What does the abolition of partial foreign tax liability mean in 2025?

The abolition of partial foreign tax liability in 2025 brings significant changes for expats in the Netherlands. Find out what this means for you.

The 30% ruling and planned changes explained

The 30% ruling is a tax benefit for expats moving to the Netherlands for work. It allows them to receive 30% of their gross salary tax-free, to cover expenses incurred while moving to and staying in the Netherlands. One of the benefits of this arrangement was the option to use the partial non-residency status. The partial non-residency status effectively results in a tax exemption on income from savings and investments (Box 3), such as rental income, dividend and interest, and income from foreign-based companies (Box 2), such as dividends.

However, as of January 1, 2025, partial non-residency status will be abolished. This means that expats who use the 30% ruling can no longer choose to be treated as a partial non-resident taxpayer for Box 2 and Box 3 income. This may have a significant impact on their tax position.

Implications for expats and their tax returns

The abolition of the partial non-residency status means that from 2025 expats will have to declare their worldwide income in Box 2 (substantial interest in a Dutch and foreign-based company) and Box 3 (income from savings and investments). This may result in a higher tax burden for many expats.

Transitional law: Who is eligible and what does it mean?

Expats who were already using the 30% ruling in December 2023 are eligible for a transitional rule. This means they can still use the partial foreign tax liability until the end of 2026.

The transitional law provides temporary relief, but it is important to understand that this is only a temporary measure. Expats should plan for the period after 2026, when they will be fully subject to the new rules.

Preparing for abolition: what to do?

If you are not covered by the transition law, it is crucial to know the value of all your worldwide assets on January 1, 2025. You will need this information when completing your 2025 tax return in 2026.

It is wise to consult a tax advisor to understand how the elimination of partial non-residency tax liability affects your specific situation. In addition, it is important to adjust your financial planning and possibly revise your investment strategy before January 1, 2025, to be prepared for the higher tax burden.

If you would like to understand the potential tax burden in Box 2 and 3 as of January 1, 2025, please contact us.