Expat ruling becomes 27% ruling

17/09/24

This article was last updated on October 29th, 2024.

Under certain conditions, foreign employees may be eligible for the expat ruling. If the expat ruling applies, a maximum of 30% of the salary from current employment can be reimbursed tax-free. This flat-rate allowance relates to additional costs that these employees incur in order to be able to work in the Netherlands, such as extra costs for housing and living expenses. The objectives of the expat ruling are to attract scarce and highly skilled employees, to keep the Dutch business climate attractive and competitive, and to reduce the administrative burden for employers and employees.

From 1 January 2024, the 30% ruling will be reduced after 20 months. Only for the first 20 months, a maximum of 30% of the taxable salary, up to a maximum of 30% of the 'WNT norm' (2024: 233,000 euros), can be reimbursed tax-free. In the following 20 months, the ruling can be applied up to a maximum of 20% of the taxable salary. In the following 20 months, only up to a maximum of 10% of the taxable salary. After 60 months, the maximum term of the 30% ruling has expired. This reduction of the 30% ruling received a lot of criticism from businesses and a motion was filed to look for an alternative that is less harmful to the business climate based on the evaluation of the 30% ruling.

30% ruling becomes 27% ruling

Via the second memorandum of amendment additional measures have been included in the Tax Plan 2025 that could no longer be included in the 2025 Tax Plan package earlier. As indicated in this memorandum of amendment, the 30-20-10 reduction is reversed, before it has actually been applied in practice.

However, from 2027 onwards, the reduction of the 30% ruling will take place in a different way. The maximum percentage that can be reimbursed tax-free on a flat-rate basis will be reduced to 27% for the entire period of up to 60 months. For the years 2025 and 2026, the maximum flat rate that can be granted for all incoming employees will remain 30%.

Increase in salary norm 30% ruling

To cover part of the reversal of the reduction of the 30% ruling, the salary norm will be increased. The salary norm that applies as a condition for the application of the 30% ruling will be increased from 46,107 euros to 50,436 euros as of 1 January 2027 (based on the amounts of 2024, these amounts will be indexed every year thereafter). For employees under the age of 30 with a master's degree, the salary norm will be increased from 35,048 euros to 38,338 euros (these amounts also apply for 2024 and will still be indexed annually).

Transitional law for the 30% ruling and increased salary norms

A transitional law will apply to employees who already apply the 30% ruling before 2024. Both the reduction to a maximum flat-rate allowance of 27% and the increased salary norms have no impact on expats who already make use of the 30% ruling before 1 January 2024, during the entire term of the 30% ruling. If the application of the 30% ruling is terminated in the meantime, the transitional law will no longer apply.

In the second memorandum of amendment, the transitional law was extended on the recommendation of the State Council. For employees who make use of the 30% ruling for the first time in 2024, the current (indexed) salary standard will also continue to apply for the remainder of the term of the expat scheme. The reduction of the maximum tax-free allowance from 30% to 27% will apply to these employees as of 2027.

Possibility of reimbursement of actual incurred extraterritorial costs

Due to the decrease in the maximum tax free tax rate from 30% to 27%, there is a slightly greater chance that the actual incurred costs associated with the work in the Netherlands will be higher than the tax-free flat rate. In that case, it is still possible to reimburse the actual extraterritorial costs (ET costs) instead of using the flat rate. If the employer wishes to reimburse the actual extraterritorial costs, then they must be able to prove that these costs are actually incurred. In addition, the costs must also be administered for each employee in the payroll administration. The choice for the application of the actual remuneration or the remuneration of the flat rate must be made in the first pay period of each calendar year, with the exception of the first four months of the first year of employment.

Abolishment of partial non residency

Last year, the bill to abolish the partial non resident status as of 2025 was adopted. The partial non resident status means that under the expat ruling there was an option to be seen as a non-resident taxpayer for box 2 and box 3, despite a tax residency in the Netherlands.

This abolishment of the partial non residence status will be maintained. However, a transitional arrangement is still in place for expats who made use of the 30% ruling before 2024. These expats can make use of the partial non resident status until 2026 at the latest.

What does this mean for your organisation?

The reversal of the reduction of the 30% ruling is positive news for both expats and their employers and the feasibility of the expat ruling. A fixed percentage for the entire duration of the expat ruling is easier to apply in the payroll administration and provides more clarity and stability for the expats. However, it is important to properly administer and communicate which employees will fall under the reduced percentage of 27% as of 2027 and for which employees the maximum percentage of 30% will continue to apply on the basis of the transitional law.