The 30% reimbursement ruling (the 30% ruling) is a tax advantage for foreign employees working in the Netherlands. When a number of conditions are met, the employer can grant a tax free allowance amounting to 30% times 100/70 of the gross salary subject to Dutch payroll tax.
30% ruling in Amsterdam
The 30% ruling results in a maximum (effective) tax rate of approximately 36.4%. This tax free allowance is considered compensation for expenses a foreign employee experiences when working outside their home country. As of April 2011, the Expatcenter formed an official cooperation with the tax department (Belastingdienst) regarding the 30% ruling. Applications from companies that are part of the Highly Skilled Migrant scheme of the IND can now be processed at the Expatcenter.
Conditions of the tax ruling
In order to be eligible for the 30% ruling the following conditions have to be met:
1. The employee has to work for an employer.
In order to be eligible for the 30% ruling you have to be employed. If you are self-employed it is not possible to claim the 30% ruling. However, if you set up a UK Limited Company or Dutch BV and become an employee of that company, you are considered to be in an employment situation and consequently eligible for the 30% ruling.
2. Employer and employee have to agree in writing that the 30% ruling is applicable.
The application for the 30% ruling has to be done by both employer and employee. If the 30% ruling is applicable, the gross salary of the employee will be reduced by 30%. This can have implications for your potential unemployment or disability benefits since these benefits are based on taxable salary. Therefore the tax authorities require that both employer and employee are aware of these consequences. This agreement in writing can be done by means of a clause in your employment contract or as an addendum to the employment contract.
3. The employee has to transfer or be recruited from abroad to a Dutch employer.
It is only possible to claim the 30% ruling if you are transferred from abroad. You have to prove that you were residing in another country before you came to the Netherlands. The employer has to state by means of a letter of recommendation to the tax authorities the reason why he/she hired the employee and what makes the employee so special for the company. The employer may be asked to prove that they were not successful in finding an employee with comparable expertise in the Netherlands. Furthermore, the employee must not have lived within 150 km of the Dutch border for 16 or more months out of the last 24 months prior to the start of the Dutch employment.
4. The employee has to have specific experience or expertise which is not or is rarely available in the Netherlands.
The employee has to have specific skills that are scarce in the Dutch labour market. These skills are determined by several facets such as salary, age, employment history, education and level of employment. None of these are conclusive but the combination of all aspects determines your specific skills.
5. The gross annual salary is more than 50,000 euros.
The gross annual salary has to be at least 51,100 euros. However, a lower salary of 38,842 euros is applicable for those who have completed a Master's degree and who are younger than 30 years old. Furthermore, for scientific researchers, employees working in scientific education or doctors in training, no minimum salary is required. However, please note that there are restrictions regarding where this group of employees can work.
Financial consequences
Based on the above mentioned conditions you may be eligible for the 30% ruling, but what does it actually mean? The salary you agreed upon will be reduced by 30%. In return you will receive a 30% reduction as reimbursement for expenses. This is the most common way it is done since it does not influence the salary burden for the employer. However, the employer is not obligated to pass on the advantage of the ruling to the employee. In practice the employer can partially or fully take the benefit.
What is considered salary?
This has been a major discussion over the past few years. Your gross salary is considered salary, but what about your bonus, holiday allowance, company car, redundancy payment or other benefits?
Basically, your ‘regular employment income’ is the basis for calculating the 30% tax free reimbursement. There are regulations regarding pension premiums but your bonus, holiday allowance, benefit package and company car fall under the ruling. A Supreme Court ruled that severance payments do not fall under the 30% ruling definition of ‘regular employment income’ and therefore do not qualify for the 30% tax free option. If you become redundant, it is important to have a breakdown of the redundancy package so it can be determined which part is payment of your bonus and outstanding holiday allowance and which part is the actual severance payment.
Other benefits of the 30% tax ruling
In addition to the fact that 30% of your salary will be paid tax free, there are also other benefits.
30% Ruling and Box 3 of your tax return
Under the 30% ruling you can opt for ‘partial non-residency status’. You are then considered to be a non-resident tax payer in Box 2 and Box 3, even though you are living in the Netherlands. For Box 1 income you are considered a resident tax payer, therefore you do not pay income tax on assets in Box 2 and 3 (except for real estate located in the Netherlands and substantial shareholding in a Dutch resident BV) and you are entitled to the partnership ruling in Box 1.
Driving Licence
If you have a foreign driving licence, in most cases you will have to redo your test in order to obtain a Dutch licence. However, if you benefit from the 30% ruling, you can switch your foreign driving licence without retaking the test.
Points of attention
Retrospective Period
The 30% ruling becomes effective retroactively if the application is submitted within 4 months after starting your employment contract. If the application is submitted after 4 months, it will become effective as of the first day of the month following the application month.
Duration
The maximum duration of the ruling is 8 years and will be reduced by other periods you have stayed in the Netherlands.
Changing Jobs
If you change jobs you can reapply for the ruling, provided that you still meet the conditions regarding specific skills and you start the new employment within 3 months of terminating the previous one.
New legislation
As of January 2012, the regulations on the 30% ruling have been updated. For those who were already in the possession of the ruling prior to that date, there is now a distinction between those who have had the ruling before December 31, 2006 and those who received the ruling after December 31, 2006. Since these new rules may affect your 30% ruling, we suggest you seek contact with a tax advisor specialising in the 30% ruling to make sure you know what the implications for you may be.
Forgot to apply for the ruling?
You discovered that you meet all the conditions for applying when you arrived in the Netherlands, but haven’t applied yet. In practice, (we) encounter quite a few situations where the request for the application of the ruling was not filed, or the company informed the employee that they weren’t willing to apply for the ruling, but the employee would have been eligible. What options do you have?
Although you missed the first couple of years of the benefit, it is still worth trying to obtain the ruling. Tax authorities will reduce the total duration of the ruling by the period you have already resided in the Netherlands. This may still result in a considerable period of the maximum 10 years that you will be able to receive the benefit.
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