What is the 30% ruling and which employees are eligible for it? Could you elaborate?
The 30% ruling is a ruling the Dutch tax office made as a response to an individual’s relocation cost application, double housing costs and similar requests made by employees arriving from abroad. The Dutch tax office recognised that this type of employee has a disadvantage compared to resident or native Dutch employees who do not have double housing costs, travel costs, household moving costs and more costs related to a transfer abroad.
The requests averaged at 30% discount, hence the 30% ruling was created to stop the flow of individual request. Employees arriving from abroad, further than 150 km from The Netherlands and who have not been a Dutch tax resident during the past 25 years and earn a certain minimum salary fall under this ruling. Also, the minimum salary depends on the age of the employee below or over 30 years old. This minimum does not apply to scientific (fields) employees. If this employee has been hired or attracted from abroad by a Dutch resident employer, then this employee can qualify for the 30% ruling.
If the ruling is granted, 30% of all components of the taxable income is regarded a tax-free reimbursement of costs and is valid for a maximum period of eight years. If the employee switches employers and is not unemployed between jobs for more than three months, a new 30% ruling application can be made with the new employer and the ruling can continue as long as the 8 year period has not expired.
Please note that the Dutch tax office checks every year through income tax returns whether the minimum income requirement is still met. This requirement is indexed every year and if it is not met during a certain year, the 30% ruling will no longer be applicable.
What are the advantages of the 30% ruling for employees? How is it also advantageous to organisations to provide this for their eligible employees?
The advantage for employees is that their net salary is substantially higher due to less tax being calculated. It is not only 30% tax- free, but due to the gross salary being set at 70% the salary could also drop into a lower tax bracket.
For the employer the 30% ruling makes or breaks the deal. Employees from abroad have more opportunities to work and one of our competitors is the United Kingdom. Without the 30% ruling the employee receives a net higher salary in United Kingdom, with the 30% ruling The Netherlands is more attractive.
Moreover, some employees value the fact that their children can study at an international school. If the employer would pay for these school fees under Dutch law without the 30% ruling, this benefit is regarded as a benefit-in-kind and is subject to tax. If the employee holds the 30% ruling, the employer can pay the international school fees free of wage tax and social premiums.
What kind of advice does Orange Tax Services offers to its clients or organisations with regards to the 30% ruling? What steps should companies take if they want to offer this to their employees? Could you elaborate?
Orange Tax services assists in the application of the 30% ruling. This is done at a “no cure no pay” rate. Some organisations made this request themselves. It does happen that the Dutch tax office is not convinced about such a request and either denies the ruling or sends a questionnaire. Our experience is that most of the time, these organisations accept the denial or do not respond to the questions with the result of the employee not receiving the important ruling.
Also, a denial of a ruling can often be a matter of the tax office not having received enough or correct information about the situation that makes them deny the ruling. We think we are able to solve a lot if not all of these cases, when we have the opinion the employee should have received the 30% ruling. Our efforts to get this ruling after denial is also charged at the same rate as a normal application and also at a “no cure no pay”.
Furthermore, not responding to a questionnaire automatically results in the ruling being denied. We therefore always recommend our clients to respond or ask us to assist, unless it is clear that the employee will not be able to qualify.
The moment the 30% ruling has been granted the employer needs to update or amend the employment agreement in such a manner that the gross salary is split in 70% gross salary and 30% reimbursement of costs. If this is not done, then the Dutch tax office assumes the 30% ruling is reimbursed on top of the agreed gross salary. For a correct process of this amendment we suggest to contact your labour lawyer.
Is there anything else you would like to add?
The 30% ruling has more benefits than mentioned above. The employee can swap his non-EU driving licence into a Dutch driving license as can his or her partner. This is a major advantage; if you ask Dutch employees how they think of the driving license exam and you know you are blessed.
Moreover, a 30% ruling holder does not need to report his world wide assets in Box 3 and have them taxed at 1.2% income tax. This is possible when the employee chooses to be regarded a deemed non-resident. This also implies that no illness costs, study costs and additional pension costs can be deducted. The mortgage deduction remains possible.
For US citizens or US green card holders the choice of being a deemed non-resident tax payer has a deeper consequence. If you are a non-resident in The Netherlands, then you must be a resident in the USA. This is the outcome of the Dutch-American tax treaty. Thus, not only you do not need to report your world wide wealth in The Netherlands, you can also deduct the days worked abroad from your Dutch tax burden. There are requirements set for this deduction and the deducted amount needs is subjected to taxation in the USA, but still, this is a good way to reduce your Dutch tax burden.
I hope the above proofs that the 30% ruling is the best tax benefit we have in The Netherlands and that we will be glad to assist in you obtaining this ruling.
Coffee with Companies interview: Orange Tax Services
By: Together Abroad 05-01-2015 10:41 PM
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