Attracting international talent through the Dutch 30% tax ruling in 2024

If you’re hiring a candidate from overseas to work, or if they have been seconded here by your employer – they could stand to benefit from a tax exemption facility known as the Dutch 30% tax ruling.

In this article, we will share what exactly the Dutch 30% ruling is, how it works, who is eligible, and how you can attract international talent from abroad using this exemption.

What is the Dutch 30% ruling and why was it introduced?

The 30% ruling is a Dutch tax advantage for employees hired from abroad to work in the Netherlands because of their in-demand skills and expertise.

If new arrivals meet various pre-set conditions, employers can pay them 30% of their salary as a tax-free allowance, seen as compensation for the additional expenses that the employee experiences due to working outside his or her home country – known as extraterritorial costs.

These extraterritorial costs may include, amongst others, accommodation costs, costs to apply for personal documents, travel costs, and costs of following a Dutch language course. However, there is no requirement to prove that expenses have actually been incurred or have met a certain amount.

The ruling, which was first introduced in 1964, is widely regarded as a magnet to attract highly skilled and qualified people to the Netherlands to enhance the country’s existing talent base. This advantage is frequently used in salary negotiations.

Recent changes to the 30% ruling

In recent years, the ruling has been the subject of intense political debate – with calls to reduce or discontinue the allowance. The ruling was independently evaluated in 2017 and it was concluded that most expats use the ruling for less than five years, that similar tax breaks in other countries are only available for five years, that extraterritorial costs decline over time, and that a shorter duration is less expensive but almost as effective. This led to the Dutch government voting to reduce the allowance period from eight years to five years.

However, there are some other major changes that came into effect as of January 1, 2024. The term of the 30% ruling is still up to 5 years (60 months), but the employer must reduce the benefit over the course of this period as follows:

• 30% for the first 20 months
• 20% for the next 20 months
• and 10% for the remaining 20 months

In the case of a grant with a shorter duration than five years, the same percentages and periods apply.

From 2024, the 30% ruling will also have a salary cap (the Balkenende norm), set at €233,000 for this year. This means the 30% ruling can only be applied to salaries up to this amount, and any income exceeding this will not benefit from the tax exemption. For those benefiting from the 30% ruling as of the end of 2022, the cap will only apply from January 1, 2026.

There is another tax break that is being offered as part of the 30% ruling, which will be revoked over the next few years. At the moment, the 30% ruling holders and their partners can apply for partial non-residency status, so that even though they live in the Netherlands, they can qualify as non-resident taxpayers for part of their income. This partial foreign taxpayer status will be abolished from January 1, 2025 However, this amendment is also subject to a transitional rule. Employees who make use of the partial foreign taxpayer status in the last period of 2023 will still be able to make use of this tax scheme until December 31, 2026.

Who is eligible for the 30% tax benefit?

Candidates/employees can qualify for the 30% ruling if they have been recruited from outside the Netherlands or seconded by an employer from overseas to work in the Netherlands. It only applies to candidates moving to the Netherlands for a specific employment role, not those already in the Netherlands looking for a job.

Specifically, they need:

• To work for an employer registered with the Dutch tax office and which pays payroll tax.
• To have a written agreement with their employer that the ruling applies to them.
• To have lived over 150 km away from the Dutch border for more than 16 months out of the 24 months before their first working day in the Netherlands.
• To earn a minimum salary of €46,107 gross per annum
• To have specific skills and expertise that are less widely available in the Netherlands.

For candidates possessing a PhD or Master’s degree who are aged under 30, the rules are less strict:

• They need to be earning a salary of at least €35,048.
• If they conduct scientific research at a designated research facility or are a doctor training to become a specialist – the amount of their salary is not important.

Specific skills & expertise

One of the most noteworthy (but also one of the vaguest) requirements is to have specific skills or expertise that are not available or are rarely available in the Dutch labour market. There is no independent assessment of this requirement – the skills are assumed to be present if the minimum salary requirement is met.

It is therefore essentially up to the employer to determine whether a candidate’s age, employment history, education and level of employment can render the employee an expert and warrant a salary that meets the minimum threshold. These thresholds are updated on January 1 every year.

Returning to the Netherlands

Another requirement is that candidates must have been residing outside the Netherlands before they began their present employment. But what if an employee has lived here previously?

In that case, the time the employee has stayed or worked in the Netherlands prior to this role is subtracted from the maximum period of 5 years. The only exceptions are when an employee left the country more than 25 years ago or if they were hardly ever there during their previous stay: i.e. less than 6 weeks per year for personal purposes or less than 20 days.

