On November 3, 2011, the Deputy Minister of Finance, Mr. Weekers, sent a draft general administrative order (Algemene maatregel van bestuur, “AMvB” ) to the Lower House detailing the amendments to the 30% ruling in the Payroll Tax Implementation Regulations 1965. The draft AMvB is an appendix to the Deputy Minister’s written reply to questions about the Tax Plan 2012 raised by the Lower House during the parliamentary debate held on October 31, 2011. On September 8 and 28, 2011, we also discussed the amendments to the 30% ruling.
The new rules are primarily aimed at preventing misuse of the 30% ruling. Incoming employees facing only limited extraterritorial expenses should no longer be eligible for the 30% ruling. This would include Dutch employees returning from working abroad and border workers.
Below we discuss the most important points included in the draft AMvB and the explanations given by the Deputy Minister.
1. The specific expertise criterion
The most important eligibility criterion for the 30% ruling is the possession of specific expertise. After January 1, 2012, the assessment of whether this criterion has been met will be based on a salary threshold. The salary threshold that will then apply is an annual salary for tax purposes of at least EUR 50,619, after excluding the untaxed 30% allowance. The salary threshold for doctoral students younger than 30 years of age will be EUR 26,605. These amounts are index-linked and will be revised annually.
2. Scarcity criterion
In addition to the specific expertise criterion, a scarcity criterion will also apply. The specific expertise must be scarce − or not present − on the Dutch labor market. The Deputy Minister has indicated that scarcity will only be assessed in exceptional situations. One of the professional groups that will be assessed on the scarcity criterion is professional football players. Agreements have been reached with the Royal Dutch Football Association (Koninklijke Nederlandse Voetbalbond, “KNVB”) on the assessment of these players for the 30% ruling.
3. Border workers
Employees living within a 150 kilometer radius of the Dutch border are considered to incur less extraterritorial expenses. This involves the distance − measured as the crow flies − between the place of residence and the nearest Dutch border. The 30% ruling also covers the situation of temporarily moving outside the 150 kilometer boundary. Prior to their employment in the Netherlands, an employee must have resided outside the 150 kilometer boundary for two-thirds of a 24 month period. For doctoral students, the period of their doctoral research will not be taken into account when assessing whether an employee “ is hired from outside the Netherlands”. As long as a doctoral student resided outside the 150 kilometer boundary before commencing their doctoral research, they will be eligible for the 30% ruling if their employment in the Netherlands commences directly on completion of their research.
4. Reference period for previous stays
The reference period for setting off previous stays in the Netherlands has been extended to 25 years. Each consecutive stay in the Netherlands will be separately rounded up to whole months. This means that a stay of two weeks in March and two weeks in August will result in a set off of two months. The set off rule is also applicable to the period that an employee, while employed by a Dutch withholding agent, was not physically present in the Netherlands, or only physically present for a limited amount of time. This is of particular importance for directors of Dutch companies who do not, or only rarely, work in the Netherlands. Only employments commencing after January 1, 2012, will be assessed in accordance with the new reference period.
5. Assessing whether the conditions are met
Currently, the 30% ruling applies at least for a period of five years if, at the commencement of the employment, all the conditions were met. As of January 1, 2012, all the conditions will have to be met during the entire period of employment. This means that the 30% ruling will end as soon as the salary threshold condition is no longer met. The currently applicable interim assessment that takes place as of the sixth year will therefore be replaced by a continuous assessment.
6. Changing employers
If an employee changes employers during the period of the 30% ruling, the 30% ruling can be continued by the new employer. The current ruling includes the condition that the new employment must commence within three months after leaving the previous employment. The draft Implementation Decree makes the conclusion of the employment contract with the new withholding agent the deciding factor. This means that an employee who signs an employment contract within three months after ending their previous employment, but commences their new employment only after four months, will still be eligible for the continuation of the 30% ruling.
The draft Implementation Decree and the Deputy Minister’s explanations clarify a number of different issues. The practical consequences are considerable and will definitely raise more practical questions. It is important for the business climate that the 30% ruling remains in place. The announced changes to the 30% ruling will see a decrease in the number of rulings, and a corresponding positive budgetary effect.
As previously stated, this involves a draft Implementation Decree. The final version is expected to be published at the end of December 2011.