The consequences of the proposed 30% ruling changes

The Dutch parliament recently announced a new proposal regarding the Dutch wage tax law. The proposal includes a change in the current 30% ruling. The 30% ruling will be altered into a 27% ruling as of January 1, 2027. In this article, BDO provides insight into the fiscal consequences of the new rule.

The 30% ruling

The 30% ruling is a tax facility meant for employees who are recruited from outside of the Netherlands to work in the Netherlands (and are subject to Dutch wage tax). When the employee meets the below mentioned criteria, the employee can receive a maximum of 30% of their remuneration as a tax-free allowance. This is supposed to compensate extraterritorial costs. Extraterritorial costs are the costs that an employee may incur by working in a different country.

An employee can apply for the 30% ruling when:

• The expat is recruited outside of the Netherlands.
• The expat has a specific expertise that is not (or hardly) found on the Dutch labour market and meets the salary criteria.
• Their previous place of residence(s) is at least 150 kilometres from the Dutch border for more than 16 out of the last 24 months before the first working day in the Netherlands.

Announced proposal

On September 17, 2024, the Dutch government published their Budget Day proposals for 2025, which includes a revision to the 30% ruling. The proposal calls for a decrease of the percentage of remuneration. From January 1, 2027, the government aims to transform the existing ruling into a 27% ruling. This means that the maximum 30% tax-free allowance will change into a maximum 27% tax-free allowance.

Next to the decrease in the tax-free allowance, the salary criterium will be increased. For 2024, the minimum (taxable) salary should be 46.660 euros for employees older than 30 years old. From 2027, the minimum (taxable) salary will be 50.436 euros (plus the indexation for 2024, 2025 and 2026). This means that the employee has to have a salary higher than this in order to benefit from the 30% ruling (or, from 2027, the 27% ruling).

Transitional law

The decrease in the 30% ruling will take place from January 1, 2027. There is still over two years left to plan ahead. For employees who made use of the 30% ruling before January 2024 (in 2023), in principle nothing will change. They will still benefit from the 30% ruling until the end of the granted period (if they meet the annual salary criterium, of course).

For any employee that utilises the 30% ruling after January 1, 2024, it means that they will be able to make use of the 30% ruling until the end of 2026. From 2027, it will change to 27% and the higher salary criterium will apply.

Partial non-resident

As mentioned in the tax plan of last year, the partial non-residence status for an employee with the 30% ruling will end on December 31, 2024. For an employee for whom the 30% ruling is applicable, there is an option to choose to be treated as a partial non-resident taxpayer for Dutch income tax. In short, this means that the employee is a tax resident for box 1 of the income tax but will be treated as a non-resident for the income of box 2 (income from substantial interest) and box 3 (income from savings and investments).

However, from 2025, this will no longer be possible. The partial non-resident taxation scheme will be abolished. However, there will be a transition period for people currently making use of the scheme. Employees who make use of the 30% ruling in 2023 can still opt for the partial non-resident status in the years 2025 and 2026. From 2027, nobody can opt for this status any more.

Significant tax consequences

The proposed changes regarding the 30% ruling may have significant tax consequences for employees working in the Netherlands with a 30% ruling. The decrease in the tax-free allowance from 30% to 27% and the increase of the salary criterium by 2027 may lead to a decrease in net income for affected individuals. However, there is a transitional law in place that allows those who benefit from the 30% ruling before 2024 to continue doing so until the end of their granted period.

The abolishment of the partial non-resident taxation scheme by 2025 (or if the transitional law will apply by 2027) may result in additional tax liabilities for some expats. In case you would like to know more about the effect on your position or your employees’ positions, you can contact BDO to find out whether your tax position will change.