On September 8, 2011, the Ministry of Finance announced important changes with regard to the Dutch expatriate concession, the 30% ruling. The 30% ruling is a concession for employees coming to the Netherlands who are recruited from abroad and who possess specific expertise which is scarce on the Dutch labor market. Qualifying employees may receive 30% of their wages as a tax-free allowance to cover additional expenses incurred because of their stay in the Netherlands (extraterritorial expenses). As a result, a tax benefit is recognized as only 70% of the wages are subject to Dutch taxation.
The Ministry of Finance has announced three important changes with regard to the conditions to be met in order to be eligible for the 30% ruling:
1. Specific expertise test
The most important condition for obtaining the 30% ruling is the specific expertise test. The employee has to possess specific expertise which is scarce on the Dutch labor market. Under the current 30% ruling, a facts and circumstances test is applied, with the important factors being the employee’s education and work experience. Under the new 30% ruling, a salary threshold will be applied. The specific expertise test is met if the employee’s annual gross salary exceeds EUR 50,618. This amount equals the threshold applied for the knowledge worker’s rule for immigration purposes (the norm for employees aged 30 years or older).
Because of the introduction of the salary threshold, fewer employees will be eligible for the 30% ruling. For example, employees younger than 30 years of age who qualify for the knowledge worker’s rule with a reduced salary threshold (EUR 37,121 per annum) are no longer eligible for the ruling.
Under the current 30% ruling, an employee who is assigned to the Netherlands on the basis of job rotation and who has been employed by the group for more than 2.5 years and is part of middle or higher management, automatically qualifies for the specific expertise test. It is unclear whether this rule will continue to exist.
Under the new ruling, foreign students who write their thesis and earn their doctorate’s degree (PhD) at a Dutch university and who are subsequently employed by a Dutch employer, will, be eligible for the 30% ruling if they meet a specific, reduced salary threshold. Under the current 30% ruling, they are ineligible as they were already living in the Netherlands at the start of their employment and therefore do not meet the condition that the employee has to be recruited from abroad.
2. Term of grant: extension of reference period
The 30% ruling is granted for a period of 10 years. Periods of earlier employment or stay in the Netherlands will reduce this term. Under the current 30% ruling, the reference period is limited to 10 years, meaning that periods of employment or stays in the Netherlands that ended more than 10 years prior to the start of the current Dutch employment are not taken into account. Under the new 30% ruling, the reference period is extended to 25 years.
This change is of special importance for Dutch citizens who have lived and worked outside the Netherlands for more than 10 years. Under the current ruling they are eligible for the 30% ruling (if all conditions are met). Because of the extension of the reference period, in practice Dutch citizens who return to the Netherlands will in the future only be eligible for the 30% ruling if they have lived and worked outside the Netherlands for more than 25 years.
3. Cross-border workers no longer eligible for the 30% ruling
Employees living within a 150 kilometer radius of the Dutch border are no longer eligible for the 30% ruling. This test has been introduced in order to avoid the ruling having an adverse effect on Dutch employees (employers may prefer Belgian or German employees in the border region as the employment costs could be reduced because of the application of the 30% ruling).
The exclusion of cross-border workers is of importance for employees from Belgium and the border region of Germany.
The changes outlined above are significant. The conditions for obtaining the 30% ruling will be more difficult to meet because of the introduction of a salary threshold and the exclusion of cross-border workers. More details will be provided in the Tax Agenda (Belastingplan) to be published on September 16, 2011, including transitional rules for employees to whom the 30% ruling has already been granted.
The Ministry of Finance also has pointed out that the 30% ruling is of importance in attracting foreign investors and will therefore continue to apply in the future.