30% ruling capped

20/09/22

Under certain conditions, foreign employees can request the application of the 30% ruling. When the 30% ruling applies, a tax-free reimbursement amounting to 30% of the income from active employment can be paid to the employee. The flat-rate reimbursement covers extra costs incurred by these employees to be able to work in the Netherlands, such as extra costs for housing and living expenses. The 30%-ruling aims to attract scarce and skilled employees, stimulate a competitive business environment and reduce the administrative burden for employers and employees. The scheme will be amended in two phases.

Changes

From 1 January 2023 onwards, employees can choose once a year if they want their actual ET costs to be reimbursed or if they want to apply the 30% ruling. It will not be possible to change the decision during the calendar year. From 1 January 2024 onwards, the application of the 30% ruling will be capped. From that moment onwards employers can reimburse a maximum of 30 percent of income up to the ‘WNT norm’, also known as the ‘Balkenende standard’ tax free. Based on the amount of the 2022 WNT norm, the tax-free remuneration amounts to 64.800 euros per year. If an employee does not work in the Netherlands the entire year, the amount will be calculated pro rata.

Reimbursement of actual extraterritorial costs

Dutch employers can offer certain foreign employees who work temporarily in the Netherlands a reimbursement for the additional costs for staying in the Netherlands (extraterritorial or ET costs). Employers can reimburse these costs in two ways. They can either reimburse the actual extraterritorial costs or they can apply the 30% ruling.

The amendment to the 30% ruling caps the use of the flat-rate ruling to a maximum of 30% of the WNT norm. Nonetheless, if the actual ET costs are higher than 30% of the WNT norm, it remains possible to reimburse the actual ET costs on an annual basis instead of applying the 30%-ruling. If the employee requests reimbursement of the actual ET costs, the employee must provide documentation supporting the claim.

Due to the amendment, the choice for the reimbursement of the actual ET costs or the application of the 30% ruling will apply for a calendar year. An exception will be made during the first four months of the first year of employment as Dutch tax authorities need to grant permission to apply the 30% ruling.

Transitional regime

A transitional regime applies. For employees who benefitted from the 30% ruling during 2022, the cap will apply as of 1 January 2026 instead of 1 January 2024.

For employees who will benefit from the 30% ruling from 1 January 2023 onwards, the transitional regime will not apply, because for these employees it is clear in advance that the capping measure will apply.

No adjustment of the partial foreign tax liability

The employee to whom the 30% ruling applies can opt to use the partial foreign tax liability for the duration of the application of the 30% ruling. As a result, the resident expat is treated as a foreign taxpayer in the Netherlands for box 2 and box 3 purposes. This means that the expat will be taxed in the Netherlands - in addition to the applicable box 1 tax - only for real estate located in the Netherlands and for the substantial interest in a company resident in the Netherlands (i.e. Dutch nexus). In the expat’s country of origin, the expat is often no longer considered a domestic taxpayer for the purposes of taxation over there. Consequently, box 2 and box 3 income sometimes may remain completely untaxed.

‘Remarkable’ tax schemes

As an annex to the IBO report on wealth distribution in the Netherlands, a list of remarkable tax schemes was published. The partial foreign tax liability in connection with the 30% ruling was also included. The purpose of this list is to initiate a discussion on the social desirability of these tax schemes. For now, it means that it has no immediate consequences. However, the report does suggest abolishing the partial foreign tax liability in relation to box 2 and 3, with a potential (partial) tax exemption. Nonetheless, the Tax Plan does not propose to amend the partial foreign tax liability.

What does this mean for your organisation?

The capping of the 30% ruling affects you and your foreign employees. For wages above the WNT norm, the 30% ruling will not apply from 2024 onwards. Adjust your administrative processes to control the capping for newly arrived employees and be aware of the effect the capping will have on your employees’ (net) salary.

Do you also reimburse school fees for an international school or an international department of a non-international school to an incoming employee? If so, please note that the amendment of the 30% rule does not affect this compensation. You can continue to reimburse these costs exempt from tax.

The 30% ruling and the aforementioned amendments will be evaluated in 2025.