Change in 30% ruling for expats

The 30% ruling for expats will change on 1 January 2019; the facility is set to be curtailed considerably. So what will change exactly and how will this affect you?

The 30% ruling (also referred to as the ‘expat ruling’) currently allows staff recruited abroad to receive 30% of their salaries in the Netherlands tax-free for eight years. This makes it attractive for Dutch businesses to recruit employees from abroad. And vice versa of course: thanks to the scheme, it’s rather attractive for foreign workers to leave their home country and come and work in the Netherlands.

Tax benefit

So what’s the background to the 30% ruling? Coming to live and work in the Netherlands means incurring extra costs (and these can be sizeable). These ‘extraterritorial costs’, as the Dutch Tax & Customs Administration calls them, can include the costs of an exploratory trip to the Netherlands and the costs of relocating. But they may also refer to the costs of having to maintain two properties (at ‘home’ and in the Netherlands) and the costs of family visits.

External expertise

The ruling is particularly interesting for sectors requiring highly qualified staff who have specific expertise, such as highly specialised technical knowledge, that is not always available in the Netherlands. As a ‘knowledge economy’, the Netherlands is keen to invest in highly trained staff from elsewhere.

Curtailment of ruling

The duration of the 30% ruling will probably be shortened from eight to five years with effect from 1 January 2019. Foreign workers will experience a sharp fall in their net salary after five years as a result. But that’s not all. Employers can no longer pay a tax-free allowance to cover the extra costs of an international school for employees whose children move with them to the Netherlands. Abolishing that facility can easily push an employee’s costs up by € 10,000 a year. And for many people that’s just not affordable. This presents employers with a dilemma: do we make up the difference in salary and see our gross wage bill increase or do we run the risk of our foreign workers leaving the organisation?

Transitional scheme

The initial idea was that there would be no transitional scheme and that the curtailment would also affect current expats. The latest news now is that there will in fact be a transitional scheme.

It’s unclear at this time what this transitional scheme will look like exactly. What is clear, however, is that the transitional scheme will only apply to expats whose 30% ruling would have ended in 2019 or 2020 due to the changes. If the 30% ruling is due to end after the year 2020, its duration will be shortened from eight to five years. accon■avm will keep you posted.