Dutch Expatriate Incentive: the 30%-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 or scarcely available on the Dutch labor market.

When the 30%-regulation applies, the employee is entitled to receive 30% of the taxable salary (with some technical adjustments) as a tax free cost reimbursement. The employee is then in essence no longer entitled to separate tax free reimbursements of expenses in relation to the assignment to the Netherlands. The expenses relating to the assignment in the Netherlands, resulting from the employee no longer working or living in their home country are referred to as extra territorial expenses. 

In the Netherlands, employment income is taxable at progressive rates. As the top rate is 49.5% (2023), 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. Under the 30% regulation the employee will effectively be taxed on only 70% of his employment income resulting in a substantial reduction of the effective top tax rate due to 34.65% (70% * 49.5%). 

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, or  conclude a separate addendum to the employment contract or assignment contract. An application for the 30% ruling must be filed by employee and employer together.

Below you will find 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 insofar 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. In case the employee resides is in the Netherlands, the employee can opt to be a 'partial non-resident taxpayer' for income, other than income from employment. 

The 30% tax-free allowance

The Dutch tax regime for people working in employment is quite rigid if it comes to the deduction of expenses. The general rule is that costs of employment do not constitute a tax deductible item for the employee. The employer can however decide to compensate the employee for certain expenses tax free within certain limitations. A good example is the commuting allowance which is supposed to cover the cost of (daily) traveling from home to office, but also the travel and stay allowance which is supposed to cover the expenses of the employee incurred with a business trip. 

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

For incoming employees who are hired from abroad to work in the Netherlands, or who are (temporarily) assigned by a foreign employer to work in the Netherlands,  or outbound employees who are (temporarily) assigned by a Dutch employer to work abroad in specific countries, a special rule applies with regard to the compensation of expenses. In case the employee fulfills the conditions, the employer is allowed to compensate 30% of the employee's taxable salary as a "tax free cost allowance". For incoming employees this regime is generally referred to as the 30%-regulation.     

The notable feature of this regime is that the employer does not have the obligation to substantiate the amount of expenses really 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 extra territorial costs, but the employee may still be entitled to receive other tax free allowances, like 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 the costs are limited to tuition fees and eventual transport arranged by the school. A compensation for these international school fees may be provided tax free on top of the tax free 30%-allowance. 

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

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

Option for partial non-residency status

A person residing in the Netherlands for a longer period will normally qualify as Dutch tax resident and as such be subject to Dutch tax on its worldwide income.

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

The term 'partial' means that the employee is treated as a non-resident taxpayer for Box 2 (income from a substantial shareholding) 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 for tax credits in connection with Box 1, but will only be taxable for certain Dutch sources of income in Box 2 and Box 3 income. This includes income from a substantial shareholding in a Dutch resident BV and real estate located in the Netherlands. Other investment income, such as bank accounts, shares, etc. are not included in the taxable base.

A special rule for US citizens applies. If a US citizen opts to be treated as a partial non-resident, according to the double tax treaty between the US and the Netherlands the US citizen for all purposes will be considered a resident of the US, and a non-resident of the Netherlands. A US citizen will therefore also be considered a non-resident taxpayer for their income from Box 1.

If the partial 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).

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 request for the 30%-regulation within four months after the employee starts its job in the Netherlands because only then the 30%-regulation has retroactive effect. If filed later, the 30%-regulation (when granted) will apply per the first day of the month after the month in which the request has been filed.

Conditions to be met for obtaining the 30%-regulation

Inbound employees
In general, the 30% ruling is available for employees assigned to the Netherlands, or recruited from abroad to work in the Netherlands. Abroad in this sense means that only employees residing outside the area of 150 kilometers from the Dutch borders, during at least 2/3 part of the 24 months period prior to the start of their employment in the Netherlands, can obtain the 30%-regulation.

Employment relationship with a withholding agent
An individual can only obtain the 30%-regulation when being in an employment relationship with a withholding agent, although the 30%-regulation can also apply to employees who have a so-called fictitious employment, like for instance a membership of the Board of Directors or a Supervisory Board of a Dutch corporation.

It is not possible 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). A solution for this could lay in the possibility for the self-employed individual or independent contractor to set-up a Dutch company (e.g. a Dutch BV) or a foreign company of which he/she becomes an employee who works 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.  For this a Dutch wage tax withholding agent is required, which usually is the Dutch employer or the foreign employer having employees working in the Netherlands and who is registered as a withholding agent in the Netherlands. If the foreign employer does not have sufficient substance in the Netherlands to qualify as permanent establishment, which will automatically lead to withholding obligations for Dutch wage tax purposes, then the foreign employer can be appointed as a wage tax withholding agent on a voluntary basis. This often occurs for so-called Representative Offices, but also if a foreign corporation has remote employees working in the Netherlands. 

Please note that in certain cases a foreign employer may be deemed to have a permanent establishment in the Netherlands, such as for instance foreign employment agencies directed at the lending out of personnel. They are therefore virtually always obliged to withhold wage tax and social insurance premiums from the income of employees assigned to the Netherlands. For a more extensive explanation, we kindly refer to 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 who is 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 on the Dutch labor market. 

Specific expertise test (minimum salary requirement)

In order to qualify for the 30%-regulation, the employee should have specific skills, knowledge and 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.

