Dutch Expatriate Incentive: the 30%-regulation

The purpose of this regime - known as the 30%-regulation - is to attract employees recruited from foreign countries with special skills or expertise not or scarcely available in the Dutch labor market.

When the 30%-regulation applies, the employee receives 30% of the taxable salary (with some technical adjustments) as a tax-free cost reimbursement; the employee is no longer entitled to separate tax-free reimbursements of expenses about the assignment to the Netherlands and related expenses resulting from the employee no longer working or living in their home country, are extraterritorial expenses. 

In the Netherlands, employment income is taxable at progressive rates. The top rate is 49.5% (2023), and the Dutch government offers the 30%-regulation as an incentive to attract foreign experts to the Netherlands by creating a favorable expatriate tax regime for employees. With the 30% regulation, the employee is effectively taxed on 70% of his (or her) earned income, reducing the effective top tax rate to 34.65% (70% * 49.5%). 

The employer and the employee must include the employee's eligibility for the tax-free 30% allowance in the employment agreement or letter of assignment of the employee or include a separate addendum to the employment contract or assignment contract. The employee and employer should jointly apply for the 30% ruling. 

Below is more information on the following subjects: 

Main features of the 30%-regulation

The main features of the 30%-regulation are:

1. The employer is allowed to pay a tax-free allowance for expatriate costs as long as it does not exceed 30% of the total of the employee's fixed and variable employment income and the allowances/provisions for expatriate costs itself;
2. The employer is allowed to pay the employee a tax-free reimbursement of qualifying school fees relating to the education of the employee's child(ren) at a qualifying international school;
3. If the employee resides in the Netherlands, the employee can opt to be a 'partial non-residential taxpayer' for income other than income from employment. 

The 30% tax-free allowance

The Dutch tax regime for working in employment is rigid about reducing expenses; Employment costs do not constitute a tax-deductible item for the employee. The employer can decide to compensate the employee for certain expenses tax-free within certain limitations, such as the commuting allowance is supposed to cover the costs of a (daily) commute from home to the office and the traveling & lodging allowance.  

The law also offers the possibility for a general cost allowance to the extent that the employer has evidence that the employee makes expenses up to the stated amount. It is common, especially for major employers, to conclude an advance ruling with the Dutch tax office on the amounts of general cost allowances.

For incoming employees hired from abroad to work in the Netherlands, or are (temporarily) assigned by a foreign employer to work in the Netherlands, or outbound employees (temporarily) working abroad in specific countries for a Dutch employer, a special rule applies about the compensation of expenses. When the employee meets the conditions, the employer compensates 30% of the employee's taxable salary as a "tax-free cost allowance." To incoming employees, this regime is referred to as the 30%-regulation.     

The notable feature of this regime is that the employer is not obliged to substantiate the amount of expenses made by the employee.

In general, the tax-free 30%-allowance will disqualify the employee from receiving a tax-free cost compensation of actual costs relating to the employment or assignment in the Netherlands, the actual incurred extraterritorial costs, but the employee may still be entitled to receive other tax-free allowances such as the commuting allowance or the tax-free compensation of travel and stay expenses on a business trip. 

School fees

The actual cost of attendance at an international primary or secondary school, reimbursed by the employer, will not qualify as taxable employment income, provided that these are limited to tuition fees and eventual transport arranged by the school. The International school's fee compensation may be tax-free on top of the 30% allowance. 

A Dutch school with an 'international stream' may also qualify as an international school in case the school is available for children of employees working outside their home country. 

Please note that any school fees paid by employees are not tax deductible.

Option for partial non-residency status

A person residing in the Netherlands for a long(er) period will qualify as a Dutch tax resident and be subject to Dutch tax on their worldwide income.

However, a resident taxpayer of the Netherlands who obtained the 30% ruling can opt to be considered a partial non-resident taxpayer of the Netherlands.

The term 'partial' means the employee is treated as a non-resident taxpayer for Box 2 (income from significant shares) and Box 3 (income from savings and investments) income but still as a resident taxpayer for Box 1 (worldwide income from employment, sole proprietorship, and the own primary residence).

