The 30% ruling: in constant (d)evolution

Feb 12

On December 19th, 2023, the Senate approved an amendment to the 30%-ruling. Below, we have summarized the changes.

30/20/10% scheme

Under the old 30%-ruling, the employee was eligible to designate up to 30% of the agreed compensation package as a tax-free allowance for a maximum term of up to 5 years or 60-months.

Based on the tax law changes effective January 1st, 2024, the ruling is still granted for a maximum period of 60 months (or 5 years), however:

the tax-free allowance of up to 30% is limited to the maximum period of the first 20 months of the ruling;
for the subsequent 20 months, a tax-free allowance of up to 20% is allowed;
and for the remaining 20 months, a tax-free allowance of up to 10% of the Dutch taxable salary is allowed.

If the 30%-ruling is granted for a term of less than the 60-month term, then the months are counted backwards to determine the applicable maximum percentages. For example, if the 30%-ruling is granted for 48 months, then:

a tax-free allowance up to 30% is allowed for the first 20 months;
followed by a tax free allowance of up to 20% for the next 20 months;
and for the remaining 8 months, a tax-free allowance of up to 10% of the taxable compensation.

Transitional law

For 30%-rulings that were implemented in the December 2023 payroll, there is a transitional exemption that allows a tax-free allowance of up to 30% for the full term of the 30%-ruling of up to 60 months. Existing 30%-ruling grants qualify for this transitional exemption if the 30%-ruling was applied to the payroll in December 2023, based on a 30% ruling decision.

This transitional exemption also applies if the employee changes employers and transfers the 30%-ruling to the new employer, provided that the new employment qualifies for all the conditions for the 30% ruling and that the new employment is agreed within 3-months of ending the previous employment agreement.

Possible planning

The 30% tax-free allowance is a fixed reimbursement meant to cover the actual extraterritorial costs of working abroad in The Netherlands, without the burden of accounting these expenses. However, if the actual extraterritorial expenses exceed this fixed reimbursement, especially when limited to 20% and 10% instead of 30% of the compensation package, you can opt for the tax-free reimbursement of the actual costs instead of applying the 30%-ruling. This may proof a viable alternative to the 30%-ruling. However, this does require specific review of the existing accounting processes and payroll system of the employer. Please contact our team of experts for more information.

Salary cap

As a result of changes in the 2022 Tax Plan, the calculation of the 30% tax allowance has been capped at the so-called 'Balkenende standard' effective January 1st 2024. The 2024 Balkenende-standard is set at a salary of € 233,000 (this amount is indexed annually). If the employee’s salary exceeds this amount, the 30% tax allowance cannot be calculated on the excess. Consequently, the maximum amount that can designated as a tax-free allowance in 2024 is € 69.900 (€ 233,000 x 30%).

Transitional law

For 30%-rulings that were already implemented in the payroll before December 31, 2022, there is a transitional exemption that allows 30% tax-free allowance to be calculated uncapped until 2025. The cap on the calculation will only apply starting 2026. Existing 30%-ruling grants qualify for this transitional exemption if the 30%-ruling was applied to the payroll in December 2022. Please note that the tax authorities have confirmed that to qualify, the tax-free allowance must also have been received in before December 31st, 2022.

Possible planning

The employer and employee can choose how the capped tax-free allowance of € 69.900 is calculated:

the € 69.900 can be pro-rated on the bases of 12 months at € 5.825 per month;
the € 69.900 can be calculated uncapped on a monthly basis until the maximum tax-free allowance of € 69.900 is exhausted.

Our team of payroll experts can assist you in determining what option works best for your situation and can also assist with the implementation into your payroll system. Please contact us for more information.

Partial foreign tax liability

Under the old 30% ruling, taxpayers who have been granted the 30%-ruling can choose to be treated as a so-called partial non-resident taxpayer when filing their annual Dutch income tax return for the duration of their 30%-ruling. Based on the partial non-residency, taxpayers can claim an exemption for income from foreign sources in Box 2 and Box-3. In addition, taxpayers with an American income tax filing obligation can claim an exemption for income allocated to foreign workdays in Box-1.

Based on the tax law changes, choosing for treatment as a partial non-resident taxpayer is no longer allowed effective January 1st, 2025. The 2024 tax return is the last year that taxpayers can choose to be treated as a partial non-resident taxpayer.

Transitional law

For 30%-rulings that were already implemented in the December 2023 payroll, there is a transitional exemption that allows treatment as a partial non-resident taxpayer in the 2025 and 2026 income tax returns. This option will expire for tax years starting January 1st, 2027. Existing 30%-ruling grants qualify for this transitional exemption if the 30%-ruling was applied to the payroll in December 2023.

Possible planning

The benefits of the partial non-resident position is a valuable tax planning tool to taxpayers. Especially, for taxpayers with shareholdings in foreign corporations, significant investment capital and taxpayers with American filing obligations. Not having this tax planning tool requires comprehensive tax planning on an individual basis in order to mitigate and / or optimize the Dutch tax implications. Please contact our team of tax experts to assist you in this.