Expatriate incentive in the Netherlands - the 30% regulation
The Netherlands has a special tax regime for temporarily seconded employees (expatriates).
The purposes of this special regime - known as the 30% ruling or 30% regulation - is to attract employees that are recruited from foreign countries and have special skills or expertise which is not available or scarce on the Dutch labor market.
When the 30% regulation applies, the employee is entitled to a tax free cost reimbursement of 30% of the salary (with some technical adjustments). The employee is then no longer entitled to separate general tax free reimbursement of expenses in relation to the assignment to the Netherlands.
In the Netherlands, employment income is taxable at progressive rates. As the top rate is 49.50% (2021), the Dutch government offers an incentive to attract foreign experts to the Netherlands by creating a favorable expatriate tax regime for employees. Under this regime – the 30% ruling – the employee will be taxed on only 70% of his employment income resulting in a substantial reduction of the effective top tax rate due to 34.3% (70% * 49.50%).
The employer and the employee must include the entitlement of the employee to the tax free 30% allowance in the employment agreement or letter of assignment of the employee. An application must be filed by employee and employer together.
The 30% regulation regime has changed on certain points over time, the most recent as of January 1, 2019. We have described these changes in a separate news item, but the main changes have also been included below.
Below you will find more information on the following subjects:
| Duration / period of validity |
Main features of the 30%-ruling
The main features of the 30% ruling are:
- The employer is allowed to pay a tax free allowance for expatriate costs insofar it does not exceed 30% of the total of the employee's fixed and variable employment income and the allowances/provisions for expatriate costs itself;
- The employer is allowed to pay the employee a tax-free reimbursement of the school fees relating to the education of the employee's child(ren) at an international school;
- In case the employee resides is in the Netherlands, the employee can opt to be a "partial non-resident taxpayer” of the Netherlands.
The 30% tax free cost allowance
The Dutch tax regime for people working in employment is quite rigid if it comes to the deduction of expenses. The general rule is that costs of employment do not constitute a tax deductible item for the employee.
The employer can however decide to compensate the employee for certain expenses tax free within certain limits. A good example is the commuting allowance which is supposed to cover the costs of (daily) travelling from home to office, but also the travel and stay allowance which is supposed to cover the expenses of the employee incurred with a business trip.
The law also offers the possibility for a general cost allowance, but only to the extent the employer can prove that the employee really makes expenses up to the amount of the allowance. It is common in particular for large employers to conclude an advance ruling with the Dutch tax office on the amounts of general cost allowances.
For employees who are temporarily assigned to the Netherlands or who are temporarily assigned by a Dutch employer abroad, a special rule applies with regard to the compensation of expenses: the employer is allowed to compensate 30% of the employee's gross salary as a "tax free cost allowance". For incoming employees this regime is referred to as the 30% ruling or regulation.
The notable feature of this regime is that the employer does not have the obligation to substantiate the amount of expenses really made by the employee.
In general the tax free 30% allowance will disqualify the employee from receiving a tax free general cost allowance, but the employee may still be entitled to receive other tax free allowances, like the commuting allowance or the tax free compensation of travel and stay expenses on a business trip.
The actual costs of attendance at an international primary or secondary school, reimbursed by the employer, will not qualify as taxable employment income, provided that the costs are limited to tuition fees and possible transport arranged by the school.
A Dutch school with an "international stream" may also qualify as an international school, in case the school is in principle only available for children of employees working outside their home country.
Any school fees paid by employees themselves are not tax deductible.
Option for fictitious non-residency status
A person residing in the Netherlands for a longer period will normally qualify as Dutch tax resident and will as such be subject to Dutch tax on his worldwide income.
However, a resident taxpayer of the Netherlands, who obtained the 30% ruling can opt to be treated as a partial non-resident taxpayer of the Netherlands.
The term "partial" means that the employee is treated as a non-resident taxpayer for Box 2 (income from a substantial shareholding) and Box 3 (income from savings and investments) income, but still as a resident taxpayer for Box 1 (income from employment) income.
As a result, the employee is eligible for all general and personal allowances and for tax credits in connection with Box 1, but he/she is not taxable for Box 2 and Box 3 income (except for substantial shareholding in a Dutch resident BV and real estate located in the Netherlands), such as investment income (bank accounts, shares etc.).