As a result, the employee is taxable for the worldwide income in Box 1 and eligible for all general and personal allowances and tax credits in connection with Box 1 but will only be taxable for particular Dutch sources of income in Box 2 and Box 3. This includes income from substantial shares in a Dutch resident B.V. and real estate in the Netherlands. Other investment income, such as bank accounts and shares, are excluded. 

U.S. citizens fall under a separate rule. A U.S. citizen opting to be treated as a partial non-resident will be considered a U.S. resident and a non-resident of the Netherlands to the double tax treaty between the U.S. and the Netherlands. The U.S. citizen is a non-resident taxpayer for their income from Box 1.

If the partial non-resident status applies to personal tax, tax credits, and allowances cannot be claimed in the Netherlands. For example, a Dutch resident who opted for a non-residency cannot claim or settle dividend withholding tax with Dutch income tax due (tax credit).

Application procedure

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

It is recommended to file the 30 %-regulation within four (4) months of the employee starting their job in the Netherlands, the only time the 30%-regulation has a retroactive effect. If filed later, the (granted) 30%-regulation will apply on the first day of the following month after the month in which the request has been filed.

Conditions to be met for obtaining the 30% - regulation

Inbound employees
Generally, the 30% ruling is available for employees assigned to the Netherlands or recruited from abroad to work in the Netherlands. Employees living outside 150 kilometers from the Dutch borders during at least 2/3 of the twenty-four (24) months before employment in the Netherlands can obtain the 30%-regulation (no exceptions).

Employment relationship with a withholding agent
An individual can only obtain the 30%-regulation while in an employment relationship with a withholding agent. The 30%-regulation can also apply to employees with fictitious employment, such as a member of the Board of Directors or a Supervisory Board of a Dutch corporation.

It is impossible to obtain the 30%-regulation as a self-employed individual as the 30%-regulation is a Dutch wage tax regulation, which needs to be processed through the Dutch payroll by the withholding agent (the employer). Self-employed individuals or independent contractors can solve this by setting up a Dutch company (Dutch B.V.) or a foreign company and becoming an employee working in the Netherlands. The company will then register as a withholding agent for Dutch wage tax purposes. 

Dutch payroll requirements
As mentioned, the 30%-regulation is a regulation within Dutch wage tax law, which needs to be processed through a Dutch payroll administration.  A Dutch wage tax withholding agent is required, usually the Dutch employer or the foreign employer having employees working in the Netherlands and registered as a withholding agent in the Netherlands. When the foreign employer does not qualify as a permanent establishment (insufficient funds), this will automatically lead to withholding obligations for Dutch wage tax purposes, in which case the foreign employer can be appointed as a wage tax withholding agent voluntarily. It often occurs for Representative Offices but may include a foreign corporation with remote employees in the Netherlands. 

Please note that in some cases, a foreign employer may be deemed to have a permanent establishment in the Netherlands, such as foreign employment agencies directed at the lending out of personnel. These are virtually always obliged to withhold wage tax and social insurance premiums from the income of employees assigned to the Netherlands. A more extensive explanation is available in our publication on payroll obligations in the Netherlands,  The Obligation to Register as a Withholding Agent in the Netherlands.

Dutch residency
Dutch residency status is not obligatory; The 30 %-regulation may be applied to a qualifying employee subject to Dutch wage tax. 

Specific expertise
Furthermore, the main requirement for the employee to qualify for the 30%-regulation is that the employee must have specialized skills, knowledge, and, or experience not readily available in the Dutch labor market. 

Specific expertise test (minimum salary requirement)

To qualify for the 30%-regulation, the employee should have skills, knowledge, and working experience not available or scarce in the Dutch labor market for which the employer decides to recruit the employee from abroad.

This requirement is commonly translated into a minimum salary requirement. The minimum salary level for the 30 % regulation is the tax-free 30% allowance for certain groups of employees, such as professional soccer players, for which special and additional requirements may apply.

