Netherlands Amends '30 Percent Ruling,' Gradually Reducing Maximum Tax-Free Reimbursem*nt Of Extraterritorial Costs - Employee Benefits & Compensation - Netherlands (2024)

In December 2023, the Dutch Senate amended a taxprovision that allows eligible expatriate employees to receive atax-free reimbursem*nt of extraterritorial costs by tapering thebenefit over a five-year period.

Quick Hits

• In December 2023, the Dutch Senate approved amendments to theNetherlands' 30 percent ruling, a tax provision that allowseligible employees to receive tax-free reimbursem*nt ofextraterritorial costs.
• The recently passed amendments will create a tapering of the 30percent ruling benefit, so that the benefit is 30 percent in thefirst twenty months, 20 percent in the second twenty months, and 10percent in the final twenty months of applicability.
• A transitional law also passed with the amendments will allowthose employees who received the 30 percent ruling benefit in 2023to continue to receive the full benefit of the ruling for theapplicable five-year period.

How Does the 30 Percent Ruling Work?

Under the Netherlands' 30 percent ruling, eligible highlyskilled foreign employees can receive 30 percent of their agreedtotal compensation tax-free to the extent that 30 percent of theirsalaries is provided as compensation for the expenses they incur byworking outside their home countries (e.g., housing allowances andchild education allowances).

The 30 percent ruling applies only to the extent that anemployee's remaining salary does not fall below the minimumrequired applicable taxable salary as referred to in Article 10ebof the 1965 Wage Tax Implementation Decree (currently€41,954). This is the salary required to qualify for the 30percent ruling in the first place. As a result, if reducing thesalary by 30 percent would place the salary below the minimumthreshold, it will instead only be reduced by an amount so that theminimum threshold is maintained.

The 30 percent ruling was originally available to expats foreight years; however, the period was reduced to five years in 2019.In December 2023, further amendments were made to reduce thebenefit even more.

Who Qualifies for the 30 Percent Ruling?

Not all highly skilled foreign employees qualify for the 30percent ruling. In order to be eligible, an employee must:

• be transferred or recruited from abroad;
• work for an employer registered with the Dutch tax office andpaying Dutch payroll tax;
• have agreed with the employer, in writing, that the ruling isapplicable (this is usually done via a 30 percent Ruling Amendmentto the Employment Agreement);
• not reside within 150 kilometres from the Dutch border for thelast eighteen out of twenty-four months at the time of hiring;
• have a salary that meets the minimum requirements (currently€41,954); and
• have expertise that is scarcely available in theNetherlands.

What Is Changing About the 30 Percent Ruling?

Under the new amendments recently approved by the Dutch Senate,and effective January 1, 2024, the current tax-free allowance willchange to a 30/20/10 percent ruling. This means that the 30 percentruling is revised so that the 30 percent tax-free allowance isapplicable for only the first twenty months; the allowance willthen drop to 20 percent for the second twenty months and 10 percentfor the final twenty months.

What Are the Transitional Rules?

A transitional law has also been put in place for those who havehad the 30 percent ruling applied before January 1, 2024. Thetransitional law allows those employees who were alreadybenefitting from the 30 percent ruling to continue to do so for theentire sixty-month period, as long as they started working in theNetherlands in 2023 and the 30 percent rule was already lawfullyapplied for their wages no later than the final salary period of2023.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.

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