An ‘employer’ in this article also refers to an employer subject to Dutch wage taxation. This article only covers the situation where an employer pays out the 30% tax reimbursement to the employee.

The evolution of the 30% ruling

During the reconstruction after World War II, there was a significant shortage of skilled personnel in the Netherlands and the rest of Europe. Much of this personnel was attracted from the United States. These employees incurred many additional costs. To make the Netherlands attractive to them, a special scheme was introduced to partly cover their extra expenses.

From 35% to 30%

In 1970, the original scheme was replaced by the 35% ruling. This ruling applied to all foreign workers, allowing 35% of their salary to be considered deductible professional expenses. Consequently, the top tax rate at the time of 72% in income and wage tax was effectively reduced to a more competitive rate.

In 2001, the 35% ruling was replaced by the 30% ruling. Due to social criticism and numerous lawsuits about the applicability, the 30% ruling was tightened in 2012. After evaluations in 2016 and 2017, the scheme was further scaled down: the duration was shortened to five years and the 150 km zone was introduced.

2024: salary cap and 30/20/10 ruling

Despite ongoing criticism, the government continues to recognize the benefits of the 30% ruling. Abolition in the near future is unlikely, although the scheme will continue to undergo further austerity measures.

Starting from 1 January 2024, the 30% ruling will be capped at the maximum salary allowable for public sector employees in the Netherlands (€ 233,000 in 2024). The ruling no longer applies to the portion of salaries exceeding this amount.

Another change is the introduction of the 30/20/10 ruling. This scheme allows for tax-free reimbursement of up to 30% of the salary during the initial 20 months, followed by 20% in the subsequent 20 months, and 10% during the final 20 months. Employees who were already under the 30% ruling in December 2023 are exempted from the 30/20/10 ruling.

2025: abolition of partial non-resident taxpayer status

Starting 1 January 2025, the choice for “partial non-resident taxpayer status” will be discontinued. This means that all employees benefiting from the 30% ruling in the Netherlands are liable to Dutch personal income tax on their global income from substantial shareholding (i.e. dividends and capital gains from owning at least 5% of a company) as well as on their savings and investments. For employees who were already under the 30% ruling in December 2023, this option expires per 1 January 2027.

What is the 30%-ruling?

Employees temporarily residing and working abroad often incur additional expenses, known as “extraterritorial costs” (ET costs). Employers can reimburse these ET costs provided there is a clear connection between the costs and the employment relationship.

Employers have two options to reimburse ET costs:

1. Reimburse the actual ET costs: the employer can choose to reimburse the employee for their actual ET costs, requiring the tracking of these expenses.
2. Apply the 30% ruling: alternatively, the employer can opt for the 30% ruling. With this option, the employer can reimburse up to 30% of the salary tax-free, without needing to track actual ET costs.

Benefits of the 30% ruling 

The most significant benefits of the 30% ruling include:

• Simplicity: There is no need to keep track of actual ET costs. This reduces administrative burdens for both the employer and the employee, as well as the implementation burdens for the Dutch tax authorities.
• Tax advantage: Anyone eligible for the 30% ruling automatically benefits from a tax-free allowance of up to 30% of their salary, regardless of whether they actually incurred ET costs.

Example

An employee under the 30% ruling has a gross salary of €100,000. Of this amount, up to €30,000 (30% of €100,000) can be reimbursed tax-free in the first 20 months of employment in the Netherlands. This means that the remaining €70,000 is subject to payroll taxes.

Drawbacks of the 30% ruling

The benefit of receiving 30% of income tax free also means that 70% of the gross salary is taxed. This tax advantage can negatively impact tax benefits such as the height of unemployment benefits and mortgage interest deductions, as these are based on taxable gross salary.

What are extraterritorial costs?

The Dutch Wage Tax Act allows employers to reimburse employees for expenses incurred due to their employment through the Work-Related Costs Scheme.

Here’s how the Work-Related Costs Scheme works: the “free space” (a yearly percentage of the employer’s total annual salary costs) and statutory targeted exemptions are deducted from the annual reimbursements and provisions. The employer owes 80% wage tax on the remaining amount.

ET costs are one of the statutory targeted exemptions. Some ET costs fall under other statutory targeted exemptions, while others are considered taxable wages. To determine how these costs are categorized, the Dutch State Secretary for Finance provides the following clarification:

Tuition fees

Tuition fees for the children of extraterritorial employees (expats), for primary and secondary education at international schools, including international departments within local schools, can be reimbursed tax-free. This reimbursement can be in addition to actual ET costs and the 30% ruling.

These fees cover transportation but not expenses for housing or meals. Tuition fees for international schools located outside the Netherlands may also qualify for tax-free reimbursement.

Other tax benefits

Dutch tax residents must report their global income annually in their Dutch personal income tax return. Under the Dutch Income Tax Act 2001, income is classified into three categories:

• Box 1: Includes income from (self-)employment and income from an owner-occupied residence, including deductible mortgage interest.
• Box 2: Income from substantial shareholding (5% or more) in a company, such as dividends and capital gains from selling shares in a Dutch limited company.
• Box 3: Income from savings and investments.

Each year, employees with the 30% ruling can choose whether to be treated as “partial non-resident taxpayers” in their Dutch personal income tax return. As partial non-resident taxpayers, they are liable to taxes on their income in box 1. For their income in boxes 2 and 3 they are considered non-resident taxpayers, exempting them from taxation on their bank balances, savings, and securities.

