Highly educated foreign employees (expats) can apply for an annual tax-free allowance of up to 30% of their wages through their employer. This expat rule was intended to compensate these employees for their travel costs and finding a home. The government is now coming up with new rules. The tax benefit for these employees will be reduced gradually. This should close the gap between foreign and Dutch employees.
Tax benefit
The 30% ruling applies to foreign employees who work temporarily in the Netherlands and earn more than € 46,107 gross per year. Under strict conditions, they can receive 30% of their salary tax-free for five years. For this it is important that:
- The employee is employed by an employer.
- The employee has a specific expertise. This must involve expertise that is rare on the Dutch labor market. This includes many IT professionals and technicians.
- The employee meets the definition of incoming employee. This only includes employees who lived at a distance of more than 150 kilometers from the Dutch border for more than 16 months in the 24 months before their first working day. This scheme therefore cannot apply to employees from Belgium, Luxembourg, Northern France, large parts of Germany and part of the United Kingdom.
- The Tax Authorities must have issued a decision showing that the employee is eligible for the 30% ruling.
The arrangement
While highly educated foreign employees were still entitled to compensation of 30% of their salary for five years until the end of 2023, the rule has now already been cut back. As of 1 January 2024, expats who met the above conditions would receive:
- 30% tax-free for the first 20 months;
- 20% tax-free for the following 20 months;
- 10% tax free for the last 20 months.
The current system may be reversed by the new cabinet now that research has shown that the costs of the new 30% rule will not decrease significantly. Also based on the feasibility and predictability of the scheme, the cuts may be reversed and a set percentage will be chosen for the entire term.
Costs of expats
Research has also shown that the costs for expats to work in the Netherlands are often lower than what is reimbursed by the rule. 91% of the asked expats confessed that the percentage of 30% is a higher compensation than the actual costs. According to them, the costs are on average 12%. This outcome has been taken into account by the cabinet in drawing up a Tax Plan for 2025.
Tax plan 2025
The government wants the Netherlands to remain attractive for companies to establish themselves in the Netherlands, grow and attract the necessary expert staff. The reduction in the expat scheme will therefore be partly reversed from 2027. The same deduction percentage will apply again for five years. The percentage will be adjusted from 30% to 27%. The salary standard will also be increased from € 46,107 to € 50,436.
Need advice?
Do you have any questions about this subject or would you like to know what these changes will mean for you? We are happy to help you, both in Dutch and English.
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