The Netherlands: Introduction to the 30% Ruling

You may have heard of the 30% ruling; what exactly is the 30 percent ruling and how does it work?

Netherlands is a hot spot for Expatriates.  Expats working in the Netherlands are subject to Dutch tax legislation.  The 30% Ruling is a tax advantage for foreign employees, expats, working in the Netherlands.  The 30% Ruling is granted on a case by case basis.

If a number of varying conditions are met (in 2012 conditions for eligibility have changed), the employer is allowed to grant a tax free allowance amounting to 30% times 100/70 of the gross salary subject to Dutch payroll tax.  In other words, 30% of gross income (including bonuses, company car taxes and typical Dutch income components such as standard 8% holiday pay) is untaxed.  The tax free allowance is considered a compensation for the expenses that a foreign employee has by working outside his or her home country.

One of several conditions for eligibility is that the employee has to be hired from abroad by a Dutch resident employer or a foreign employer who is a wage tax withholding agent in the Netherlands.  The main or key condition for eligibility is that the employee must have skills or knowledge not readily available on the Dutch Labor Market.

Furthermore, the employee’s taxable salary is at least 35,000 per annum.  An interesting fact regarding the 30% Ruling is that less strict rules apply for PHD and Masters Graduates younger than 30 years old when it comes to the salary requirements.  In fact, Scientific Personnel have no salary norm.

In regards to duration, the 30% Ruling will be granted for a maximum of 8 years and will be applicable as long as all of the conditions are met.  However, any period spent in the Netherlands over the last 25 years will be used to reduce the maximum duration of the 30% ruling.

Although the ruling sounds like a wonderful arrangement it does have a consequence.  Lowering the taxable income will most likely have implications for one’s potential unemployment or disability benefits, since these benefits are based on taxable wages.


TOPIC: Expatriates
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