30% ruling & recent updates
30% ruling; what is it and why was it established
The 30% ruling is a regulation allowing employers in the Netherlands to offer tax-free allowances up to 30% of their gross salary to employees who have moved from abroad to the Netherlands.
The objective of this regulation is to make it attractive for foreign employees to work and reside in the Netherlands. The ruling was implemented to cover the extraterritorial costs incurred by employees for their stay in the Netherlands (for example housing and living expenses).
Conditions 30% ruling
There must be an employment contract between employee and employer
The employee has to be recruited from abroad
The employee has resided for at least 16 out of the 24 months prior to the 1st working day in the Netherlands at a distance more than 150 kilometers from the Dutch border (as the crow flies)
Employee must meet the salary threshold at all times (which is adjusted annually)
The employee must be in the possession of a valid 30% decision letter.
Change of employer and 30% ruling granted?
If an employee changes employers while the 30% ruling is granted, the ruling may, under certain conditions, continue to apply. Key condition is that within three months after the last working day with their current employer, the employee finds a new employer.
If the employee does not secure a new employer within 3 months following the end of their employment, the ruling will be terminated.
When changing employers, a new application must always be submitted to the Dutch Tax Authorities. Upon approval, the employee will receive a new decision stating the name of the new employer.
Garden leave?
If your employee is exempted from work until the end of their employment contract but continues to receive salary, the 30% ruling cannot be used during this period.
It's important to note that the 30% ruling ends after the last working day, even if the employment contract has not yet concluded. If the employee finds a new employer within 3 months after their last working day, a new application can be made as described above.
Master's degree and under 30 years old
In any case an employee is under 30 years old and holds a Dutch Master's degree or an equivalent foreign diploma, they may qualify for the Master's criterion. If eligible, they can benefit from the reduced salary threshold (minimum of €35.048 in 2024) until their 30th birthday.
Once the employee turns 30, the Regular criterion will apply in the following month (minimum of €46.107 in 2024). The employee will no longer qualify for the reduced salary threshold and must meet the regular criteria at all times.
30% ruling reduction and new rules for 2024
From the 1st of January 2024, the so-called Balkenende norm (named after Jan Peter Balkenende, Prime Minister of the Netherlands from 2002 to 2010), will apply to the 30% ruling.
The ruling will only be applicable for a maximum of 30% of the norm. In 2023, the Balkenende norm was €223.000, for 2024 this norm will be €233.000.
Additionally, due to an accepted amendment in the House of Representatives concerning the Tax Plan 2024, there will be further reduction of the 30% ruling.
This means that the 30% ruling will gradually decrease. Here's how this process will unfold:
First 20 months maximum of 30%
Second 20 months maximum of 20%
Last 20 months maximum of 10%
After 60 months, the maximum duration of a decision regarding the 30% ruling expires. For a decision with a shorter duration than 5 years, the same percentages and periods apply.
For employees who have a valid 30% decision before the 1st of January 2024, or for employees who start working in the Netherlands before 31st of December 2023, there is a transitional arrangement, and thus no reduction in the 30% compensation.
In addition to the above reduction, the partial non-resident taxpayer status will also be abolished, which will take effect in 2025.
If an employee living in the Netherlands benefits from the 30% ruling, they may apply for the partial non-resident taxpayer status in their income tax return.
This means that for box 2 (substantial interest) and box 3 (savings and investments), the individual is seen as a non-resident taxpayer, despite their fiscal residence in the Netherlands.
There is also a transitional arrangement, allowing the use of this tax scheme until the 31st of December 2026, if it could have been applied by December 31st 2023.
Please note, the above two proposals still need to be approved by the Senate and are therefore not final. The introduction of the ‘Balkenende norm’ is already definite.
For more information or questions regarding the above matter, feel free to contact one of our colleagues via: www.rehivepeople.com or connect@rehivepeople.com.