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Written by:
Stan Evers


Cabinet response to assessment of “30 percent ruling” scheme

The Netherlands Wages and Salaries Tax Act offers scope for the tax-exempt reimbursement of additional (“extraterritorial”) expenses incurred by employees owing to their being temporarily stationed outside their country of origin. Rather than basing the reimbursement on actually incurred expenses, the option is available to grant a fixed untaxed allowance of up to 30 percent of the relevant employee’s wage inclusive of fringe benefits. The employer and employee jointly apply for the employee’s  admission to the “30 percent ruling” scheme, which runs for a maximum of eight years and whose objectives are threefold:

  • recruitment of foreign-based employees who boasts skills that are (all but) unavailable in the domestic labour market;
  • helping ensure that the Dutch business establishment climate should maintain its attraction and preserve its competitive edge;
  • lessening the administrative burden for employers and employees alike.

The Dutch Finance Ministry in 2017 ordered a survey of the effectiveness and efficiency of the 30 percent ruling scheme to be held, one of the conclusions of which has been that curtailing the maximum term from eight to five years would enable the scheme’s effectiveness to be enhanced while leaving its efficiency (virtually) intact. The Dutch Cabinet has duly adopted this recommendation.

Eligibility for the 30 percent ruling scheme is strictly confined to employees whose regular abode was situated more than 150 kilometres from the Dutch border before they relocated to the Netherlands for work. One of the conclusions from the survey has been that the scheme tends to overcompensate employees from nearby countries, whose travel expenses tend to be relatively modest while their cost of living is not greater than that of their Dutch colleagues. In view inter alia of the arbitrariness of national borders, the Cabinet has decided not to go with the recommendation of increasing the 150 kilometre minimum, as a step which it expects would ruffle quite a few feathers.

The discrepancy between actually incurred extraterritorial expenses and the fixed allowance is particularly great for those who come in the higher income brackets. Reduction of the fixed allowance for higher-income employees would help bridge the existing gap. This could be achieved by confining the 30 percent ruling scheme to the fixed salary, by maximising the tax-exempt allowance or by putting a cap on the fixed allowance. The Cabinet has decided – in view of the survey’s conclusion that one of the main “assets” is its simplicity – not to go with any other method of controlling the allowance.

Inbound employees from other countries who make use of the 30 percent ruling scheme tend also to go for partial foreign tax liability. Participation in the latter scheme is – likewise – available for a maximum term of eight years. As the Cabinet is of the opinion that anyone who has been living in the Netherlands for over five years has forfeited his or her status as a temporary resident, it intends likewise to cap the term of the optional foreign tax liability scheme at no more than five years.

Relevant article: Adjustments to be made to “30 percent ruling” scheme

Dutch version: Kabinetsreactie evaluatie 30%-regeling

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