Starting 1 January 2025, this choice will be discontinued. This means that all employees benefiting from the 30% ruling in the Netherlands will also be taxed on their global income in boxes 2 and 3. For employees who were already under the 30% ruling in December 2023, this option expires per 1 January 2027.

Eligibility for the 30%-ruling

The 30% ruling is available to expats, including highly skilled migrants temporarily working in the Netherlands and certain Dutch employees posted abroad, such as diplomats.

Highly skilled migrants are eligible for the 30% ruling if the following conditions are met:

• The expat is employed by a Dutch-resident employer;
• The expat has a specific professional expertise that is scarce or not available in the Netherlands;
• In at least 16 of the 24 months prior to employment in the Netherlands, the expat lived more than 150 km from the Dutch border.

Specific professional expertise

Since 2012, an employee’s specific expertise is assessed based on their salary.

When entering into the employment contract, the employee must have an annual salary of at least € 46,107 (2024). For employees under 30 with a master’s degree, a lower salary requirement applies (€ 35,048 (2024)). If the employee starts during the year, the salary is converted to an annual amount.

There is no minimum salary requirement for employees engaged in scientific research or who are medical specialists.

The scarce-or-not-available requirement

When an employee meets the salary requirement, they usually also fulfil the scarcity requirement. However, for certain professions such as professional footballers and dentists, scarcity in the Dutch labour market must be assessed separately.

The scarcity requirement is evaluated based on the following factors:

• The level of education obtained;
• Relevant work experience for the position;
• The comparison between the salary in the Netherlands and the salary in the employee’s country of origin.

150 km zone

Expats residing more than 150 km from the Dutch border for at least 16 months of the 24 months preceding their employment in the Netherlands qualify for the 30% ruling. This criterion assumes that only this group incurs extraterritorial costs. Interestingly, the 150 km zone also includes a portion of the United Kingdom, alongside the more obvious neighbouring countries.

The 150 km requirement does not apply in the following three situations:

1) PhD candidates: employees with a doctoral degree who start working in the Netherlands within one year of completing their PhD; provided they meet the following conditions:

• From the start of his PhD research until employment, the employee resided in the Netherlands or within 150 km from the Dutch border; and
• In at least 16 of the 24 months prior to commencing his PhD research, the employee lived more than 150 km form the Dutch border.

2) Returning employees: employees who meet the following conditions:

• The employee has previously worked in the Netherlands and returns after a period abroad. The previous work period in the Netherlands was no more than five years ago; and
• In at least 16 of the 24 months prior to the previous work period in the Netherlands, the employee lived more than 150 km form the Dutch border; and
• This employee had a 30% ruling during this previous work period, or can prove that he met the criteria at that time.

3) Changing employers: when changing employers during the period of applicability of the 30% ruling, the 150 km requirement does not apply.

Applying for the 30%-ruling

To apply for the 30% ruling, the employer and the expat must submit a joint request to the Dutch tax authorities. The tax inspector decides on this request with a decision that can be appealed.

To ensure the 30% ruling applies from the first day of employment, this request must be submitted within four months of starting the job. If submitted later, the ruling begins from the first day of the month following the month of submission. Please note: a late submission shortens the duration of the ruling!

If the expat changes employers, a new joint request must be submitted within three months after leaving the previous job to continue the 30% ruling.

If not all required information is immediately available, a pro forma request can be submitted to secure compliance within the four-month period.

Annual choice between reimbursing actual ET costs or the 30% ruling

For the duration of the 30% ruling, starting 1 January 2023, a choice must be made every January between reimbursing actual ET costs and utilizing the 30% ruling.

Duration of the 30%-ruling

Starting 1 January 2019 the maximum duration of the 30% ruling is five years. This is a significant reduction: until 2012, the maximum duration was ten years. Between 2012 and 2019, the maximum duration was eight years.

Discount due to previous employment or stay in the Netherlands

The maximum period of five years is reduced for employees who lived in the Netherlands during the past 25 years prior to applying for the 30% ruling. The time previously spent in the Netherlands is deducted from the maximum period of five years. This means that if an employee previously lived in the Netherlands for five years or more, the 30% ruling will not be granted.

Limited stays in the Netherlands (up to six weeks of holiday per calendar year, etc.) and limited employment in the Netherlands (up to 20 days per calendar year) are permitted and do not result in a reduction.

Is there a check to see if the requirements of the 30%-ruling are still met?

For the duration of the 30% ruling, the employer needs to continuously assess if the minimum requirements are met, primarily focussing on the salary criterion. If the salary falls below € 46,107 (2024) or the reduced salary threshold of € 35,048 (2024) annually, the 30% ruling ceases from that point onward.

What happens when the ruling ends, or if the ruling cannot be applied?

If the 30% ruling ends or if an expat does not qualify for the 30% ruling, the employer can reimburse the expat’s actual ET costs tax-free, as well reimburse other targeted exemptions as described above under “What are ET costs?”

The employer may also reimburse the expat’s tuition fees tax-free, as described above under “How do tuition fees qualify?”

If the 30% ruling has expired or if the ruling ends because the conditions are no longer met, the expat will be taxed in the Netherlands on his worldwide income and assets from that moment onwards, as described above under “Are there any other benefits of the 30% ruling?”

In conclusion

The 30% ruling allows employers to reimburse expats their ET costs without requiring additional proof. Due to recent developments it can be more beneficial to reimburse actual ET costs rather than applying the 30% ruling. It is crucial to stay informed about these developments. Interested in learning more or need assistance? Feel free to contact me.