorten the term for the 30% ruling means that new migrants would likely sooner consider relocating to other countries with higher net salaries.

Those implications have now been postponed to 2021. At HulsbosKlatt, we are convinced that the 30% ruling boosts the Dutch investment climate. Considering the reactions to shortening the term for the 30% ruling, we believe that the benefits of an 8-year term for the ruling will be as much needed in 2021 as they are now. An evaluation report presented by the government expressed satisfaction regarding the simplicity and effectiveness of the ruling’s tax facility. If the ruling is shortened as of 2021, we feel it will be a challenge to explain The Netherlands’ attractiveness as a (technological) investment country.

If you wish to learn how to use facilities for businesses and entrepreneurs, including the 30% ruling, get in touch with us at:

  • HulsbosKlatt, www.hulsbosklatt.com, for its expertise regarding the 30%-ruling and other tax compliance services, and
  • BK Group, www.bkgroup.com, for corporate services to new Dutch business branches and representative offices of foreign companies.

Would you like a further explanation and / or an assessment of your own concrete situation or that of your customer? Please feel free to contact Mr. Frank de Bats via Frank.deBats@hulsbosklatt.nl or +31 88 100 9393 / +31 6 201 29 830.