The 30% ruling for expats in The Netherlands

Employees from abroad who come to The Netherlands to work (expats), are often offered a compensation for the extra costs of residence abroad, the so-called extraterritorial costs. Employers in The Netherlands can in that case opt for the so called 30% ruling. This means that the employer is able to pay 30% of the gross salary free of tax, provided that certain criteria are fulfilled. Dutch employment lawyer Sander Schouten briefly discusses these criteria.

Criteria for the 30% ruling

To apply for the 30% ruling, an employee is required to possess a specific expertise that is not or little available on the Dutch job market (expertise criterium). This expertise can be evident from the level of education, the extent of experience or the level of income. Further, an employee has to meet the definition of a so-called “incoming employee”. He must have lived at least 150 km from the Dutch border for at least 16 months in the two years preceding the start of his employment in the Netherlands. To be able to profit from the 30% ruling, it is not necessary however that the work is actually carried out in The Netherlands. Key is that the income is taxable in The Netherlands under Dutch tax law or a tax treaty.

Joint request, maximum 8 years

The employer and employee have to file a joint request at the Tax Authorities to apply for the 30% ruling. Initially an employer can pay the foreign employee tax-free compensation for his expat costs for a maximum of 8 years. The employee is allowed to change jobs in this period without losing his rights under the 30% ruling but he is required to find a new job which also qualifies for the 30% ruling within 3 months after his last employment ends. This condition is enforced strictly.

Applicable on all income: redundancy payments included?

The 30% ruling can be applied to all income out of a current position. This income includes holiday allowance and (profit-sharing) bonuses. The question whether the 30% ruling could also be applied to redundancy payments was answered negatively by the Dutch Supreme Court. A redundancy payment cannot be considered as salary from a current position as it derives by nature from a former position which is no longer there (hence the redundancy payment).