This requirement is for most common situations translated into a minimum salary requirement. The minimum salary level for the purpose of the 30%-regulation is the amount excluding the tax free 30%-allowance. For certain groups of employees, such as professional soccer players, different 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 amounting to EUR 41,954 (2023) applies. In case the full 30%-allowance is provided instead of a lower percentage, the total yearly salary would be  EUR 59,934.29.
2. For masters (Msc.) younger than 30 years, a lower minimum taxable salary level amounting to EUR 31,891 (2023)  is applicable. In case the full 30%-allowance is provided instead of a lower percentage, this leads to a total yearly salary of EUR 45,558.71.
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, he/she in essence qualifies to have specific expertise. Please note that it is still required that his/her specific expertise is not or scarcely available on the Dutch labor market and that it is expected that the tax authorities will monitor this closely for specific groups of employees.

Since the taxable salary will be decisive for the qualification of having specific expertise, this will not only 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). Certain 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 full duration of the regulation. In case, at any moment, the requirements are not met, the 30%-regulation ends at that moment, and will not be revived as it is assumed that the employee no longer has the required specific expertise. This also applies in case the employee for instance changes from a full time employment to a part time employment, when as a result the salary requirements are no longer met.

The 30% ruling can no longer be used when the employment in the Netherlands has stopped, until one month after. With this, 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 in case the employee changes employment, the 30%-regulation will end. If the employee whishes to continue the 30%-regulation with a new employer, a new application must be made. Between employments, a maximum period of 3 months is allowed in order to still be able to qualify. This not only applies to periods of unemployment, but also if the employee opts for a period of inactivity voluntarily (i.e. holiday between employments etcetera).

Deduction for periods of previous stay in the Netherlands

Certain periods of previous stay and/or work in the Netherlands that ended in the 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 who were assigned abroad but return to the Netherlands. It may also have an impact on non-Dutch employees who have been in the Netherlands before. 

Only in case certain thresholds are exceeded in the past 25 years, this will 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 a maximum of 6 weeks per calendar year of stay in the Netherlands for personal reasons. A maximum one-time stay of 3 months in the Netherlands for personal reasons is also not taken into account. 

Foreign tax relief

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

Employees covered by the 30%-regulation who do not reside in the Netherlands, and US 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 actually carried out in the Netherlands (Dutch work days only).  In general, this does in many cases (depending on the terms of applicable tax treaty) not apply to non-resident taxpayers who are a member of the board of directors or supervisory board of Dutch companies. These are usually taxable in the Netherlands regardless where they worked, unless the applicable tax treaty determines differently.

Pension plan

The 30%-regulation may have an impact on the amount of (Dutch) pension rights which 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 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.

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

Fact is that most tax treaties allocate the right to tax pensions to the home state of the (former) employee: the country where the employee is living at the time that the pension is paid out. This means that expatriates could possibly gain a significant benefit from the contribution to a pension plan during their stay in the Netherlands since the the contributions are not taxable or are tax deductible, while the deferred income (the pension payments) may not be taxable in the Netherlands by virtue of applicable tax treaties. However, in most countries, the pension payments will then be included in the taxable income of the resident.    

Social insurance

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

When working in the Netherlands, the employee will in general become subject to Dutch social security. However employees who stem from other EU member states or countries with which The Netherlands has concluded a social insurance treaty, are temporarily assigned to work in the Netherlands by their foreign employer, may be able to opt for a (temporary) exemption from the Dutch social insurances. In that case, they will remain insured in their home country. This exemption will usually require an application and certification procedure. We also kindly refer to our page Exemption from the Dutch social security contributions.

Starting up and maintaining a Dutch payroll  

As stated, maintaining a Dutch payroll is a condition for applying the 30%-regulation for one or more employees. The employer must act as withholding agent, meaning that it must register with the Dutch tax authorities. In its capacity as withholding agent, the employer has the obligation to withholding wage taxes and social insurance premiums from the employees' salary payments and pay them to the Dutch tax office. 

The first step in this process is to register the employer and apply for a wage tax number.  As soon as the wage tax number is issued, the employer must set up and maintain a payroll.   

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 car, or lunches at the office, etc.  
5. the amounts withheld by the employer, for instance the wage tax and compulsory health insurance contributions.

The salary slips are usually automatically generated by the payroll provider. The salary slips form the basis for determining the amounts of wage tax and social insurance premiums which must be paid by the employer to the Dutch tax office.

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 the each quarter. The terms for filing are quite 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.    

For more information  about the Dutch payroll obligation for employers, we refer to the publication Payroll obligations in the Netherlands.   

Filing a Dutch income tax return

As from the year of arrival in the Netherlands, in most cases it is expected that the employee should file a Dutch income tax return. 

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 certain elements of the immigration or emigration are being dealt with.

Work permit and residence permit

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

When it concerns the secundment of an employee from a non-EU or non-EEA country, the first step is to obtain an 'authorization for temporary stay'. When obtained, the foreign employee is allowed to enter the Netherlands and apply for a residence permit and work permit. At the moment that the latter application is filed, the appropriate employment office should be notified in order to apply for a work permit.

Obtaining a work permit may be quite an extensive and long lasting procedure. For international assignments within an international group of companies however an accelerated procedure is available for certain groups of employees, the Intra Company Transferee rule. Also for Dutch employers who have applied for sponsorship of the so-called Knowledge Workers a simplified and accelerated procedure applies for obtaining both work and residence permits for qualifying incoming "knowledge workers".  

What can we do for you?

We offer full compliance packages for employers and employees. 

In essence these packages are offered against fixed prices, unless the employer/ employee requires extensive advice.    

We advise employers and employees on tax issues in relation to secundment on a daily basis and handle associated compliance matters.

We can do amongst others the following:

• Tax registration of employers and employees
• Payroll services
• Filing the application for the 30%-regulation 
• Deal with required adjustments in the employment agreement 
• Application procedure for work and/or resident permits 
• Dealing with registration formalities 
• Dealing with expatriate tax compliance matters, such as filing the annual income tax return, checking assessments, etc.

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