Further reduction of the 30% ruling
Employees recruited from abroad or sent to the Netherlands to work, can qualify for the so-called 30% ruling. This scheme allows for a tax-free reimbursement of a fixed amount for extraterritorial costs (ET costs) that these employees are deemed to incur, without the need to substantiate the actual expenses. This arrangement has a maximum duration of 5 years.
Further reduction
Recently, the Dutch Lower House of Parliament adopted the Tax Plan 2024. The Tax Plan still needs to be approved by the Senate. The Tax Plan includes a further reduction of the 30% ruling. From January 1, 2024, for the first 20 months of its duration, a maximum of 30% of the salary can be reimbursed tax-free. In the following 20 months, this will be a maximum of 20%, and during the last 20 months, it will be a maximum of 10%.
For a 30% ruling with a duration shorter than 60 months, the same percentages and periods apply. The 30% ruling ends when the duration of the ruling expires.
Transitional arrangement
A transitional arrangement applies to foreign employees who received a reimbursement in the last month of 2023 for which they held a 30% ruling. These employees retain the right to receive a tax-free reimbursement of up to 30% of the taxable salary for a maximum of 60 months. Further clarification is expected regarding the transitional arrangement.
Abolition of partial foreign tax liability
An employee subject to the 30% ruling can opt for partial foreign tax liability in their income tax return. In this case, the employee is considered a foreign taxpayer for Box 2 and Box 3. The legislative proposal approved by the Lower House also abolishes partial foreign tax liability from 2025. A transitional arrangement also applies here. Employees already utilizing this scheme by December 31, 2023, can continue to do so until December 31, 2026.
Capping of the 30% ruling
The Tax Plan 2023 already announced that from 2024, the application of the 30% ruling would be limited to the WNT norm (the Balkenende standard). The WNT norm amounts to € 233,000 in 2024 and is indexed annually. For the part of the salary exceeding this norm, the 30% ruling cannot be applied from January 1, 2024. A transitional arrangement also applies here. For employees whose salary was subject to the 30% ruling in December 2022, the cap will not apply until January 1, 2026.
Choice to reimburse ET costs
It remains possible to reimburse the actual extraterritorial costs incurred. Reimbursing the actual extraterritorial costs can be beneficial in cases where the incurred ET costs are higher than the application of the 30% ruling. This choice is made for an entire calendar year.
Additionally, the possibility to continue reimbursing international school fees tax-free in addition to the 30% reimbursement remains for employees.
Actions for employers
- By applying the 30% ruling for eligible employees in December 2023, you prevent the employee from falling under the new regulation. CROP can identify which employees this might be possible for and provide further advice on key points.
- Given the reduction of the 30% ruling, it is sensible to assess whether reimbursing actual extraterritorial costs is more attractive than applying the 30% ruling. If the actual ET costs incurred are higher than the tax-free reimbursement based on the reduced 30% to 10% ruling, the compensation based on actual ET costs can be chosen – per calendar year.
The salary requirements for the 30% ruling are increased annually. It is expected that there will also be an increase in 2024. Therefore, even for employees already using the 30% ruling – and who are not affected by the recent changes to the 30% ruling – the benefit enjoyed in respect of the 30% ruling could be further limited. CROP can map out the impact of this.
