In a recent (15 October 2018) update of the Tax Plan 2019, the Dutch government has reconfirmed its intent to reduce the duration of the 30%-ruling from eight to five years as of 1 January 2019, but contrary to the initial proposal a transition period of two years is proposed. Only for existing 30%-rulings that would end in 2019 or 2020 on the basis of the reduced term of 5 years, the transition period will apply.
The 30%-ruling is a special facility for employees who are hired or assigned from abroad to work in the Netherlands and who have specific skills that are scarcely available on the Dutch labor market. The biggest advantage of the ruling is that max. 30% of the wage may be reimbursed free of tax to the employee. The 30%-ruling intends to cover the extraterritorial costs made in relation to the assignment. Another advantage is that the employee may opt to be treated as a partial non-resident taxpayer in the personal income tax return, meaning that only specific Dutch sources are subject to tax in box 2 and 3.
The reduced duration will be applicable to existing cases and all new cases. Where under the initial proposal, expats who have been granted the 30%-ruling five years prior to 1 January 2019 would immediately lose the 30%-ruling when the new legislation enters into force per January 2019 (and expats that have been granted the 30%-ruling during 2014, the ruling would be terminated during 2019 (and so on), a transition period is now proposed for 2019 and 2020. They will still lose the benefit of the 30%-ruling, but not until 1 January 2021.
Once a 30%-ruling does not apply anymore, depending on the specific employment agreement, either the employee will have lower net income or the employer higher employment costs for this expat. Moreover, the end of the 30% ruling may also impact the overall personal income tax situation of an expat as at such time they will also no longer be able to opt to be taxed as “partial non-resident taxpayer” in the Dutch personal income tax return. This leads to expats reporting their worldwide savings and investments in their Dutch income tax return after 5 years of having the 30%-ruling. Under Dutch income tax rules, income tax will be due on a deemed return on investment on the net asset value, such as bank and savings accounts and investments.
The reduced duration of the 30%-ruling to 5 years similarly applies to the term that an employer is permitted to reimburse the actual extraterritorial costs incurred.
We are available to assist employers in drafting or reviewing employment agreements specific to international assignments, applying for 30%-rulings, assist in designing or reviewing compensation packages and services for the employees such as advice on the personal income tax situation.
Should you have any questions, please feel free to contact us. You can contact us via e-mail or call us at our office in Amsterdam at +20 570 9440 or our office in Rotterdam at +31 10 201 0466.