Practical and technical considerations for HR and payroll managers
The Dutch expat scheme (formerly known as the 30% ruling) is familiar territory for HR and payroll professionals and is generally straightforward to administer as long as an employee actively performs work. Complexity arises when the employment relationship formally continues, but no actual work is performed, such as during garden leave or a sabbatical.
This article discusses the fiscal qualification of these situations, the consequences for applying the expat scheme, and the transferability of the scheme within the so‑called three‑month period.
Legal background: garden leave as a “spread‑out dismissal”
During garden leave, the employee is placed on non‑active status. No work is performed, but salary is often continued for several months. Although the employee formally remains employed, the Dutch tax authorities focus primarily on the economic nature of the remuneration for purposes of the expat scheme.
Key characteristics of garden leave are:
From a tax perspective, the salary paid during garden leave is therefore regarded as a spread‑out severance payment: remuneration is paid periodically, but economically represents the settlement of the employment relationship rather than compensation for current work.
This has an important consequence. Salary paid during garden leave does not qualify as remuneration from current employment. As the expat scheme only applies to income from current employment, it is not applicable to severance payments, even if they are paid monthly. As a result, the expat scheme (formerly the 30% ruling) cannot, in principle, be applied during the garden leave period.
Example
An employee is placed on garden leave from 20 October 2025 until 31 December 2025 and performs no further work. The salary paid for the remainder of October, November and December is fiscally regarded as remuneration connected to the termination of employment. The expat scheme cannot be applied to these payments.
Back payments during garden leave
Dutch tax law does provide for a limited practical extension: after the end of employment, the expat scheme may still be applied for one payroll period. This additional month is intended to cover back payments (such as holiday pay, bonuses or accrued but unused vacation days) that were earned during the period of active employment.
For this purpose, garden leave is treated as an actual termination of employment. If an employee is placed on non‑active status on 20 October, the expat scheme may still be applied in the November payroll, but not beyond that.
Back payments made in November must be analyzed based on their origin:
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payments relating to work performed prior to the start of garden leave (for example, bonuses linked to earlier performance or accrued vacation rights);
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payments that solely relate to the termination of employment (such as continued monthly salary during garden leave).
Only the first category may still fall within the scope of the expat scheme.
For payroll teams, this means that at the start of garden leave it is crucial to identify any remaining back payments and, where possible, include them in the first subsequent payroll period. Each payment must be assessed individually to determine its origin and whether the expat scheme can still be applied.
The three‑month period when changing employers
To transfer the expat scheme (formerly the 30% ruling) to a new employer, the employee must enter into a new employment contract within three months after the end of the previous employment.
A crucial point is that, in the case of garden leave, this three‑month period starts on the first day of non‑active status, not on the formal contractual end date.
The reasoning mirrors the application of the scheme itself: for tax purposes, garden leave is regarded as the end of active employment. Consequently:
This interpretation is also explicitly reflected in the Dutch tax authorities’ application form, which states that in cases of non‑active status, the three‑month period starts on the first day of non‑active status.
Salary threshold and pro‑rata rules during garden leave
Another practical issue concerns the salary threshold and the pro‑rata calculation of annual salary to assess whether the employee meets the continuity requirement of the expat scheme.
In cases of regular termination, the annual salary is pro‑rated based on the period during which the employee was actually employed. As garden leave is fiscally equated with termination of employment, it is logical to apply the same methodology.
In practice, this means:
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the relevant employment period ends on the first day of garden leave;
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the annual salary is pro‑rated based on that period (for example, from 1 January to 20 October);
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the additional month during which the expat scheme may still be applied does not count as part of the period for pro‑rata purposes.
In the example above, the salary would be pro‑rated based on approximately 9.64 months out of 12 (9 months and 14 working days within 12 months). Although there is no explicit policy guidance or case law on this point, this approach aligns logically with the fiscal qualification of garden leave.
Sabbaticals: a fundamentally different starting point
At first glance, a sabbatical may appear similar to garden leave: no work is performed and often no salary is paid, while accrual of vacation rights, social security coverage and pension accrual may be suspended. Nevertheless, the tax treatment under the expat scheme is fundamentally different.
During a sabbatical, the employment relationship continues with the intention of return. Unlike garden leave, there is no intended termination of the employment contract. This is often explicitly documented in a sabbatical agreement. The key distinction therefore lies not in the absence of work, but in the intention and contractual design:
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a sabbatical is typically a temporary interruption with an explicit or implicit return clause;
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the employment relationship is preserved rather than wound down;
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there is no (deferred) dismissal process.
As a result, the employment relationship remains fiscally in place during a sabbatical. This means:
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the expat scheme cannot be applied as long as no salary is paid;
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however, there is no termination of employment;
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and therefore the three‑month period does not start.
Only when the employee actually leaves employment and joins a new employer does the three‑month period become relevant.
Conclusion for HR & payroll
For the Dutch expat scheme (formerly the 30% ruling), it is essential to look beyond the contractual form and focus on the actual and fiscal qualification of the situation. Garden leave and sabbaticals may appear similar, but they lead to materially different tax consequences.
For this reason, it is crucial for HR and payroll teams to:
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clearly and consistently document the chosen arrangement (garden leave or sabbatical);
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explicitly record the purpose and nature of the period without active work;
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inform employees in a timely and transparent manner about the consequences for the expat scheme, the salary threshold and the three‑month period.
Proper documentation and clear communication not only help prevent discussions with the Dutch tax authorities, but also avoid unexpected tax consequences for employees. In practice, this often makes the difference between a manageable payroll process and a costly correction afterwards.
Exterus supports employers by:
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providing legal and tax qualification of garden leave and sabbatical arrangements;
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assessing the impact on the expat scheme, the salary threshold and the three‑month period;
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advising on proper documentation in employment contracts, settlement agreements and HR policies;
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and informing both HR/payroll teams and employees upfront about the tax consequences.
By addressing these aspects at an early stage, we help employers manage risks and enable employees to make well‑informed decisions.
