In this article, accounting firm BDO gives you a better understanding of the possible fiscal consequences of the discontinuation of the 30% ruling.
Many expats benefit from the 30% ruling, a Dutch tax facility aimed at attracting foreign employees with specific skills to work in the Netherlands by lowering the Dutch tax burden. This facility has been the subject of discussion for a while, ultimately resulting in a change last year.
The Dutch government decided that, as of January 1, 2019, the maximum duration of the 30% ruling is shortened from eight to five years, with a transitional law for two years (until December 31, 2020).
This means that the end date of this facility is nearing for quite a lot of expats. Losing the 30% ruling is undesirable, and unfortunately, this will happen a bit sooner than expected for some of you. What are the ensuing consequences and what should you keep in mind in this regard?
The facility
If you come to the Netherlands for employment, you may incur additional costs, the so-called extraterritorial costs (the extra costs incurred for residing outside your country of origin). Examples of extraterritorial costs are, amongst others, the costs of double housing, travelling costs for family visits, and extra costs of living because of higher prices in the Netherlands compared to the prices in your home country.
In order to compensate for these costs, your employer may provide (at most) 30% of your salary tax-free, given that the conditions are met. This tax-free amount is considered to cover your extraterritorial costs, regardless of the actual costs incurred.
Consequences of the discontinuation of the facility
There are some consequences when it comes to the discontinuation of the 30% ruling:
Wage tax on 100% of salary
If the benefit of the 30% ruling is granted to you, you receive a tax-free allowance equivalent to (at most) 30 percent of your gross salary. Therefore, losing the benefit of the 30% ruling means that wage tax will be levied on 100 percent of your salary. Consequently, as soon as your 30% ruling has ended, your net salary will decline (because of the increase in your taxable amount).
To give you a better understanding of how much your net pay may decline, we have worked out a simplified example.
For example: situation with and without application of the 30% ruling when gross income from employment is 55.000 euros:
| With 30 percent ruling | Without 30 percent ruling | |
|---|---|---|
| Gross salary | 55.000 | 55.000 |
| Subtract: 30 percent allowance | 16.500 | - |
| Taxable income | 38.500 | 55.000 |
| Subtract: tax | 4.780 | 10.940 |
| Add: 30 percent allowance | 16.500 | - |
| Net salary | 50.220 |
44.060 |
*This example is based on the tax rates for 2020, but in the case of an ending 30% ruling as per 1 January 2021, the 2021-rates will apply.
As you can see, with an annual gross salary of 55.000 euros, the tax disadvantage of no longer using the 30% ruling amounts to 6.160 euros per year (i.e. 50.220 euros minus 44.060 euros).
However, please note that this personal consequence does not occur if you and your employer have agreed on a net wage agreement. In that case, the amount of your net wage remains the same, regardless of whether or not the 30% ruling is applicable.
Partial non-resident taxpayer status no longer possible
An employee who lives in the Netherlands usually qualifies as a resident taxpayer and is, in principle, taxable on their worldwide income. However, if you are eligible for the 30% ruling, you have the possibility to opt for the partial non-resident taxpayer status.
When having this status, you are considered a non-resident taxpayer for income from Box 2 (income from substantial interest) and Box 3 (income from savings and investments), even though you are living in the Netherlands. This means that you are exempt from taxation in Box 2 and Box 3, with the exception of Dutch sourced income. Consequently, the income that should be reported in Box 2 and Box 3 will be very limited.
As the application of the 30% ruling is a requirement to be treated as a partial non-resident taxpayer, this is no longer possible when your 30% ruling has terminated. As a result, the income that should be reported in Box 2 and Box 3 will increase and – logically – more tax will be levied.
Consequences for fiscal partner
If you and your partner are regarded as fiscal partners (because you are married or you have a registered partnership, for example), you are allowed to allocate certain income to each other in the most beneficial way. Any apportionment is allowed, as long as the total amount sums up to 100 percent of the income element.
So if you and your partner qualify as fiscal partners, you are also allowed to allocate these income elements to the one for whom the 30% ruling is applicable. Additionally, in case you have opted for the non-partial resident taxpayer status, this means that even the tax levied on your partner’s Box 2 and Box 3 income could be very limited during application of the 30% ruling (provided that this income is actually allocated to you).
As indicated, treatment as a partial non-resident taxpayer is no longer possible when your 30% ruling has come to an end. Consequently, the allocation of income to each other is no longer as beneficial as it used to be (despite the fact that you and your partner still qualify as fiscal partners).
After your 30% ruling has ended, you can still allocate certain income to each other in an effective way, but limited tax levied on Box 2 and Box 3 income is no longer the case. All in all, this means that losing your 30% ruling may have consequences for your partner’s income tax return as well.
Extraterritorial costs
As you may know, the employer can either reimburse the actual extraterritorial costs incurred by the expat or provide (at most) 30 percent of the salary on a tax-free basis. Please note that for expats whose 30% ruling has ended, it is not possible to receive a free-of-taxes reimbursement for actual extraterritorial costs. The aforementioned reduction from eight to five years also applies to the possibility of reimbursing extraterritorial expenses tax-free.
Consequently, in case your employer, for example, has granted you a separate allowance for international school fees for any children, this allowance is no longer tax-free when your 30% ruling has come to an end.
If you have questions about losing the 30% ruling, need assistance with reviewing your personal consequences or would like more information, please do not hesitate to get in touch with BDO. They are happy to assist!