Doing business in The Netherlands - Expatriate incentive - the 30 percent regulation

The purposes of this special regime - known as the 30% regulation - is to attract employees who are recruited from foreign countries and who have special skills or expertise which is not available or scarce on the Dutch labour market.

When the 30% regulation applies the employee is entitled to a tax free cost reimbursement of 30% of the salary (with some technical adjustments). The employee is then in essence no longer entitled to separate tax free reimbursement of expenses in relation to the assignment to The Netherlands.

The employer and the employee must include the entitlement of the employee to the tax free 30% allowance in the employment agreement or letter of assignment of the employee.

2. Application procedure

The employer and the incoming expatriate should file a mutual request for application of the 30% tax ruling with the appropriate inspectorate of taxes.

It is recommended to file the request for the 30% tax ruling within four months after the employee started its job in The Netherlands because only then the 30% ruling has retroactive effect. If filed later, the 30% ruling (when granted) will apply per the first month after the month in which the request has been filed.

The most important condition to qualify for the 30% tax ruling is that the employee should have specific skills, knowledge and (at least two and a half year) working experience which is not available or scarce on the Dutch labor market what made the employer to decide to recruit the employee from abroad.

Relevant in this respect are the nature and level of education, work experience and historical background within the group (in case of group assignment). Also the amount of the salary is relevant; how higher the salary, the more convincing the special skills and know how of the employee will be.

The employer should be an entity which has the legal obligation to withhold payroll taxes from the employee's salary. The employer can be either

   - a Dutch company to where the employee is assigned or 

   - a foreign company with a Dutch permanent establishment to where the employee is assigned or 

   - a foreign company, with no permanent establishment in The Netherlands, but which had itself appointed as a Dutch wage tax withholding agent.

The 30% tax ruling can in essence also apply to independent contractors who work out of their own company.

The granted 30% tax ruling is valid for a period of 60 months, which could be extended by another 60 months, in total therefore a maximum period of 120 months. This period may be reduced if in the previous ten years the employee had been employed earlier in The Netherlands or resided in The Netherlands.

A person residing in The Netherlands for a longer period will normally be subject to Dutch tax on its worldwide income as a Dutch tax resident. A seconded employee residing in The Netherlands can however elect to be treated as non-resident taxpayer for the entire duration of the 30% tax ruling.

As a non-resident, the employee will in general only be taxed in The Netherlands for income from certain Dutch sources, like Dutch real estate. Consequently, income from foreign source, like foreign shareholdings, savings and investments, will in general not be subject to tax in The Netherlands.

The fictitious non residence status does not apply to employment income i.e. the employee will in essence be taxed for the (worldwide) employment income.

If the fictitious non-resident status applies certain personal tax deductions, tax credits and allowances cannot be claimed in The Netherlands. For instance a Dutch resident who opted for a treatment as non-resident cannot claim back dividend withholding tax or settle this dividend withholding tax with Dutch income tax due (tax credit).

Except for nationals from other European Union (EU) countries and nationals from countries participating in the European Economic Area (EEA), any foreign employee seconded to The Netherlands is required to have a work permit and a residence permit. For employees out of new EU-member states (who enter the EU in 2004), special rules may apply.

When certain conditions are complied to, the expatriate employee can, during his employment in The Netherlands, continue to donate to a foreign pension plan which provides the employee (and the surviving relatives) of an income after the retirement. There are various conditions to be met, but the foreign pension plan must in any case be executed by an authorized insurance company which is supervised by a special authorized institution of the relevant foreign country.

When assigned to The Netherlands, the employee will in essence become subject to Dutch social insurances. However employees, who stem from other EU member states or countries with which The Netherlands has concluded a social insurance treaty, may be able to opt for exemption from the Dutch social insurances because they stay insured in their home country. This exemption will require an application.

As from the year of arrival in The Netherlands, the employee must file a Dutch income tax return. In the first and the last year this is a special tax return in which certain elements of the immigration or emigration are being dealt with.