Amendments reduction of expat ruling adopted

30/10/23

This article was last updated on 12 April 2024.

Both an amendment to decrease the 30% ruling and an amendment to abolish the partial foreign tax liability were adopted by the House of Representatives.

The amendment to reduce the 30% ruling stipulates that as of January 1, 2024, the 30% ruling for new applications can only be applied to a maximum of 30% of the taxable salary for the first 20 months. In the following 20 months, the rule can be applied up to a maximum of 20% of the taxable wage. The following 20 months only up to a maximum of 10% of taxable wages. After 60 months, the maximum duration of the 30% ruling has expired.

The second amendment regulates the abolition of the partial foreign tax liability by 2025. There is a transitional arrangement for expats, who already (can) use this facility before January 1, 2024. They can use the partial foreign tax liability until 2026 at the latest.

Reduction of the 30% ruling

The amendment to reduce the 30% ruling regulates a further restriction of the 30% ruling. Since January 1, 2019, the 30% ruling can only be used for five years and as of January 1, 2024, the 30% ruling can only be applied up to a maximum of the WNT standard (2024: 233,000 euros).

This amendment additionally regulates that the 30% ruling, where currently 30% of the taxable salary remains untaxed, can only be applied in this way for the first 20 months. After the first 20 months 20% can be reimbursed tax free and after another 20 months 10%. This can have major financial consequences for new employees for whom the 30% ruling can be applied.

For a 30% ruling application with a shorter duration than 60 months, the same percentages and periods apply.

Transitional law for the reduction of the 30% ruling

There is a transitional law for employees, who in the last period of 2023 have already used the 30% ruling. So this reduction has no impact on expats already using the 30% ruling before January 1, 2024. If the application of the 30% ruling is discontinued in the meantime, the transitional rule will no longer apply.

Possibility to reimburse actual extraterritorial expenses

Instead of applying the 30% ruling, the employer can also choose to reimburse the actual extraterritorial costs (ET-costs). The employer must be able to prove these costs. The costs must also be recorded per employee in the payroll administration. Reimbursing the actual ET costs can be a suitable alternative for future expatriates who have higher ET costs than the flat rate. The choice to apply the actual reimbursement or use the forfait must be made per calendar year, excluding the first four months of the first year of employment.

Abolishment partial foreign tax liability

In addition to the above reduction, the partial foreign tax liability will also be abolished as of 2025. When an employee lives in the Netherlands and uses the 30% ruling, the partial foreign tax liability can be applied in the income tax return. This means that for box 2 and box 3, this person is considered a foreign taxpayer, despite a tax residence in the Netherlands.

There is transitional law, as a result of which expats can still apply for partial foreign tax liability up to and including December 31, 2026, if it could already be applied by them no later than December 31, 2023.

What does this mean for your organisation?

With these adopted amendments, the 30% ruling will once again be made more limited. As an organisation, it is important to be aware of this when attracting expats who may be eligible for the 30% ruling.

In addition, the reduction of the 30% ruling will increase the administrative burden. For each employee with a 30% ruling, it will be necessary to keep a close eye on the fact that the percentage of the exemption will change after every 20 months. This will also have to be implemented in payroll processing. Furthermore, both amendments are subject to transitional arrangements that will have to be monitored.

Your PwC advisor will be happy to discuss with you the consequences of these amendments and possible alternatives you can offer to expats.

Finally, we note that a motion has been adopted to bring forward the evaluation of the 30% ruling. Based on this evaluation they ask to come up with an alternative to the reduction of the 30% ruling. This alternative could then be included in the 2025 Tax Plan and should be less harmful to the economy.