A brief history

• Post-WWII: Skilled personnel shortages led the Netherlands to introduce a scheme to cover extra costs for foreign workers.
• 1970: Introduction of the 35% ruling allowed 35% of salary to be treated as deductible professional expenses.
• 2001: The 30% ruling replaced the 35% ruling.
• 2012–2017: Duration reduced to five years; the 150 km zone was introduced to define eligibility.
• 2024: Introduction of the salary cap (€ 262.000 in 2026) and the 30/20/10 scheme.
• 2025: Scrapping of the 30/20/10 scheme, abolition of partial non-resident taxpayer status per 1 January 2025. Employees under the expat ruling in December 2023: this option expires per 1 January 2027.
• 2027: maximum tax-free reimbursement reduced from 30% to 27%. Salary requirement increased to match Highly Skilled Migrant scheme.

Below is a simplified overview of how the expat ruling applies from 2025 onwards, depending on when it was first applied:

How does the expat ruling work?

Employees temporarily living in the Netherlands often incur additional costs (extraterritorial costs, or ET costs).

Employers can reimburse these costs in two ways:

1. Reimburse 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 expat ruling: the employer can reimburse up to 30% of the salary tax-free, without tracking actual ET costs.

Benefits

• Simplicity: Less administrative burden.
• Tax advantage: Up to 30% of salary is tax-free, even if ET costs are lower.

Example

An employee earning €100,000 can receive €30,000 tax-free under the ruling. The remaining €70,000 is taxed.

Drawbacks

• Taxable salary is lower, which may reduce pension contributions, unemployment benefits and other salary-related benefits.
• The maximum duration is five years; after that, normal Dutch taxes apply.

Key rules and eligibility

• Highly Skilled Migrants: Must meet salary criteria.
  • € 48.013 (2026) and € 36.497 (2026) for under-30’s with a master’s degree
  • For some professions—like dentists or professional athletes—the scarcity requirement is assessed individually. HR should note that eligibility is not automatic. Some professions may require extra documentation or justification.
  • The employer must continuously monitor that the employee meets the minimum requirements, especially the salary criterion, throughout the duration of the ruling.
• 150 km rule: Applies to those living at least 150 km from the Dutch border for 16 of the 24 months before employment. Exceptions exist (PhD candidates, returning employees, job changes).
• Application: Employer and employee submit a joint request within four months of employment. Late submission shortens the duration.
• Annual choice: Employees must choose each January between actual ET cost reimbursement and the expat ruling.

What happens when the expat ruling ends?

• Employees are taxed on their full employment income.
• After the five-year period ends, ET costs can generally no longer be reimbursed tax-free.

Tuition fees

• Employers can reimburse tuition fees for international primary and secondary schools on a tax-free basis, both in the Netherlands and abroad.
• Eligible costs includes school fees only; room and board expenses are not covered.

Bottom line

The expat ruling simplifies tax-free reimbursement of ET costs. However, changes introduced between 2024 and 2027 mean that reimbursing actual ET costs may, in some cases, be more advantageous.

HR awareness helps ensure employees achieve the best outcome while remaining compliant.

HR tip: Even when employees apply the expat ruling, it can be worthwhile to assess whether reimbursement of actual ET costs would result in a better tax position.

Interested in learning more or need assistance? Feel free to contact me.