The fictitious non-resident status does not apply to employment income i.e. the employee will in essence be taxed for the (worldwide) employment income. A special rule for US citizens applies.
If the fictitious non-resident status applies, certain personal tax deductions, tax credits and allowances cannot be claimed in the Netherlands. For instance a Dutch resident who opted for a treatment as non-resident cannot claim a dividend withholding tax refund or settle this dividend withholding tax with Dutch income tax due (tax credit).
The employer and the incoming expatriate should file a mutual request for application of the 30% ruling with the Dutch tax authorities.
It is recommended to file the request for the 30% tax ruling within four months after the employee started its job in the Netherlands because only then the 30% ruling has retroactive effect. If filed later, the 30% ruling (when granted) will apply per the first month after the month in which the request has been filed.
Conditions to be met for obtaining the 30%-ruling
In general, the 30% ruling is available for employees assigned to the Netherlands, or recruited from abroad to work in the Netherlands. Abroad means that only employees residing outside the border area of 150 kilometers from the Dutch border, during at least 2/3rd part of the 24 month period prior to the start of their employment in the Netherlands, can obtain the 30% ruling.
The main requirement for qualification is that the employee must have specialised skills, knowledge and/or experience not readily available on the Dutch labour market ('the specific expertise test').
In essence an employment relationship is required, although the 30% tax ruling can also apply to employees who have a so-called fictitious employment, like for instance a membership of the Board of Directors or a Supervisory Board (when opting-in) of a Dutch corporation.
Dutch residency status is not obligatory: the 30% ruling may be applied for an employee who does not live in the Netherlands but who is subject to Dutch wage tax.
An individual can only obtain the 30% ruling when being in an employment situation. It is not possible to obtain the 30% ruling as a self-employed individual. A solution for this may be when a self-employed individual sets up a Dutch company (e.g. a Dutch BV) or a foreign company of which he/she becomes an employee who works in the Netherlands. The 30% tax ruling can in essence also apply to independent contractors who work out of their own Dutch or foreign company.
The 30% ruling needs to be processed through a Dutch payroll administration including the Dutch wage tax withholding payments. For this a Dutch wage tax withholding agent is required, this is normally the Dutch employer or the foreign employer having employees working in the Netherlands. If the foreign employee is assigned to the Netherlands to work for a foreign employer that does not have sufficient substance in the Netherlands to qualify as permanent establishment (for tax purposes), then the foreign employer should be appointed as a wage tax withholding agent on a voluntary basis. This often occurs for so-called representative offices.
Foreign employment agencies are deemed to have a permanent establishment in the Netherlands and they are therefore virtually always obliged to withhold wage tax and social insurance premiums from the income of employees assigned to the Netherlands.
The most important condition to qualify for the 30% tax ruling is that the employee should have specific skills, knowledge and (at least two and a half year) working experience which is not available or scarce on the Dutch labour market which the employer decide to recruit the employee from abroad.
Relevant in this respect are the nature and level of education, work experience and historical background within the group (in case of group assignment). Also the salary is relevant; the higher the salary, the more convincing the special skills and knowhow of the employee will be. There is a minimum salary requirement (see below).
To determine whether an employee meets the specific expertise test, the education and experience of the employee, as well as the nature of the function, are crucial factors.
Top executives and employees from middle and top management employed within an organization for at least 2.5 years who are temporarily assigned to the Netherlands within the scope of job rotation generally meet the condition of possessing specific professional expertise. In order to substantiate the above, a curriculum vitae, and possibly a work permit (if required), should be submitted to the Dutch tax authorities.
In practice, the requirement that an employee has to have specific expertise that is scarce or not available on the Dutch labour market is not difficult to meet. Since it is unwanted to meet the specific expertise test too easy, a minimum taxable salary level has been introduced. The minimum salary level for the purpose of the 30% ruling is the amount excluding the 30% tax free allowance.
A distinction in minimum salary level needs to be made for various types of employees. There is a general minimum taxable salary level amounting to EUR 38,961 (2020: EUR 38,437), which in effect implies a gross salary of EUR 55,659. Further, for masters (MSc) younger than 30 year, a lower minimum taxable salary level amounting to EUR 29,616 (2019: EUR 29,149) which in effect is a gross salary of EUR 41,641 is applicable. Finally, scientists and researchers of educational and subsidised research organisations are exempt from the minimum salary requirement.
