Significant changes to Dutch expat facility

On 19 September 2023, Dutch Parliament voted for several amendments to the 30%-ruling (exempting 30% of the pay of a foreign employee working in the Netherlands) from 1 January 2024. Upon the likely enactment, this will have an impact on the tax position of existing and future expats working in the Netherlands, reducing or limiting tax benefits.

Following Budget Day in the Netherlands, several proposals were presented to amend the ‘30%-ruling’ exempting from tax a portion of a foreign employee working in the Netherlands. These changes will impact both new and existing 30%-situations from 1 January 2024.

Dutch 30%-ruling

The 30%-ruling is a favorable tax regime for expatriate employees coming to the Netherlands and aims to attract specific expertise and knowledge to the Dutch labor market. To qualify for the ruling, employees must meet a number of conditions, such as having lived outside of a 150 kilometer radius from the Dutch border and having an annual taxable salary of at least € 41,954 (2023). The ruling intends to cover expats for their extraterritorial costs, the extra costs they need to make to come work and live in the Netherlands. The ruling is available for up to 5 years. Most specialists, middle and higher management can qualify for the ruling without difficulty.

Current situation

Currently, qualifying expat employees can receive a tax-free allowance of up to 30% of their taxable income for a maximum period of 5 years. In addition, expats holding a valid 30%-ruling can opt for a favorable taxpayer status, the ‘partial tax liability’ status. This status provides for a tax exemption from personal taxation on foreign capital, investments and assets (‘box 3’) and substantial interests in foreign companies.  A cap on the calculation of the 30% ruling may apply (see below for more detail on this cap).

The proposed changes

1. The first proposal aims to reduce the tax free allowance in incremental periods of 20 months, bringing it down from 30% to 20% and further to 10%.
2. The second proposal aims to end the limited taxpayer status as of 2025.
3. The third change, which is law already, introduces a cap on the maximum 30% allowance.

The first proposal impacts both employer and employee. The proposed change means that the amount that the maximum tax-free allowance for extraterritorial costs can be set at:

• a maximum of 30% of the Dutch taxable income for a maximum of the first 20 months;
• a maximum of 20% of the Dutch taxable income for a maximum of the following 20 months; and
• a maximum of 10% of the Dutch taxable income for a maximum of the next 20 months.

The maximum duration of the 30% ruling stays at 5 years (60 months to be precise), and a transitional arrangement will be put in place for expats who had an active 30%-ruling per December 2023 so that they retain the current application of the ‘30% ruling’.

The second proposal impacts the employee only and will result in the abolition of the ‘partial tax liability’ status as of 1 January 2025. This change will be particularly relevant for expats with significant (foreign) investments and assets, but also for wealthy individuals who have organised their investment holdings taking account of the benefits of the current Dutch 30% ruling and ‘partial tax liability’ status. 

A transitional arrangement will be introduced for those within the30% ruing who have opted for ‘partial tax liability’ status as of December 2023.  Their ‘partial tax liability’ status will end no later than December 31, 2026.

What happens now?

The Dutch Parliament voted in favor of the two amendments. If the Dutch Senate also approves, this will mean that we will have 3 changes to the 30%-ruling as of 1 January 2024: 

1. A limitation of the 30%-ruling itself for employees who qualify for the 30%-ruling from 1 January 2024. These expats will effectively have a 30%-ruling for 20 months, a 20%-ruling for a subsequent 20 months and a 10%-ruling for the final 20 months maximum. If the total validity period is shorter than 60 months, you still follow the same calculation sequence. We advise employer to take this into account when recruiting new candidates from 2024, in the estimation of net salary and employers costs.
2. The abolition of partial ‘partial tax liability’ status as of January 1, 2025. For existing situations per December 2023, the abolition will apply no later than December 31, 2026. We advise employers to take this into account for new hires from 2024 and inform existing employees with a 30%-ruling end date beyond 31 December 2026. If you are an employee with the 30%-ruling yourself, this change would be important to assess for future planning.
3. A cap on the 30%-ruling allowance (law already). The cap on the calculation of the 30%-ruling for new situations after 1 January 2023 can be applied to a taxable salary of up to the ‘WNT salary’ (a fixed maximum salary for public servants). For 2024 this is € 233,000. For employees within the 30% ruling as at December 2022, this cap applies only from 1 January 2026. This measure can be relevant for employees with high salaries and potential additional benefits (such as bonuses or equity awards). we advise employers to calculate the potential impact of these changes on their workforce if they have not already done so.