When hiring employees from abroad, Dutch employers can offer tax relief through either the ‘flat rate’ 30%-ruling or by reimbursing actual extraterritorial costs (ETCs). While both aim to offset the additional expenses associated with relocating to and working in a new country, the choice between them can have a significant impact on payroll, administration, and take-home pay. This article compares the two options, highlighting their tax benefits, administrative implications, and when each method may be preferable.
The 30%-ruling allows employers to grant 30% of an employee’s gross salary tax-free for up to five years. As of 2025, there is no longer a phased reduction of this benefit. Previously, the allowance decreased over time (30%-20%-10%), but the full 30% can now be applied throughout the entire five-year period.
However, a few important caveats apply:
Annual indexation of the maximum salary base may affect the exact tax-free amount.
Employees with a qualified master’s degree who turn 30 years old may experience changes to their eligibility because of increased minimum income requirements. See our previous blog for more details.
Starting in 2027, new legislation will reduce the 30%-ruling from a 30% tax-free to a 27% tax-free allowance. For that reason, the Dutch tax authorities now changed the official name of the ruling from the 30%-ruling to the Expat-ruling.
Alternatively, employers may choose to reimburse the actual costs employees incur due to their expatriate status. These can include:
Double housing costs
Relocation expenses
Language courses
Family reunification travel
Tax advisory services
Visa and residence permit fees
Additional living expenses (Cost of Living Allowance or COLA)
International school fees*
*Note: International school fees are also tax-free under the Expat-ruling, so there is no difference between the two options in this regard.
The 30%-ruling allows employers to pay a ‘flat rate’ 30% of an employee’s gross salary tax-free as compensation for extra-territorial costs. The remaining 70% is taxed as normal.
Benefits
Simple payroll handling: Just apply a fixed percentage—no need to justify or track individual costs.
Predictable and transparent for both employee and employer.
Often results in higher net pay for the employee compared to reimbursing specific costs.
Drawbacks
Time-limited: Valid for up to 5 years with reduction for previous time spent in the Netherlands.
Strict eligibility requirements:
Employee must be recruited from abroad.
Specific salary thresholds must be met.
Cannot have lived too close to the Dutch border prior to employment.
Strict minimum income and salary caps: There is a strict minimum salary level of EUR 46.660 (EUR 35.468 for the young masters). For 30%-rulings granted after 2022, the 30%-tax free calculation is capped at a salary of EUR 246.000 (in 2025)
No flexibility: It’s an all-or-nothing approach—either you apply it, or you don’t.
Instead of a fixed percentage, employers can reimburse specific, documented expenses related to the employee’s relocation and foreign status tax-free.
Benefits
Flexible: Only reimburse what’s actually incurred—no over- or under-compensation.
No strict time limitations (as long as the employee remains in a qualifying foreign assignment and remains a qualifying expat).
Drawbacks
High administrative burden:
Receipts and documentation are needed for every reimbursed item.
Each expense must be evaluated and justified individually.
Unpredictable costs for employers.
May lead to lower net benefits for employees, especially if the reimbursed costs are limited.
Tax Benefits Compared
|
ASPECT |
EXPAT-RULING |
ACTUAL ETC REIMBURSEMENT |
|---|---|---|
|
TAX-FREE AMOUNT |
Max. 30% of gross taxable salary |
Varies by actual costs |
|
PERIOD OF BENEFIT |
Up to 5 years (fixed term) |
As long as expat status applies |
|
CAP |
Yes, salary cap applies |
No statutory cap |
|
INTERNATIONAL SCHOOL FEES |
Covered |
Covered |
The expat-ruling generally offers higher and more predictable tax savings, especially for higher-earning expats. That said, the predictability is not absolute due to potential changes based on indexation, age, and upcoming reforms in 2027.
Administrative Burden
|
ASPECT |
EXPAT-RULING |
ACTUAL ETC REIMBURSEMENT |
|---|---|---|
|
PAYROLL SIMPLICITY |
Simple: fixed percentage |
Complex: receipts/documentation |
|
EMPLOYER RESPONSIBILITY |
One-time application and payroll entry |
Continuous cost tracking |
|
AUDIT RISK |
Low if ruling is granted |
Higher due to documentation/administration requirements |
|
HR INVOLVEMENT |
Low ongoing involvement |
High: requires ongoing validation |
The expat-ruling is far less work for HR and payroll departments. ETC reimbursement requires a solid administrative process and often legal/tax input to classify expenses properly.
Prefer the Expat-Ruling if:
The employee qualifies and the benefit has been granted.
The employee’s gross salary is high enough to make the 30% exemption significant
The employee’s gross salary is less than the salary cap.
The employer wants to minimize administrative overhead.
Prefer ETC Reimbursement if:
The employee doesn’t meet the 30%-ruling conditions.
The employee’s income exceeds the salary cap
Actual costs exceed 30% of the taxable income (e.g. due to extremely high relocation, COLA or housing expenses).
The employment is short-term, and the administrative effort is justified by higher savings.
Is COLA considered an ETC?
Yes. Cost of Living Allowances can be reimbursed tax-free as long as they relate to additional expenses caused by the employee working temporarily outside their home country. There is no fixed method for calculating COLA, but it must be reasonable and defensible to the Dutch tax authorities.
Is there a time limit for applying the ETC reimbursement method?
Unlike the 30%-ruling, there is no statutory time limit for ETC reimbursement. However, it can only apply as long as the employee is working temporarily outside their home country and continues to incur these extra costs.
With the removal of the phased reduction, the 30%-ruling is now more attractive than ever. It provides a predictable, generous, and low-administration benefit for both employers and employees. For most international hires, the 30%-ruling will therefore offer the most straightforward and tax-efficient solution—especially if the extra-territorial expenses are modest. Still, it's important to keep in mind that indexation, age-related changes, and upcoming legislative reforms may affect eligibility or benefit levels in the future.
That said, ETC reimbursement can be a viable (though admin-heavy) alternative and remains a useful tool in specific cases, especially when the 30%-ruling doesn’t apply or when actual extra-territorial expenses are high.
Employers should assess each expat case individually, considering not just tax benefits but also the administrative capacity of their HR and payroll teams.
Need help deciding which option is best for your situation? Feel free to contact our team for tailored advice.
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