What are extraterritorial costs and how does the 30% ruling help cover them?

Moving to a new country, even if is for work, costs a lot of money. Relocation is not a simple thing to do and is not an easy decision to maintain in time. Taking care of home, company, and sometimes family in the former country is expensive, and requires a lot of physical and mental energy. That’s the situation of the knowledge migrant.

Part of these expenses are called “extraterritorial costs”, and the 30% ruling is a facility created by the Dutch Tax Office (Belastingdienst) to alleviate this burden.

In this article, we’ll understand the concept of extraterritorial costs, explore their impact on expatriates, and discover how your company can support them in managing these expenses.

What are extraterritorial costs?

Extraterritorial costs are additional expenses associated with the relocation of an expatriate who moves from one country to another for work reasons.

According to the Netherlands Tax Administration (Belastingdienst), extraterritorial costs can be:

• The additional expenses that result from sustaining the high cost of living in the Netherlands compared to other countries.
• The costs of traveling from a country to the Netherlands (sometimes including the expatriate’s family).
• Expenses associated with official personal documents, such as residence permits, visas, and driver’s licenses, among others.
• The costs of medical evaluations and vaccinations required to be able to remain in Dutch territory.
• The expenses of a first accommodation (possibly temporary) and the costs of a first rental.
• If the charges for the first home exceed 18% of the employee’s total salary, it applies to extraterritorial costs.
• The costs of double housing (in case part of the family remains in the country of origin).
• Storage costs for household furniture that is not moved to the Netherlands.
• Travel expenses to the country of origin for family visits.
• Additional costs associated with filing taxes in the country of origin.
• Expenses for courses to learn the Dutch language for the knowledge migrant and their families.
• The costs of telephone calls (non-commercial) to their country of origin.
• Charges associated with the schooling of expatriates’ children.
• The costs of applying for a social security exception, also called “E 101 certificate” or form A1.

Annual decision: 30% ruling or reimbursing actual expenses

To help migrants cover these expenses, the Dutch government created the 30% facility (which has certain conditions that will be explored in this article), as well as the possibility of having a refund of 100 % of the extraterritorial costs.

Every year, workers must choose between applying for the 30% ruling or claiming reimbursement for actual costs incurred abroad.

The Tax Administration states that this choice should be made “during the initial payroll period of the calendar year” in which they refund extraterritorial expenses. Their decision remains valid for the entire year as long as the 30% facility is in effect during that year.

Non-extraterritorial costs

Just as there are costs that apply for the benefit of a refund, there are others that cannot be reimbursed, including:

• Comparable secondment allowances, bonuses, and reimbursements (foreign service bonus, expatriate allowance, and foreign service allowance).
• Capital losses in the state of residence.
• Home purchase and sale expenses (including reimbursement of home purchase expenses, and broker fees).
• Compensation for higher tax rates in the Netherlands (or tax equalization).

How the 30% ruling help highly skilled migrants face extraterritorial costs?

The 30% ruling is a tax-free allocation of a knowledge migrant’s taxable salary. This tax benefit was created in order to help expatriates cover part of their offshore costs.

It also allows organizations to compensate their highly skilled migrant’s expenses for a maximum period of 5 years (or 60 months).

However, international talent must opt for reimbursement of their full extraterritorial costs or the application of the 30% facility.

Starting in 2024, employees who apply for the 30% ruling will not receive this full benefit, but rather it will be progressively reduced:

• For the first 20 months, their salary will be exempt from 30% of taxes
• For the next 20 months, their salary will be exempt from 20% taxes.
• Finally, for the last 20 months, their salary will be exempt from 10% taxes.

It is important to clarify that to apply for the benefit of the 30% ruling, expats must meet certain conditions. Therefore, it is important to find out if they are eligible or not, to provide them with the best help.

How can your company guide the expat to relieve these extraterritorial costs?

1. Apply the 30% Ruling:
   • Assist migrants in understanding eligibility criteria and the application process.
   • Provide necessary forms and documentation.
   • Coordinate with relevant authorities to ensure timely approval.
2. Highlight financial benefits:
   • Language courses (Dutch language learning).
   • Housing allowances.
   • Transportation discounts.
   • Educational scholarships for expat children (or child benefit).
3. Offer Tax advice:
   • Offer tax guidance during tax filing season (it typically occurs between May 1st and July 1st)
   • Explain local tax laws and obligations (to avoid penalties and overcharges).
   • Optimize tax benefits (deductions, credits).
   • Ensure compliance with reporting requirements.

Other benefits that help migrants save money

Beyond the 30% facility, other additional benefits can positively impact the financial life of highly skilled migrants. Among them:

• Housing assistance: Providing guides on rentals or houses for sale can help expats relocate with less stress and avoid overpaying. Your organization can also offer information on rental subsidies (the new rental law for the medium market is a great option) or real estate companies with which your organization has a relationship.
• Medical coverage: Explaining to expats how the medical system works in the Netherlands can help them save money and surely avoid stressful situations. You can also share information about health insurance and how to access public health services appropriately.
• Transportation subsidies: Informing highly skilled migrants about discounts on public transportation or community bicycle programs can also help them save transportation costs in their daily lives.

Why this is important for your company?

Demonstrating commitment to your expatriate employees increases your organization’s ability to retain them and enhances your company’s reputation, making it easier to attract high-quality talent.

An employee who feels supported by their organization is more likely to stay there and be satisfied with the decision they made when migrating to a new country.

By assisting them in this process, they are more likely to focus on doing their jobs well and reduce the stress caused by migration.

Hire international talent with confidence

If your organization needs foreign talent but is unsure how to manage the challenges of migration and relocation, is of utmost importance to have access to expert support. This will help you avoid the risk of submitting incorrect documentation and facing penalties.

At EMG, we can streamline this process for you. Our specialists are ready to assist your HR teams. Get in touch with us today.

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