However, a recent announcement by the Dutch government has brought about significant changes, leading to a reduction in its duration and a cap on the earnings to which it can apply. This change is likely to have a significant impact on both employers and employees.
Netherlands tax history
Designed to attract and retain highly skilled international workers since 1964, the 30% Tax Ruling has been a crucial tool in attracting foreign nationals (and returning Dutch nationals) to work in the Netherlands. It offers tax exemptions on 30% of an employee’s gross qualifying income or allows them to reimburse actual extraterritorial expenses incurred by the employee for a period of 60 months.
Similar schemes exist in other EU countries, namely Denmark (30% flat income tax for 5 years) and Italy (a 70% tax exemption for the North and 90% for the South). The Dutch 30% ruling initially provided a period of tax exemption for five years, thereby allowing expatriates to enjoy substantial tax advantages during their time in the Netherlands.
In recent years, however, this ruling has been the cause of significant criticism, particularly in light of the Dutch housing crisis, which is largely blamed on economic migrants. As a result, there has been huge pressure to abolish or scale back the legislation.
The scaled-back 30% tax ruling explained
Effective January 1, 2024, the Dutch government has announced a further reduction in the duration and impact of the 30% Tax Ruling and imposed a ceiling on the salary to which it can be applied.
Expatriates eligible for the ruling will now only benefit from a sliding scale tax benefit of 30% for the initial 20 months, then 20% for the next 20 months, and finally 10% for the final 20 months. The ruling can be used for a maximum salary of EUR 233,000 (in 2024).
In addition, to increase the Dutch tax base, employees using the ruling as of 1 January 2024 will no longer be classified as partial foreign taxpayers from 1 January 2025. For employees already using the ruling in December 2023, this change will only be applicable from 1 January 2026.
Despite these changes, there is still a (small) light at the end of the tunnel. The Dutch senate has ordered the Minister of Finance to investigate the impact of the changed 30% Tax Ruling and to propose legislative changes if negative consequences are uncovered. The outcome of this (yet-to-be-launched) investigation is however only expected towards the end of 2024.
These changes significantly alter the tax landscape for international workers new to the country, reducing their net effective spendable salaries and potentially impacting their financial planning during and after working in the Netherlands.
Implications for employers
Without the traditional 30% rule to fall back on, companies applying the tax equalisation method will face increased costs for new employees in 2024. Organisations must also adjust their recruitment strategies and consider reassessing salary packages and retention initiatives to attract and retain high-demand international talent. Employers may need to provide additional support or incentives to compensate for the reduction in tax benefits, ensuring they remain competitive within their industries.
Potential impacts on employers
While the reduction is a disappointment for large international companies, the country remains a great location for international businesses and their talent, due to its extremely efficient, cheap, and fast immigration system.
If an employer has a fast-track license and thereby the ability to sponsor Highly Skilled Migrants, an application takes no more than 4-6 weeks and costs only EUR 350 in government fees. When compared against other EU countries, while the fees are similar, the timescales are significantly faster, and the system is much more robust and reliable for employers.
The only comparable country in Europe is the UK, where the immigration system is similarly fast (if using priority or super-priority processing). However, the cost incurred by the employer is significantly different.
A UK Skilled Worker visa for three years for a single employee will now cost around £8,000 in government fees alone following the new Immigration health Surcharge implemented in January 2024. That and the impact of Brexit and the requirement to sponsor all new EU entrants to the UK means that the Netherlands continues to be an extremely attractive location in Europe.
While the impact of the scale back of the 30% scheme will certainly be felt, due to the immigration system, it is likely to be less than first feared.
Sending employees to the Netherlands? Our team of Dutch experts can help you navigate the 30% ruling and every other aspect of your relocation, from immigration to repatriation.
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