Is there a nationality requirement?

The ruling is applied irrespective of nationality. This means that Dutch nationals can also apply for the 30% ruling if they meet the requirements and that foreign nationals who get a Dutch passport can continue to benefit from it.

How does the 30% ruling actually work in practice?

Applying the ruling is straightforward for both the employer and the employee. The employer is responsible for applying for the 30% ruling on behalf of the employee. What happens is that income tax is applied to only 70% of the employee’s income. The other 30% is not taxed.

This application of the ruling does not influence the salary burden from the employer’s perspective. From an employee’s perspective, on the other hand, it is equivalent to having a maximum tax rate of approximately 36.2%.

In terms of the employment contract, there should be a specific reference to the 30% ruling. The remuneration package should make clear that the tax-free allowance will be paid on top of wages – this is of course lower than it would be if the ruling were not to apply but it must meet the minimum threshold.

Wages not only include the fixed gross salary and holiday allowance, but also incidental and flexible reimbursements like bonuses. A company car would also be considered part of the wages.

So, while someone with a salary of say €50,000 would enjoy the full benefit of the 30% ruling, a colleague earning €40,000 would benefit from some but not the full amount of the tax exemption, because their salary would otherwise end up below the minimum threshold for qualification.

Employers and employees can apply for the 30% ruling retrospectively for up to four months after the first day of employment in the Netherlands. The 30% ruling can also work retroactively if the application is submitted within 4 months after the starting date of employment. If it is submitted after 4 months, the ruling is effective from the first day of the month following the
month in which the application was submitted. In addition, the duration of the ruling would be reduced by the period an employee has already resided in the Netherlands.

It’s also worth noting that an employer is not obliged to pass on the benefit to the employee, and can retain some or all of it for themselves. It’s important therefore that employees who are considering a move to the Netherlands raise the issue with their employer as early as they can before moving across.

How long can employees benefit from the 30% ruling?

Up until the end of 2018, the claim period lasted for eight years, but responding to political pressure, the Dutch Government decided to reduce the period to five years starting from January 1, 2019. The ruling does not have a minimum term, only a maximum term.

If an employee changes their job within the group of organisations they already work for, they will still be able to receive the 30% ruling, as long as they are still within the allowance period they were originally granted.

If an employee that benefited from the ruling is moving to another organisation altogether, they can together with the new employer apply for the current 30% facility to be continued. The conditions are that an employee starts working for their new employer within three months of leaving their previous organisation and that the application is submitted within four months of joining their new employer.

What if your candidate moved to the Netherlands to work for an employer that did not apply for the ruling?

Agreeing to apply for the 30% ruling on behalf of the employee is ultimately up to the employer. Some employers choose not to do this because company policy makes this difficult or due to a lack of familiarity with the ruling.

In that case, employees can apply for the ruling with their new employer. However, this is complicated by the fact that two employment contracts must qualify and that the tax authorities determine the level of compensation based on the situation the day the candidate first arrived in the Netherlands. This means candidates must have met the requirements for the 30% ruling at that moment and salary raises since their move will not be taken into account. In addition, the maximum period of 5 years will be reduced with the time they were already in the Netherlands.

Additional benefits of the 30% ruling

As well as a substantial slice of your salary being tax-free, the Dutch 30% ruling also brings several other benefits.

• Employees can exchange their foreign driving license for a Dutch license without having to retake their test, as would normally be the case. What’s more, this applies to all family members registered at their address.
• The 30% ruling can be used to help build up a pension, as the tax-free allowance is part of the pensionable pay.
• Employees benefiting from the 30% ruling can also in certain cases receive a free allowance for extraterritorial costs for school fees. This applies to fees for international schools and to international departments of ordinary schools. In addition, the education programme must be based on a foreign system or mainly be open to children of employees working in a country other than their country of origin.

What do you need to do to apply?

If your new employee meets all the conditions, you will need to submit a joint application, whether by filling in the application form or calling the Tax Information Hotline for Non-resident Tax issues who can provide you with an information pack.

From your employee, the Dutch tax office will need:

• A passport or valid photo ID
• An employment contract or a confirmation letter from the employer
• A BSN number
• A Dutch residence permit and work permits if applicable
• A Dutch address
• Proof of residence overseas before they were hired
• Your company’s details, including your company tax number
• A written agreement stating that you and your employee consent to the application for the 30% ruling