Important Proposal to Change the 30% Ruling

Tax Information Exchange

Members of the Dutch government recently met and have agreed on a proposal to reduce the 30% ruling for new and existing cases. This proposal will be part of the 2019 budget, and if approved by Dutch parliament, become effective January 1, 2019. This proposal will have some important consequences for individuals working in the Netherlands.

In the current system, the 30% ruling offers the possibility of qualifying individuals to receive up to 30% of their employment income free of tax. In addition, almost every taxpayer that is eligible elects for the so-called “partial nonresident status” under which most passive investment income is excluded from taxation. For US Citizens and US Green Card holders, this tax exemption is extended to employment income from non-Dutch sources. Those of whom find the 30% allowance insufficient, have the option to elect to have additional costs, as a result of working in the Netherlands, reimbursed free of tax.

The agreed-upon reduction will have a significant impact if it goes into effect. First, those that have been granted the 30% ruling need to determine the exact impact the change will have on their particular situation in terms of the revised end date of their ruling. On this date, the impact will be substantial:

  • The normal taxation rules will apply to their income and as a result of which, all income will be taxable (including passive investment income). To most individuals, this means that they will need to start filing tax returns again as of their fifth year of presence in the Netherlands.
  • School fees to international schools can no longer be reimbursed free of tax, which will significantly increase employer cost.

Additionally, this change in the ruling can have a significant impact on the willingness of expats to settle in the Netherlands long-term. This can have a negative effect on the position of the Netherlands in the war for talent.

Updates to come as soon as more information is revealed.

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