A distinction in minimum salary level needs to be made for various types of employees:

1. A general minimum taxable salary level up to EUR 41,954 (2023) applies for the 30% allowance instead of a lower percentage. The total yearly salary would be EUR 59,934.29.
2. For Master graduates (MSc.) younger than 30 years, a lower minimum taxable salary level of up to EUR 31,891 (2023) is applicable. This leads to a total yearly salary of EUR 45,558.57 when the 30% allowance is provided instead of a lower percentage.
3. Scientists and researchers of educational and subsidized research organizations are exempt from the minimum salary requirement.

If an employee meets the salary level required for his applicable situation, they have specific expertise. It is still obliged that the expertise is not or scarcely available in the Dutch labor market, and the tax authorities will monitor certain groups of employees. 

Since the taxable salary will be decisive for the qualification of having specific expertise, this will include the regular fixed salary but also other items such as variable salary items (e.g., bonus, stock options), taxable benefits in kind (for instance, the taxable benefit relating to the company car, housing) and tax deductions/inclusions (for instance employee pension contributions withheld from the taxable salary).

Duration/period of validity

The maximum grant period of the 30%regulation is restricted to 5 years (60 months) in 2023. The periods of previous stay or employment at an employer in the Netherlands are deducted from this maximum grant period.

The requirements for the 30%-regulation need to be met continuously throughout the regulation. If at any moment the requirements are not met, the 30% regulation ends and will not be revised as it is assumed that the employee no longer has the required specific expertise. This will also be the case if the employee changes from full-time to part-time employment and the salary requirements are no longer met, for example.

The 30% ruling can no longer be used for one (1) month ending of employment in the Netherlands. The Dutch tax authorities want to avoid the application of the 30% ruling on employment income that becomes taxable in the Netherlands after the employee has left the Netherlands (such as bonus payment or stock options, even when these became unconditional during the Dutch employment). 

Please note that the 30% regulation will end if the employee changes employment. If the employee wishes to continue the 30%-regulation with a new employer, a new application must be made. A maximum period of 3 months between employment is allowed for qualification. This applies to periods of unemployment and if the employee opts for a period of inactivity voluntarily (i.e., holiday between employment, etc.).

Deduction for periods of previous stay in the Netherlands

Periods of prior stay and (or) work in the Netherlands that ended 25 years before the start date of the Dutch employment are deducted from the maximum grant period of 60 months. This will exclude almost all Dutch nationals assigned abroad but return to the Netherlands. It may also impact non-Dutch employees who have been in the Netherlands before. 

Only if certain thresholds were exceeded in the past 25 years will this lead to an actual reduction of the grant period. These thresholds include a maximum of 20 work days in the Netherlands per calendar year or six (6) weeks stay per calendar year in the Netherlands for personal reasons. A maximum one-time stay of 3 months in the Netherlands for personal reasons is also not considered.  

Foreign tax relief

As stated above, employees covered by the 30 %-regulation who become tax residents of the Netherlands become taxable for their worldwide employment income.  A tax relief can be claimed if the employment income is taxable in another country, based on a double tax treaty concluded between the Netherlands and that other country.

Employees covered by the 30%-regulation not residing in the Netherlands and U.S. nationals with the 30%-regulation who have opted for the partial non-resident tax status are only liable to Dutch tax on the part of their employment income that relates to activities carried out in the Netherlands (Dutch work days only). This does not apply to non-resident taxpayers who are members of the board of directors or supervisory boards of Dutch companies; they are usually taxable in the Netherlands regardless of where they worked unless the applicable tax treaty is determined differently.

Pension plan

The 30%-regulation may impact the amount of (Dutch) pension rights that can be built up tax-free while working in the Netherlands.

When certain conditions are complied with, the employee can, during his employment in the Netherlands, continue to donate to a foreign pension plan that provides the employee (and the surviving relatives) with an income after retirement. The foreign pension plan must be executed by an authorized insurance company supervised by a specially authorized institution of the relevant foreign country, although other conditions should be met.

The general regime applicable to pensions is that the premiums paid during employment are not considered taxable (if paid by the employer) or, within parameters, deductible (if paid by the employee). Payments during the pension are subject to taxation as "deferred employment income."

