Have you ever heard of the 30% tax rule? But what exactly is it? When does it apply? Is this of any interest for you as an employer and/or employee?
What is the 30% ruling?
The 30% ruling is a contribution (tax-free contribution) for employees who are recruited from abroad and serves as compensation for the costs they incur to come and work in the Netherlands. Think of the extraterritorial costs: such as double housing costs, travel expenses or the costs of a language course. This scheme is designed to attract personnel from abroad, with specific expertise, which is scarce in the Netherlands.
Up to 30% of the salary can be paid tax-free. The company is exempt from paying employer premiums on that tax-free portion. The highly skilled migrant is also exempt from tax on this portion of their salary, leaving a higher net salary at the end of the month.
What are the benefits?
- The employer does not pay employer premiums on the salary which is up to 30% tax free.
- The expat has a higher net wage every month.
- The 30% ruling may be applied for up to 5 years.
- This special tax scheme is attractive to employees, making it an extra advantage, especially in this tight labour market, to attract this suitable candidate with expertise.
- With the approved 30% rule, or decision, the employee can easily convert his current foreign license to a Dutch one. Thus, the knowledge migrant does not have to take a practical or theoretical exam. The partner of the expat may also use this arrangement to apply for a Dutch driver’s license.
What are the conditions?
Is it the very first 30% ruling application submitted on behalf of the expat? If so, the application must be received by the Dutch Tax Office within 4 months in order to be able to use the 30% ruling as of the 1st working day.
Has your new employee changed employers and he/she was already using the 30% ruling? Then the Dutch Tax Office should receive the application in good order within 3 months.
To be eligible for the 30% ruling, several conditions must be met:
- The expat must have been recruited abroad. This means that he/she must be resident in a country other than the Netherlands at the time the employment contract with your company is signed.
- The employee must live at least 150 kilometres from the Dutch border for a period of min. 16 months in the last 2 years.
- The taxable wage must be at least € 39,467.
- The fiscal wage may also be at least € 30,001 if the expat is younger than 30 years old and has obtained a Dutch master’s degree in scientific education or an equivalent foreign title.
- There should be an agreement between the employer and the expat that the taxable annual salary remains above the income standard after the application of the 30% rule. It is possible that the allowance may be less than 30/70 of the agreed wage.
Duration of application
Does the highly skilled migrant meet all the conditions? Then the application can be submitted with all the necessary documentation. It takes an average of 10 weeks, before the Dutch Tax Office provides a response. The Dutch Tax Office may still have questions regarding the application. In that case, additional information can be submitted which usually takes another 10 weeks before a new response is provided.
Application in payroll
Has the 30% ruling been approved? Then you will receive the decision, which needs to be kept in your administration. The 30% ruling can be processed retroactively in the salary of the expat.
Note: the decision will only state that the employee is eligible for the 30% ruling, including the start and end date. It is up to you as the employer to ensure that the correct percentage is processed.
As an example:
The highly skilled migrant’s taxable salary is € 48,000, this means that the 30% rule may be applied, but not in full.
The full 30% ruling may only be applied if the taxable wage is € 56,382 or more. All amounts between the minimum salary threshold of € 39,467,- and € 56,382,- will be a limited percentage.
At the beginning of each year, the minimum salary threshold is redetermined (usually increased), so the partial percentage will be reduced if the salary remains the same.
At any time, the expat is required to meet the conditions for the 30% tax rule, otherwise it may be revoked. If the tax authorities concludes that the regulation has not been correctly applied, the payroll administration must be corrected, and additional taxes may be imposed. It is therefore advisable to always apply the 30% ruling correctly.
As soon as the highly skilled migrant meets all the conditions, he/she is entitled to the 30% ruling. However, it is always the employer’s choice whether to apply and implement the 30% ruling. An employer is not obliged to use the 30% rule for extraterritorial costs, even when the 30% ruling is granted. The company is also allowed to reimburse the actual extraterritorial costs instead, but these must be substantiated and there is no limit for that. Note that the employer must make a choice between applying the 30% ruling or providing tax-free reimbursement for the actual expenses incurred. It is not possible to process both options in the payroll administration.
Do you have any questions about the 30% ruling? Or would you like our help with the application? You can!
Please contact us at: info@globalRcompass.nl or 0031 6 823 80 801.