30% tax ruling for expats in the Netherlands: A 2015 update

J.C. Suurmond & zn. are Dutch tax consultants with an international perspective, serving expats in the Netherlands since 1986.

In the Netherlands the expertise of internationals is greatly appreciated and welcomed. The Dutch government has therefore developed an attractive tax climate for expatriates.

The 30% tax ruling

One of the tax incentives for expats is the 30% ruling, meaning 30% of your wage is tax free, which was set up to compensate extraterritorial costs that expats usually need to cover when working in a different country.

These extraterritorial costs include expenses for travelling and housing, specialised tax advice, storage, language courses, long distance phone calls and medical examinations.

Besides leaving 30% of your salary untaxed, the ruling has several other advantages, such as an exemption from tax on income from savings and investments and, more practically, the possibility to transfer a non-EU driver’s license to a Dutch one.

Eligibility

The 30% ruling is, basically, granted only to expats who are recruited from abroad because of scarce skills or specialised expertise. To secure this system the Dutch tax authorities set specific conditions and requirements.

To ensure success, applcations for this tax break must be well-prepared and presented. Over the course of the last decades, the 30% ruling (which was originally set at 35%) has become somewhat limited in its scope. The last time the legislation was thoroughly revised was in 2012.

2012 changes

From January 1, 2012, the ruling is granted for a maximum period of eight years, instead of 10 years. Additionally, expats only qualify if they resided further than 150 kilometres away from the Dutch border for more than 16 months prior to their Dutch employment.

Another main alteration relates to the specific knowledge criterion, which now, practically speaking, has been transformed into solely a salary criterion.

The requirement that you must have lived abroad for 16 months raises a lot of questions: What if you worked in a previous job where the 30% ruling applied? What if you were travelling and your center of life was not well-defined?

Answers to such questions are sometimes hard to find and in such cases qualified tax advice is often required.

However there is one welcome change: special rules now help younger people with a master’s degree, or who receive their PhD in the Netherlands, qualify more easily for the ruling.

The 150 kilometre rule

The aim of the 2012 changes was to better "direct" the ruling, for example, to rule out persons living just over the Dutch border.

Actually, 150 km is not exactly the border area as it covers the whole of Belgium, Luxemburg, a large part of Germany, the North of France and last but not least, a small part of South East England.

In some cases the 150 km rule can be very abrupt: if an expat lived 149 km from the Dutch border prior to his/her Dutch employment, strictly speaking they are not eligible for the 30% ruling. Whereas someone who lived 151 km away would still qualify.

It can happen that the actual moving distance is much more than 150 km, and yet the expat does not qualify for the ruling. For example, an expat living in Brussels moves to Groningen (more than 300 km away) for his employment. Unfortunately, Brussels is within the 150 km range of the Dutch border, so the ruling would not apply.

In several situations this has seemed unfair and court cases have been started. None of these cases has been completely finalised yet, however, the first signs point to a negative decision.

Salary criterion in 2015

The salary criterion seems simple. In 2015 the qualifying salary is 36.705 euros or more. This is, however, the taxable salary after the 30% ruling has been applied.

Let’s make this clear with an example of an expat with a gross salary of 45.000 euros. At first glance the expat qualifies. However, the gross taxable salary cannot be lower than 36.705 euros.

To reach the qualifying salary of 36.705 in this situation, only 8.295 euros (or 18%) can be deducted from the gross salary, and not the full 30%, which would have been 13.500 euros.

If the employer deducted the full 30%, or 13.500 euros, the taxable salary would be 31.500 euros, meaning this expat would not qualify for the 30% ruling.

In other words, the minimum required gross salary for 2015 is 52.436 euros.

In situations such as this, if the expat has already accepted the employment and applied the ruling, the tax authorities can completely withdraw the 30% decision and request retroactive repayment of the tax advantage.

It is therefore very important that the employer or payroll agency applies the 30% ruling correctly.

In many cases employers have their own staff or a larger external company to deal with these applications. It is good to know though, that in case of doubt, or when the application is declined, you can seek advice or a second opinion from an expat tax advisor specialised in the 30% ruling.

A useful tip on maintaining the ruling

Sometimes expats have qualified for the 30% ruling and have worked in the Netherlands for some time until, for one reason or another, the employment is terminated after one or two years.

If an expat remains unemployed in this situation for longer than three months, the 30% ruling cannot apply anymore in the next Dutch employment, and the further potential six or seven years of elegibility are also lost.

So if your job with the 30% ruling stops for whatever reason then make sure you are not unemployed for more than three months!

Lennart Suurmond is a tax advisor at J.C. Suurmond & zn, providing tax solutions for expatriates and businesses.

Need advice on the 30% ruling or other tax issues? Contact J.C. Suurmond & zn whose specialised consultants will be glad to help!