The 30% ruling policies are being debated again by the Dutch Parliament. After announcing the progressive abolition of tax benefits for highly skilled migrants, which came into effect in January of this year, some of the largest companies in the country are thinking of going to neighboring nations in search of benefits for their international staff.

To consider the full implications of these changes for the Global Mobility sector, we asked our Managing Director, Nino Nelissen, for his views on the 30% ruling and the changes implemented.

30% Ruling Changes: All You Need to Know

What is the 30% ruling?

The 30% ruling is a tax benefit for highly skilled migrants who come to work in the Netherlands. It allows them to exclude 30% of their salary from their taxable income for a period of time, typically five years.

The reason for this tax exemption is for the knowledge migrants can cover extraterritorial costs of relocation for work. This benefit help talent retention for companies because alleviates the burden of moving to a different new country.

Why is it important?

It’s been a cornerstone of attracting international talent to the Netherlands since the end of World War II. The idea is to make the Netherlands a more attractive place for skilled workers to relocate, boosting the economy and fostering innovation.

We need to attract them because scarcity of specialized workers especially in IT and other technological and corporative niches. This benefit is fundamental for growth in this type of company.

How does it currently work?

Currently, the 30% ruling offers a three-tiered tax reduction for highly skilled migrants. Initially, for the first 20 months, they can exclude 30% of their salary from their taxable income, effectively saving on taxes. Subsequently, for the next 20 months, that benefit reduces to 20%, and then finally, for the last 20 months, it drops to 10%.

After those five years, the knowledge migrant will be completely integrated into the tax system and will contribute 100% of their salary.

How did this system differ from previously?

It used to be a flat 30% tax reduction for the entire five-year period. This provided greater certainty and a more attractive incentive for skilled migrants considering a move to the Netherlands. Also, relocation is a deep and long process and this benefit serves as support from the Government for knowledge migrants integration into the country.

What’s changing with the 30% ruling?

Unfortunately, there’s a growing political movement against the program. While some politicians argue it’s unfair, these arguments often overlook the significant costs associated with relocating to a new country. The real concern is that these changes, implemented very quickly, are making the Netherlands less competitive in the global market for talent.

Why are these changes significant?

Companies used the 30% ruling as a valuable tool to attract and retain top talent. Now, with the changes, it’s no longer a compelling benefit for many skilled workers considering the Netherlands.

In fact, the main problem is that many companies are looking to move out of the country, due to these benefit cuts, which affect them directly. If they cannot hire specialized personnel, it is difficult to maintain quality and growth. This exodus of companies will seriously impact the country’s economy.

Is it just a tax break for highly skilled migrants, or are there other implications?

The 30% ruling is a key component, offering tax relief on a portion of their income. But it’s just one piece of a larger puzzle. The ruling also used to allow for a “partial non-resident taxpayer” status, which meant income from savings wasn’t taxed in the Netherlands. However, this is being abolished, and likely won’t significantly impact most early-career migrants the program targets, but will certainly have a significant impact on those who have a high level of seniority.

Also, the 30% ruling allows tax-free reimbursements for certain “extraterritorial costs.” These include things like relocation expenses and the higher cost of living in the Netherlands. Finding affordable housing is a major challenge, as data shows expats often end up paying more simply because they’re unfamiliar with the market.

Companies could potentially offer alternative compensation structures to compensate for the reduced tax benefit. However, this creates additional complexity. Tax lawyers might find it stimulating, but companies now need to recruit talent with potentially lower salaries and manage reimbursements separately.

How does a company apply for the 30% ruling?

The process involves a few key steps. First, it’s crucial to confirm the employee’s eligibility. They must be a highly skilled migrant from abroad (and far away from NL), working full-time, and earning a salary that meets the government’s minimum threshold.

Company and international talent both have to do the process together, but the receiver of the benefit usually is the applicant.

Once eligibility is confirmed, what happens next?

The company and the employee need a formal agreement stating the employee qualifies for the 30% ruling. Then, the company (or their payroll provider) submits an application to the Dutch Tax Authorities.

They’ll need documents like:

• Employment contract
• Proof of salary, and
• Evidence that the employee meets the “highly skilled migrant” criteria

Are there any recent changes to the application process?

Yes. As of April 2024, companies need to keep more extensive documentation for employees under the 30% ruling.

This includes things like:

• All pay slips
• Diplomas
• Proof of language proficiency and global rankings (potencially, depending on the profession).

Employers have to keep documentation in the files for 5 years – the reason for this is that the Immigration and Naturalisation Service (IND) reviews companies to check compliance with documents.

Compared to neighboring countries, how does the current Dutch system stack up?

Countries like Belgium still offer similar, consistent tax benefits for skilled migrants. Additionally, Sweden has even extended their own version of this program, making the Netherlands a less competitive option for talent and, therefore, also for companies.

What does this mean for the future of the 30% ruling in the Netherlands?

The recent changes, implemented just this January, are causing some to fear a talent exodus. Highly skilled workers may choose to go elsewhere or may not come at all, impacting the Dutch economy. With a review scheduled for next year, it’s crucial to re-evaluate the balance between attracting talent and tax implications.

With all these complexities, what’s the takeaway for companies looking to attract talent in the Netherlands?

The need for professional help is greater than ever. The system is complex and recent changes, coupled with the housing situation, add another layer of difficulty to relocation. Companies and highly skilled migrants alike should seek professional guidance to go through these challenges and ensure an easy transition for highly skilled migrants.