Most tax treaties allocate the right to tax pensions to the home state of the (former) employee: the country the employee is living in at the payment of the pension. Expatriates could significantly benefit from the contribution to a pension plan during their stay in the Netherlands since the contributions are not taxable or are tax-deductible; deferred income (the pension payments) may not be taxable in the Netherlands by applicable tax treaties. In most countries, the pension payments will be included in the taxable income of the resident.    

Social insurance

The 30%-regulation may also impact the amount of Dutch social security contributions (if applicable) and the social security rights of the individual employee.

The employee will generally become subject to Dutch social security working in the Netherlands; employees from other E.U. member states or countries with which The Netherlands has concluded a social insurance treaty. Employees temporarily assigned to work in the Netherlands by their foreign employer may be able to opt for a (temporary) exemption from the Dutch social insurance as they will remain insured in their home country. This will usually require an application and certification procedure for which we kindly refer to our page, Exemption from the Dutch Social Security contributions.

Starting up and maintaining a Dutch payroll  

Maintaining a Dutch payroll is a condition for applying the 30%-regulation for one or more employees. The employer must act as a withholding agent, register with the Dutch tax authorities, withhold wage taxes and social insurance premiums from the employee's salary payments, and pay them to the Dutch tax office. 

The first step is registering the employer and applying for a wage tax number.  The employer must set up and maintain a payroll after the wage tax number is issued.

Next, the employer has the legal obligation to provide the employee with monthly salary slips, which specify (amongst others)

1. The personal information of the employee, like name, address, and tax registration number,
2. The details of the employment (hours worked, etc.),  
3. The amount of the gross salary,
4. The amounts added to the gross salary, like taxable allowances, benefits in kind for company cars, lunches at the office, etc.  
5. The amounts withheld by the employer, such as the wage tax and compulsory health insurance contributions.

The salary slips are (usually) automatically generated by the payroll provider. The wage tax and social insurance premiums to be paid by the employer to the Dutch tax office are based on the salary slips. 

In most cases, the employer has the legal obligation to file a wage tax return and to make the corresponding payments within one month after the end of each quarter. The terms for filing are strict: any late filing of the wage tax return or late payment of amounts due will more or less automatically result in the levy of penalties.    

More information about the Dutch payroll obligation for employers is available in our publication, Payroll Obligations in the Netherlands.   

Filing a Dutch income tax return

In most cases, the employee is expected to file a Dutch income tax return from the year of arrival in the Netherlands. 

In the first and the last year of Dutch tax residence, i.e., the year of emigration and immigration, a special tax return form needs to be filed, a so-called M-form, in which elements of the immigration or emigration are dealt with.

Work permit and residence permit

Except for nationals from other European Union (E.U.) countries and nationals from countries participating in the European Economic Area (EEA), any foreign national seconded to the Netherlands must have a work permit and a residence permit. 

When it concerns the secondment of an employee from a non-EU or non-EEA country, the first step is to obtain an 'authorization for temporary stay'. The foreign employee may enter the Netherlands and apply for a residence and work permit. After filing the latter application, the appropriate employment office should be notified to apply for a work permit. 

Obtaining a work permit may be quite an extensive and long-lasting procedure.  International assignments within an international group of companies are provided with an accelerated process for certain groups of employees, the Intra Company Transferee rule. Dutch employers who applied for sponsorship of the so-called Knowledge Workers use a simplified and accelerated procedure for obtaining work and residence permits for qualifying incoming "knowledge workers." 

What can we do for you?

We offer complete compliance packages for employers and employees. 

These packages are offered against fixed prices unless the employer/ employee requires extensive advice.    

We advise employers and employees daily on tax issues about secondment and handle associated compliance matters.

We can do the following (among others):

• Tax registration of employers and employees
• Payroll services
• Applying the 30%-regulation 
• Dealing with required adjustments in the employment agreement 
• execute the application procedure for work and, or resident permits 
• Dealing with registration formalities 
• Expatriate tax compliance matters, including filing the annual income tax return, checking assessments, etc.

If you are interested, contact us via e-mail or call our office in Amsterdam at + 31 (20) 5709440 or our office in Rotterdam at +31 (10) 2010466.