If an employee meets the salary level required for his applicable situation, he/she qualifies as having specific expertise. Please note that it is still required that his/her specific expertise is not or scarcely available on the Dutch labour market and that it is expected that the tax authorities will monitor this closely for specific groups of employees.
Since the taxable salary will be decisive for the qualification of having specific expertise, this will not only include the regular fixed salary, but also other items such as variable salary items (e.g. bonus, stock options), taxable benefits in kind (e.g. company car, housing) and tax deductions/inclusions (e.g. pension contributions, health care contributions paid by employer).
In case an employee does not meet the minimum salary level, there may be a tax planning possibility to grant a lower percentage of tax-free allowance under the 30% ruling (less than 30%) to meet the minimum taxable salary level. For the specific situation that employees are not fully taxable in the Netherlands on their employment income, for instance when having a salary split, the total worldwide employment income will be taken into account for the determination of the minimum salary requirement. In addition, it is not fully clear yet how to deal with employees who work part-time in the Netherlands not meeting the salary level requirements. Further rules will need to be published regarding part-time workers.
Originally, the 30% ruling was granted for a maximum period of 120 months. For employments in the Netherlands that started after 31 December 2011, the maximum period of the 30% ruling was restricted to 8 years (96 months) and as of 1 January 2019, the ruling is granted for a maximum period of 60 months. Periods of previous stay or employment at an employer in the Netherlands are deducted from this maximum period.A grandfather rule provides that if the ruling would end in 2019 or 2020 due to this change of 1 January 1, 2019, employees can still make use of the 30% ruling until the original termination date or December 31, 2020 at the latest.
The 30% ruling can no longer be used when the employment in the Netherlands has stopped. With this, the Dutch tax authorities want to avoid the application of the 30% ruling on employment income that becomes taxable in the Netherlands after the employee has left the Netherlands (such as bonus payment or stock options, even when these became unconditional during the Dutch employment).
This proof can also be provided voluntarily at that stage to get certainty on the continuation for the full grant period.
Deduction for periods of previous stay in the Netherlands
All periods of previous stay and/or work in the Netherlands that ended in the 25 years before the start date of the Dutch employment are deducted from the maximum period of 60 months. This will exclude almost all Dutch national employees who return to the Netherlands to work. In addition, this may also have an increased impact on non-Dutch employees who have been in the Netherlands before.
The reduction rules provide that only in case certain thresholds are exceeded in the past 25 years, this will lead to a reduction on the maximum period. These thresholds include a maximum of 20 work days in the Netherlands per calendar year or a maximum of 6 weeks per calendar year of stay in the Netherlands for personal reasons or a maximum one-time stay of 3 months in the Netherlands for personal reasons. If any of these thresholds are exceeded, all periods of previous stay and/or work in the Netherlands are deducted from the maximum period (each reduction period rounded up in months).
Directors and supervisory board members of Dutch companies, who want to obtain the 30% ruling also need to take into account earlier periods of being employed and benefiting from the 30% ruling. Although they may note have been being physically present in the Netherlands, these periods are taken into account as deemed periods of work and as such will lead to a reduction on the maximum period of the 30% ruling. This is to avoid that reductions on a future 30% ruling period for directors and supervisory board members will be limited to only physical days of work/stay in the Netherlands in the past.
Employees covered by the 30% ruling that are tax residents in the Netherlands are taxable on their world-wide employment income.
As a result, if a tax treaty concluded between the Netherlands and another country states that a part of their employment income is taxable in that other country a tax relief can be claimed.
Employees covered by the 30% ruling that are not considered tax residents in the Netherlands are only liable to Dutch tax on the part of their employment income that relates to activities actually carried out in the Netherlands (Dutch work days only).
In general, this does not apply to non-resident taxpayers of the Netherlands who are Directors or Supervisory Board members of Dutch companies.
Please note that the 30% ruling may have an impact on the amount of (Dutch) pension rights which can be built-up tax-free while working in the Netherlands.
