You may have heard about the 30% ruling, but not be sure what it actually is, let alone if you qualify for it. Fortunately, Sandro Horst from Blue Umbrella tax advisors is here to give us the skinny on this sweet tax treat.
What Is the 30% Ruling?
The 30% Ruling is a tax benefit for certain highly skilled migrants for the costs incurred when settling in the Netherlands. It is also intended to incentivize such workers to choose working in the Netherlands over other countries.
Who Is Eligible?
You have been recruited to work in the Netherlands, but are you eligible for the 30% Ruling? In order to be eligible, you must meet the following conditions:
- You were recruited from abroad by your employer.
- Your income exceeds a set threshold.
- For the 24 months prior to your employment in the Netherlands, your fiscal residence was outside the Netherlands (and further than 150 km from the Dutch border).
The income requirement is based on your annual taxable income (referred to in Dutch as belastbaar loon or loon voor loonheffing). For 2018, this means an income above €37,296. Up to 30% of income beyond this threshold may be tax free under the 30% Ruling. There are two categories of workers exempt from the minimum income requirement:
- Workers under the age of 30 with a Dutch (or equivalent) Masters degree.
- Workers who are conducting scientific research.
Please note that should your income fall below the minimum income requirement in any given year, you will lose the 30% Ruling, unless the decrease is due to maternity leave.
Your residence must be outside the Netherlands for at least 24 months prior to your employment in the Netherlands, counting backwards from your first day of employment. Workers living within 150 km of the Dutch border during these 24 months are not eligible for the 30% Ruling.
Be aware that your fiscal residence is not necessarily the place where you are living, or where you are registered. The Dutch Tax Office assumes that you are living in the Netherlands once you register yourself with a Dutch municipality, but based on the circumstances, it may be possible to prove that your fiscal residence is elsewhere.
If you change employer while working in the Netherlands, it is not necessary to leave the country for 24 months to qualify for a continuation of the 30% Ruling, but you will need to sign a new employment contract within three months of the last day of your previous employment.
What Is the Impact of Applying the 30% Ruling?
You pay tax on your taxable income, which is not necessarily the same as your gross income. Your employer can exempt part of your gross income from taxation upon various grounds, including the 30% Ruling. Your employer is obliged to withhold part of your salary for taxation; the amount they withhold is based on your taxable income. When you benefit from the 30% Ruling, a lower amount of salary is withheld; you will pay less tax than a coworker who does not benefit from the 30% Ruling.
Your income from employment is taxed in “Box 1” of the Dutch Income Tax Form. If you benefit from the 30% Ruling, you may also choose to declare yourself a partial non-resident taxpayer. While Dutch tax residents are required to declare their worldwide savings and investments and pay tax on them in the Netherlands, the 30% Ruling allows you to have a non-resident status for your worldwide assets (Box 3) and substantial interests (Box 2) and pay no tax upon them as a result. Please note that you will still have to declare your Dutch property, which remains taxable in the Netherlands.
The 30% Ruling also entitles you to exchange your foreign driver’s license for a Dutch driver’s license at the local municipality. Please contact your municipality for the full list of documents required for this application, which may include copies of the following:
- The decision by the Dutch government to grant you the 30% Ruling.
- A statement related to your health from the CBR (the Dutch Driving License Center).
- Your foreign driver’s license which must still be valid in the country of origin.
There is a potential downside to the 30% Ruling: should you become unemployed and need governmental support, your unemployment income, based upon the lowered taxable income of your previous employment, will be also be lower.
Potential Changes in 2018
A cost benefit analysis of the 30% Ruling is currently being made. Changes and recommendations aimed at keeping the costs of the 30% Ruling sustainable are being considered. These include:
- The 8 year duration of the 30% Rule could be reduced.
- The non-eligible range of 150 km from the Dutch border could be increased.
- Limiting the exempted income for people earning above a certain income.
These potential changes will not affect the people who have already been approved for the 30% Ruling.
What Happens When the Period of the 30% Ruling Ends?
When this time comes, your employer can no longer apply the 30% Ruling benefit through payroll administration. You will have to declare your worldwide savings and investments for taxation through your Dutch income tax filing and these will be subject to taxation in the Netherlands.
My 30% Ruling Was Rejected!
When you apply (together with your employer) for the 30% Ruling, your application may be rejected by the Dutch Tax Office if they are unable to determine your eligibility. Their decision will not be based purely on the answers on your form, but also upon the documents you supply in support of your application. For example, you will need a payslip or labor contract to determine whether you meet the annual taxable income requirement. The Dutch Tax Office allows you to submit additional documents to enhance your 30% Ruling application.