Significant changes to Dutch 30%-ruling per 1 January 2024

Two additional changes to the 30% ruling for expats in the Netherlands are to be expected per 2024, as part of the Dutch Tax Plan 2024. Pieter Omtzigt, a Member of Dutch Parliament, introduced an amendment to the Tax Plan 2024 on October 23, proposing further restrictions on the 30% ruling effective from January 1, 2024. Additionally, Member of Parliament Grinwis submitted an amendment to end the limited tax payer status for employees with the 30% ruling.

Currently, qualifying expats can receive a tax free allowance of up to 30% of their taxable income for a maximum period of five years. The amendment aims to reduce this allowance in incremental periods of 20 months, bringing it down from 30% to 20% and further to 10%. This article delves into the details of this proposed amendment and its potential impact.

The limited tax payer or partial tax liability status exempts qualifying expats from taxation on their assets (box 3) and substantial interests in foreign companies. In this article we will explain the details of the amendments and their potential impact.

The Amendments

Firstly, the reduction of the tax free allowance for expats who qualify for the 30% ruling. The proposed change means that the amount that can be considered as a tax free allowance for extaterritorial costs and provisions (the 30% ruling) for inbound expatriate employees can be set at:

• A maximum of 30% of the Dutch taxable income for a maximum of the first 20 months
• a maximum of 20% of the Dutch taxable income for a maximum of the following 20 months, and
• a maximum of 10% of the Dutch taxable income for a maximum of the next 20 months.

The amendment leaves the maximum duration of the 30% ruling at five years (60 months to be precise), and a transitional arrangement will be put in place for expats who had the 30%-ruling applied in the payroll of December 2023.

Secondly, the abolition of limited tax payer status. Currently, employees with a valid 30% ruling can opt for this limited tax liability via their Dutch personal income tax return. This status means that the expat is not liable for tax on their assets in box 3 (with the exception of real estate located in the Netherlands) and also not for substantial interests in box 2 (unless the company is based in the Netherlands). This change is particularly relevant for very wealthy individuals ('expats').

A transitional arrangement will also be introduced for existing situations as of December 2023, for which situations the limited tax payer status will end no later than December 31, 2026.

What happens now?

The Dutch Parliament has voted in favor of the amendements on 26 October 2023. If het Dutch Senate also approves, this will mean that we will have 3 changes tot he 30%-ruling per 1 January 2024:

1. A cap on the 30%-ruling allowance. The 30%-ruling for new situations after 1 January 2023 can be applied to a taxable salary of up to the ‘WNT salary’ (a fixed maximum salary for public servants, the prime minister). For 2024 this is € 233,000. For existing cases per December 2022, this cap applies only from 1 January 2026. This measure is particularly relevant for expats with high salaries and significant additional benefits such as bonuses, equity and stock options.
2. A limitation of the 30%-ruling itself for employee who qualify for the 30%-ruling from 1 January 2024. As mentioned, these expats will effectively have a 30%-ruling ruling for 20 months, a 20%-ruling for a subsequent 20 months and a 10%-ruling for the final 20 months maximum. If the total validity period is shorter than 60 months, you still follow the same calculation sequence.
3. The abolition of partial foreign tax liability. For existing situations, the abolition will apply no later than December 31, 2026.

Considerations:

• Potential impact that the latest change may have on empoyees with a taxable salary that exceeds the ‘WNT salary’?
• The possibility to reimburse the actual extraterritorial costs remain in tact. This leaves employers the option to compensate the actual costs if they are higher than the (reduced) 30%-ruling.
• Assess whether you can employ soon-to-be hired expats already per December 2023, instead of from January 2024.

We advise you to make an inventory of your existing 30% cases and assess the possible financial impact in 2024 and further.

Lastly

These new changes to the Dutch 30% ruling for expats in the Netherlands, will certainly stir discussions about its potential implications. This change will definitely impact the attractiveness of the Netherlands for skilled professionals from abroad and their employers.

Reference: 36418, nr. 63 en 69, Wijziging van enkele belastingwetten en enige andere wetten (Belastingplan 2024)

[Disclaimer: The information provided in this article is based on the legislation and Dutch Tax Plans 2024 and proposed amendment to the 30% ruling as of the time of writing and may be subject to change pending legislative decisions.]