Further reductions of the 30%-ruling in the making
In the night of October 26 to 27, 2023, the Dutch House of Representatives agreed to
a reduction in the 30% ruling. If this plan is adopted by the Dutch Senate as well (they
will decide in December), a graduated scheme will apply to newly granted 30%-rulings
as of 1 January 2024, with the following content:
• In the first period of 20 months, 30% of the taxable salary may be reimbursed
tax-free (according to and in accordance with the current system);
• In the second period of 20 months, there will be a reduction as not 30% but
only 20% of the salary remains tax free; and
• In the third and final period of 20 months, the tax-free reimbursement will be
limited to only 10% of the salary.
There is (at present) no reduction foreseen in the duration of the scheme, which would
thus remain unchanged at 5 years (60 months). Employees that use the 30%-ruling in
December 2023 are exempted from the amendment. As a result they remain entitled
to a tax free allowance of 30% during the entire application period of the ruling.
Partial non-resident tax treatment abolished
The proposals adopted by the House of Representatives furthermore provides for the
abolition of the option under the current 30% scheme for the Dutch resident expat to
opt for treatment as a partial non-resident taxpayer for income tax purposes with effect
from 1 January 2025.
Under the current scheme, the income tax basis of the expat living in the Netherlands
is limited to taxation on his/her effective worldwide income in Box 1, the income from
a Dutch substantial interest (Box 2) and Dutch real estate or related rights (Box 3).
Bank accounts, investments and foreign real estate remain, at present, exempt from
taxation.
By abolishing this option, expats living in the Netherlands will therefore be confronted
with a higher tax base than before 2025 as now also personal income tax will be due
on all savings and investments and foreign assets. However, in the situation in which
a tax equalization or a net salary has been agreed with the expat, it is not the employee
but the employer who will be confronted with higher wage costs as a result.
For existing 30% schemes (this is expected to concern all schemes that have been
granted and will be applied no later than the last salary run of 2023), transitional law
appears to be provided for this optional scheme to remain applicable up to and
including the tax year 2026.
The difference in transitional law in both proposed measures is striking to say the
least and will most likely give rise to several legal proceedings, especially because
it is politically difficult to maintain that a careful weighing of interests has taken
place when determining the length of the transitional law. This is especially true
as the underlying decision-making took place in a very short time.
Next steps
The above-mentioned reduction in the 30% scheme must, as indicated, still be approved by the
Dutch Senate. It is therefore currently unclear whether both proposals will actually be implemented
in their current form.
However, if you as an employer are planning to hire a new employee who wants to make use of the
30% ruling with effect from January 1, 2024, we advise you to consider whether this appointment
can perhaps be brought forward so that this employment can start before December 31, 2023.
Furthermore, it seems important to verify during 2024 what consequences the abolition of the choice
for partial non residency will have for both you as an employer and your expats, so that the expats
in question can also be advised in a timely manner about the consequences and how they must file
their Dutch personal income tax returns as of 2025 or 2027.
a reduction in the 30% ruling. If this plan is adopted by the Dutch Senate as well (they
will decide in December), a graduated scheme will apply to newly granted 30%-rulings
as of 1 January 2024, with the following content:
• In the first period of 20 months, 30% of the taxable salary may be reimbursed
tax-free (according to and in accordance with the current system);
• In the second period of 20 months, there will be a reduction as not 30% but
only 20% of the salary remains tax free; and
• In the third and final period of 20 months, the tax-free reimbursement will be
limited to only 10% of the salary.
There is (at present) no reduction foreseen in the duration of the scheme, which would
thus remain unchanged at 5 years (60 months). Employees that use the 30%-ruling in
December 2023 are exempted from the amendment. As a result they remain entitled
to a tax free allowance of 30% during the entire application period of the ruling.
Partial non-resident tax treatment abolished
The proposals adopted by the House of Representatives furthermore provides for the
abolition of the option under the current 30% scheme for the Dutch resident expat to
opt for treatment as a partial non-resident taxpayer for income tax purposes with effect
from 1 January 2025.
Under the current scheme, the income tax basis of the expat living in the Netherlands
is limited to taxation on his/her effective worldwide income in Box 1, the income from
a Dutch substantial interest (Box 2) and Dutch real estate or related rights (Box 3).
Bank accounts, investments and foreign real estate remain, at present, exempt from
taxation.
By abolishing this option, expats living in the Netherlands will therefore be confronted
with a higher tax base than before 2025 as now also personal income tax will be due
on all savings and investments and foreign assets. However, in the situation in which
a tax equalization or a net salary has been agreed with the expat, it is not the employee
but the employer who will be confronted with higher wage costs as a result.
For existing 30% schemes (this is expected to concern all schemes that have been
granted and will be applied no later than the last salary run of 2023), transitional law
appears to be provided for this optional scheme to remain applicable up to and
including the tax year 2026.
The difference in transitional law in both proposed measures is striking to say the
least and will most likely give rise to several legal proceedings, especially because
it is politically difficult to maintain that a careful weighing of interests has taken
place when determining the length of the transitional law. This is especially true
as the underlying decision-making took place in a very short time.
Next steps
The above-mentioned reduction in the 30% scheme must, as indicated, still be approved by the
Dutch Senate. It is therefore currently unclear whether both proposals will actually be implemented
in their current form.
However, if you as an employer are planning to hire a new employee who wants to make use of the
30% ruling with effect from January 1, 2024, we advise you to consider whether this appointment
can perhaps be brought forward so that this employment can start before December 31, 2023.
Furthermore, it seems important to verify during 2024 what consequences the abolition of the choice
for partial non residency will have for both you as an employer and your expats, so that the expats
in question can also be advised in a timely manner about the consequences and how they must file
their Dutch personal income tax returns as of 2025 or 2027.