The 30% tax benefit for expats has been recently evaluated and the government wishes to revise the duration of this scheme for new and existing matters effective 1 January 2019. Below we will briefly set out the scheme itself, the evaluation and the proposed reduction from 8 to 5 years.
Short read: 3 minutes
1. What is the 30% ruling? The 30% ruling is a tax benefit by way of an individual tax ruling - the so-called “30% ruling” - for an employee who is hired from abroad or transferred by an employer to work in the Netherlands and who has specific expertise that is scarce or absent on the job market in the Netherlands. On the basis of this scheme up to 30% of the salary can be paid out as a tax-free reimbursement to the expatriate.
2. Evaluation 30% ruling In 2017 a research agency evaluated the 30% ruling, on the instructions of the Ministry of Finance, on its efficiency and effectiveness. It concluded amongst others that: (i) approx. 80% of the employees no longer use the scheme after 5 years; and (ii) a duration of 5 years is applied in other surrounding countries. For these two reasons, the research agency made a recommendation to shorten the maximum duration of the 30% ruling from 8 to 5 years.
3. Proposal government As the government endorses this recommendation, it has announced that the Tax Plan 2019 will include the reduction of the period of allocation of the 30% ruling from 8 to 5 years effective 1 January 2019. It is of importance to note that this change will also apply to employees who are currently using the 30% ruling. This means that the employees who were entitled to the scheme from 2014 will likely lose their entitlement to the 30% ruling on 1 January 2019. The employees who are entitled to the 30% ruling with an effective date of or after 1 January 2014 lose the 30% ruling 5 years after that commencement date.
4. Conclusion In view of the above, it is necessary for employers to re-determine the remaining term for all employees who are currently using the 30% scheme. The proposed tax law amendment does not directly affect the relationship between employer and employee. However, the question whether the effect of this change will be for the account of the employer or employee will depend on the agreements between the parties regarding an interim change or cancellation of the scheme. Therefore, it is advisable to review the agreement regarding the 30% ruling – and possible changes to it – that is in place between the employer and the employee. In any case, an employee will also have to be informed about the change in a timely manner. If the plans move forward, it concerns a considerable part of the salary that will be lost after 1 January 2019. In the run-up to the change the parties can - if necessary - also discuss a possible compensation or phase-out scheme.