Taxes in the Netherlands - Part 4

This is the fourth article in our series of articles on taxation in the Netherlands. This article lists the changes made to the 30% ruling on January 1, 2012, and discusses the risks of the 30% rule and what happens when it expires.

30% rule
Employees who come to the Netherlands may under certain conditions receive a tax free allowance for extraterritorial expenses or receive 30% of their wages tax-free. The 30% rule is for incoming employees with a specific expertise that is scarce or absent in the Dutch labor market.

As from January 1, 2012 the following points of the 30% rule have been tightened:
› how expertise is classified as "specific" and / or "scarce"
› period over which the 30% rule can be used
› the definition of "registered employee"
› PhD students

Specific expertise
From January 1, 2012, the following employees are considered to possess specific expertise:

› An employee who receives a taxable salary of more than 35.000 euros

› An employee who has obtained a master’s degree at an institution of scientific research, is younger than 30 years old and receives a taxable salary of more than 26.605 euros

› An employee who works in the Netherlands as a doctor in specialist training at an educational institution as designated by the Medical Specialists Registration Committee, the Social Medical Registration Committee or the General Practice and Nursing Home Registration Committee

› An employee who in the course of scientific research or scientific education in the Netherlands is employed by a qualified research institution.

The salary criterion also applies to employees who are employed part time. In this case the wage tax is not time-proportionally adjusted. A time-proportionate adjustment only takes place in the case of maternity or parental leave.

Scarcity
Besides the specific expertise criteria, attention should also be paid to the scarcity criterion. In assessing eligibility this criterion looks at the education, experience and pay level of candidates.

Period over which the 30% rule can be applied
As of January 1, 2012, the maximum duration of the ruling is shortened to 8 years. This adjustment does not apply to employees who have already been granted the 30% rule before January 1, 2012. The maximum duration of 8 years only applies to new cases.

The maximum duration of 8 years is shortened by any prior periods of residence or employment in the Netherlands within the last 25 years.

Definition of "registered employee'"
The 30% rule for employees who come to the Netherlands from January 1, 2012 onwards applies only to employees who lived at least 150 kilometres from the Dutch border before they commenced work.

PhD
Foreigners who have completed their doctorates at a Dutch university and commence employment within one year of completing their studies can be regarded as incoming employees. If the other conditions are met the 30% rule can be applied. It is important that the candidate lived beyond a radius of 150 kilometres from the Dutch border before the start of their training to obtain their title.

Transitional rules
Employees who were already working under the 30% rule on December 31, 2011 could be affected by the changes to the 30% rule on January 1, 2012. It is therefore important to see if the amended rules also affect existing situations.

For existing transitional situations, there are two situations possible:
› On January 1, 2012 an employee has had the 30% rule for less than five years. In this case, after the fifth year the employee will be tested whether they meet the new conditions.

› On January 1, 2012 an employee has had the 30% rule for five years or longer. In this case, the previous conditions of the 30% rule apply.

30% ruling expires or not applicable
If the 30% rule expires, you cannot reapply for it if the employee does not fulfill the conditions of the 30% scheme. In that case the employer can reimburse the employee for the actual extraterritorial costs. It needs to be proven that these expenses are actually paid for by the employee before the employer can reimburse them free of tax (by use of receipts).

Extraterritorial cost can be defined as costs associated with temporary employment in the Netherlands. For instance extraterritorial costs include: cost of living allowances, cost for visa, home search trip, and storage of furniture which remains in the employee’s homeland.

Nico Koppel is an Expat Service Provider, who specialises in tax advice & accountancy. For more information, please comment below or visit Koppel Tax Consultants.