Netherlands - 30% ruling explained

You might have heard of the 30% ruling available to expatriate employees who moved/are moving to the Netherlands and want to benefit from it.

The below article briefly explains everything you need to know about the Netherlands’ 30% ruling.

What is the Dutch 30% ruling?

The 30% ruling (or the 30% facility) is a Dutch tax advantage for highly skilled employees who are hired from abroad to work in the Netherlands in a specific employment role and can be considered a tax-free allowance as a compensation for the expenses that an expatriate incurred by working outside their country or origin.

Employers can grant a 30% tax-free allowance of an employee’s gross salary (subject to Dutch payroll tax); however, various conditions must be met to benefit from it (see below)

How does it work?

From a tax perspective, the salary agreed between the employee and employer may be reduced by 30%. In return, the employee should receive a 30% tax reduction. This is the most applied common way as it does not influence the salary burden for the employer. In effect, it is equivalent to having a maximum tax rate of approximately 36.2%.

As of 1 January 2021, employees applying for the 30% ruling should receive the benefit for 5 years.

Examples: 

1. Your original salary is €40,000: reducing it by 30% would take it down to €28,000. This would take you below the minimum threshold, so you would only be able to receive a reimbursement that would take your salary down to the threshold (which is currently €1,653 on a €40,000 salary). You would still benefit from the 30% ruling but not to the full amount.

2. Your salary is €55,000: this could be split between €38,500 base salary and €16,500 as a reimbursement because your reduced salary is above the current threshold. This means that you can enjoy the full benefit of the 30% ruling.

Conditions to meet to be eligible 

• the employer is registered with the Dutch Tax Office and pays Dutch payroll tax
• both employer and employee have to agree in writing that the ruling is applicable
• the employee has to be transferred/recruited from abroad
• the employee did not reside within 150km (93miles) from the Dutch border for the last 18 out of 24 months at the time of hiring.
• the employee’s salary meets the minimum threshold (€38,961 in 2021 or €29,616 if the employee completed a Master's degree and is younger than 30 years old)
• the employee should have skills or expertise that are scarce in the Dutch job market

Benefits of the 30% ruling in the Netherlands

~ Partial non-resident status

You can opt for partial non-residency status. This means that, even while residing in the Netherlands, you will be considered to be a non-resident taxpayer in “box 2” and “box 3” on the Dutch tax return form. However, you will still be considered a resident for “box 1” income.

Non-residents don’t have to pay income tax on “box 2” and “3” income (real estate and substantial shareholding exceptions apply). You will also be entitled to the partnership ruling in “box 1”.

~ Driving license

If you have a foreign driving license, in most cases you have to redo your test in order to obtain a Dutch driving license. However, if you benefit from the 30% ruling, it is possible to exchange your foreign driving license for a Dutch license without retaking the test. This also applies to all family members registered at the same address as the holder of the 30% ruling.

~ Retrospective claiming

The Dutch 30% ruling will become effective in retrospect if the application is submitted within four months after the first day of employment. If the application is submitted after four months, it will become effective as of the first day of the month following the month of application.

~ Changing jobs

If you change jobs, you can reapply for the ruling, provided that you still meet the conditions, and your new employment contract is signed within three months after termination of the previous.

How to apply for the Dutch 30% ruling?

As previously mentioned, the application for the ruling in the Netherlands needs to be made jointly by both employer and employee. This can be done by completing the application form or calling the tax information line for an information pack (+31 555 385 385)

You will need to provide the following documents/information:

• Copy of your passport or a valid photo ID
• Copy of your Dutch employment contract or offer letter from your employer
• your BSN (Burgerservicenummer) number, if you have it
• Dutch residence and Dutch work permits (if applicable)
• Details of your Dutch address
• Proof of residence in another country before being hired
• Company details including company tax number
• Written agreement clearly stating that both parties have consented to the application for the ruling

Notes:

The employer is not obliged to pass on the advantage of the 30% rule to the employee. In practice, it is possible for the employer to partially or fully take the benefit. This usually only happens when employees are unaware of the 30% ruling benefits. Therefore, it is a good idea to discuss this issue with any potential employers before taking up the post.

Lowering the taxable income will most likely have implications for your potential unemployment or disability benefits, since these benefits are based on your taxable salary. This is one of the reasons why the application for the Netherlands 30% ruling has to be done by both employer and employee and an agreement in writing is necessary.