New tax rules for expats: 30% ruling exemption on assets ending January 1, 2025

Starting January 1st, 2025 expats will no longer be able to claim exemption from taxation on their assets based on their 30%-ruling.

Most expatriates with the 30%-ruling have, up to now, not needed to plan for Dutch taxation of their worldwide assets and/ or company holdings. However, this will change starting January 1, 2025, as the option to choose partial non-residency status will no longer be available to taxpayers. The 2024 tax return will be the last year you can elect for this status.

What is Partial Non-Residency Status?

The partial non-residency status in the Netherlands is a valuable tax facility for expatriates benefiting from the 30% ruling. This status provides significant tax advantages by treating eligible taxpayers as non-resident taxpayers for certain components of their income tax return. In this article, we’ll break down what partial non-residency status is, the tax benefits it offers, how you can obtain it, and the recent changes that will affect this status in the coming years.

How does the Partial Non-Residency Status work?

Partial non-residency status is an option available to expatriates who qualify for the 30% ruling. Essentially, it allows Dutch resident taxpayers to be treated as non-residents for specific income categories. This dual approach can lead to substantial tax savings, particularly for those with foreign investments or other international income streams.

Key Tax Benefits of Partial Non-Residency

Partial non-residency status offers several tax benefits:

1. Exemption from Box 2 Taxation: Resident taxpayers are subject to so-called Box 2 taxation on all profits from their substantial interest in companies. Substantial interest means possessing 5% or more of the company stock or voting rights. Taxable profits include dividend and gain from the (deemed) sale of any shares. The first € 67.000 of the total profits is taxed at 24,5% and any profits above that at a 33% (2024 rates and figures). Based on the partial non-residency status, expatriates can claim an exemption for profits from their substantial interest in non-Dutch companies.

2. Exemption from Box 3 Taxation: Resident taxpayers are subject to so-called Box 3 taxation on all imputed income from worldwide savings and investments (excluding Box 2 investments). Box 3 taxation has been the subject of several court cases and changes and recently, the Supreme Dutch court ruled that the Box 3 system needs to be changed. More information can be found here.  Based on the partial non-residency status, expatriates can claim an exemption for imputed income from all savings and investments, except for income related to Dutch based real estate.

3. Foreign Workdays Exemption: For expatriates with an US resident tax filing obligation, the partial non-residency allows for an exemption of employment income allocated to foreign workdays under Box 1. This can be a significant benefit, reducing the tax burden on income earned outside the Netherlands.

How to Obtain Partial Non-Residency Status

To qualify for partial non-residency status, you must first be eligible for the 30% ruling. The 30% ruling is a tax advantage granted to employees hired from abroad, allowing them to receive up to 30% of their gross salary as a tax-free allowance for a maximum period of 60-months (5 years).

Once you’ve been granted the 30% ruling, you can opt for partial non-residency when filing your annual Dutch income tax return. This option is chosen by making it clear in your annual income tax return that you wish to be treated as a partial non-resident taxpayer. The benefits of the partial non-residency can also be extended to your fiscal partner by optimizing their tax return to yours.

Changes to Partial Non-Residency Status

Significant changes are on the horizon for partial non-residency status, driven by 2023 amendments to the Dutch tax law:

1. Abolition Effective 2025: Starting January 1, 2025, the option to choose partial non-residency status will no longer be available to taxpayers. The 2024 tax return will be the last year you can elect for this status.

2. Transitional Arrangements: For those who have the 30% ruling applied in the December 2023 payroll, a transitional exemption allows the continuation of partial non-residency status in the 2025- and 2026-income tax returns. However, this option will expire permanently starting January 1, 2027.

3. Impact on Expatriates: The loss of this tax facility could lead to increased tax liabilities for expatriates with foreign investments or significant capital outside the Netherlands. It's crucial to start planning now to mitigate the potential impact of these changes.

Planning Ahead

With the upcoming abolition of the partial non-residency status, it’s more important than ever for expatriates to reassess their tax situation and consider alternative tax planning strategies. The abolition of partial non-residency status may require a more comprehensive approach to managing international assets and company shareholdings, even for those that benefit from the transitional arrangements.

Our team of tax experts is here to assist you in navigating these changes and ensuring that you make the most of the remaining opportunities under the current tax laws. If you need help with tax planning or understanding how these changes will affect you, please don’t hesitate to contact us.

By staying informed and proactive, you can continue to optimize your tax position even as the rules evolve.