When certain conditions are complied with, the expatriate employee can, during his employment in the Netherlands, continue to contribute to a foreign pension plan which provides the employee (and the surviving relatives) of an income after retirement. There are various conditions to be met, but the foreign pension plan must in any case be executed by an authorised insurance company which is supervised by a special authorised institution of the relevant foreign country.
The general regime applicable to pensions is that the premiums paid during the employment are not considered taxable (if paid by the employer) or within certain parameters tax deductible (if paid by the employee), while the pension payments are subject to tax as "deferred employment income".
Fact is that most tax treaties allocate the right to tax pensions to the home state of the (former) employee: the country where the employee is living at the time that the pension is paid out. This means that expatriates can gain a significant benefit from contributing to a pension plan during their stay in the Netherlands: the premiums are not taxable/tax deductible, while the deferred income (the pension payments) may not be taxable in the Netherlands by virtue of applicable tax treaties.
The 30% ruling may have an impact on the amount of Dutch social security contributions (if applicable) and the social security rights of the individual employee.
When assigned to the Netherlands, the employee will in principle become subject to Dutch social insurances. However, employees who come from other EU member states or countries with which the Netherlands has concluded a social insurance treaty, may be able to opt for exemption from the Dutch social insurances because they stay insured in their home country. This exemption will usually require an application.
Starting up and maintaining a Dutch payroll
Maintaining a Dutch payroll is a condition for applying the 30%-regulation for one or more employees. The employer must act as withholding agent, meaning that it must register with the Dutch tax authorities.
In its capacity as withholding agent, the employer has the obligation to withhold wage taxes and social security premiums from the employees' salary payments and pay them to the Dutch tax office.
The first step in this process is to register the employer and employee.
Subsequently, the employer has the legal obligation to provide the employee with monthly salary slips, which specify amongst others:
- the personal details of the employee, like name, address and tax registration number;
- the details of the employment (working hours etc.);
- the amount of the gross salary;
- the amounts added to the gross salary, like taxable allowances, benefits in kind for company car, or lunches at the office, etc.;
- the amounts withheld by the employer, for instance the wage tax and compulsory health insurance contributions.
The salary slips are usually automatically generated by the payroll provider. The salary slips form the basis for determining the amounts of wage tax and social insurance premiums which must be paid by the employer to the Dutch tax office.
In most cases the employer has the legal obligation to file a wage tax return and to make the corresponding payments within one month after the end of the month. The terms for filing are quite strict: any late filing of the wage tax return or late payment of amounts due will more or less automatically result in the levy of penalties.
Filing a Dutch income tax return
As from the year of arrival in the Netherlands, the employee must file a Dutch income tax return.
In the first and the last year this is a special tax return in which certain elements of the immigration or emigration are being dealt with.
Work permit and residence permit
Except for nationals from other European Union (EU) countries and nationals from countries participating in the European Economic Area (EEA), any foreign employee seconded to the Netherlands is required to have a work permit and a residence permit. For employees coming from new EU-member states special rules may apply.
When it concerns the secondment of an employee from a non-EU or non-EEA country, the first step is to obtain an "authorisation for temporary stay". When obtained, the foreign employee is allowed to enter the Netherlands and apply for a residence permit and work permit. When the application is filed the appropriate employment office should be notified in order to apply for a work permit.
Obtaining a work permit may be quite an extensive and long lasting procedure. However, for international assignments within an international group of companies an accelerated procedure is available. When the employee has a key management position or is highly specialised (ICT for example) and certain income criteria for both the international group and the employee are met, in general the chance to get a work permit is quite big.
We offer full compliance packages for employers and employees.
In essence these packages are offered against fixed prices, unless the employer/ employee requires extensive advice.
We advise employers and employees on tax issues in relation to secondment on a daily basis and handle associated compliance matters.
We can do amongst others the following:
- Tax registration of employers and employees
- Payroll services
- Filing the application for the 30% regulation
- Deal with required adjustments in the labour agreement
- Application procedure for work and/or resident permits
- Dealing with registration formalities
- Dealing with expatriate tax compliance matters, such as filing the annual income tax return, checking assessments, etc.
Please feel free to contact us via e-mail or call us at our office in Amsterdam at + 31 (20) 5709440 or our office in Rotterdam at +31 (10) 2010466 for more information.
We will make time for you!