In the spring of 2018, the Cabinet announced that the tax ruling for foreign employees – known as the 30% ruling – would be reduced from eight to five years as of 1 January 2019. No transitional arrangement was provided in the original proposal. However, on 15 October 2018 the Cabinet stated it would take transitional measures after all.
The 30% Ruling
The 30% ruling allows employers to make a tax-free payment of part of the wages – up to a maximum of 30% – of foreign employees, who work in the Netherlands temporarily. The 30% ruling applies to expats who earn an income of at least €37,000, have been recruited abroad and have ‘a specific expertise that is scarce on the Dutch labour market’. This ruling is meant to compensate expats for the additional expenses that working in the Netherlands involves, such as travel expenses, housing and living expenses.
The Original Proposal
In order to enhance the effectiveness of this ruling, the parties in government had agreed in the coalition agreement to reduce the maximum term of the ruling from eight to five years. This reduced term would apply to both new and existing cases, effective from 1 January 2019. No transitional arrangement was provided in the proposal. This would mean that some expats would already see their incomes affected as of 1 January 2019. The planned cut would affect an estimated number of 17,500 expats in 2019. This proposal gave rise to a lot of commotion in the expat community.
Transitional Measures After All
Now that the plan to abolish dividend tax has been finally cancelled, the Cabinet has reconsidered the measures in its Tax Plan 2019 with regard to the business climate. On 15 October 2018 the Cabinet announced that it will apply measures of transitional law after all to the expats who are currently already using the 30% ruling, and for whom the cut would put an end to their tax break in 2019 or 2020. These transitional measures are said to contribute to an attractive tax climate for establishing businesses.
The Cabinet has proposed to take transitional measures for a maximum of two years. This means that the 30% ruling for expats, to which the measure would put an end in 2019 or 2020, will now be ending ultimately on 1 January 2021.
This proposal has been presented to Parliament, where it is expected to be put to the vote on 15 November 2018.
Consequences for Practice
If the transitional measures proposed are adopted by Parliament, the impact of the 30% rule reduction will lessen considerably for a large group of expats. However, the proposed transitional measures will have no effect on expats who have been using the 30% ruling for less than five years in 2019 or 2020; for them, the end date of the 30% ruling will be brought forward by three years.
Since the change to the 30% ruling will have negative consequences for the income of expats, employers are advised to discuss the consequences of the measures with their expat employees on time.
Do you have any questions about the consequences of the measures proposed for your expat employees? Please contact Soo-Ja Schijf.
