30 percent tax ruling
Income tax liability can be a difficult issue in a foreign country, especially in the Netherlands where tax law is often a complicated affair. However, Dutch law may also offer interesting benefits to expats in certain situations. The most significant advantage available to expats in the Netherlands is the 30 percent tax ruling. If you or your employees qualify for the 30 percent tax ruling in the Netherlands, this can lead to a substantial reduction in taxable income. At Dutch Umbrella Company, our dedicated payroll experts have a great deal of experience in dealing with the Netherlands’ 30 percent tax ruling. We can therefore assist you in applying for tax exemptions and advise you on all aspects of Dutch tax law.
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What you need to know about the 30 percent tax ruling
Under Dutch law, a foreign employer is allowed to reimburse employees for any extraterritorial costs they incur while working in the Netherlands. This is, however, a very complicated administrative procedure that becomes even more complex as the number of your employees working in the Netherlands increases. The 30 percent tax ruling in the Netherlands allows employers and employees to deal with this in an easier way. By petitioning the tax office, the employer can invoke the Netherlands’ 30 percent tax ruling and pay out a tax-free cost allowance to their employees. By including this amount (roughly 30%) in the employee’s salary, the employee’s net salary is increased while costs remain the same for the employer. This is the very essence of the Netherlands’ 30 percent tax ruling.
Conditions of the 30 percent tax ruling
In order to benefit from the Dutch tax system, several conditions must be met.
- In the first place, any expatriate contractor wishing to make use of the Dutch 30% ruling must be employed in the Netherlands.
- Secondly, their employer must be able to justify the application of the Dutch 30% ruling by demonstrating that the position filled by the expatriate employee requires specialized knowledge not available on the Dutch labour market.
- The maximum period for the Dutch 30% ruling is a period of 8 years. Umbrella Company therefore advises expatriate contractors to assess their situation as quickly as possible in order to take full advantage of the potential benefits of the Dutch 30% ruling.
What are the financial consequences of the Dutch 30% ruling?
The 30% ruling does not offer a 70/30 split of gross salary into taxable and non-taxable income. Instead, employees who use the 30% ruling receive 70% of their gross salary as total taxable income. The 30% referenced in the ruling will be paid as additional tax-free remuneration. This leads to a tax benefit for employers and a higher net income for employees eligible for the 30% ruling.
However, the Dutch tax system calculates employee benefits, such as pension, based on a person’s total gross salary. As only 70% of the income earned under the 30% ruling consists of taxable salary, electing to use the 30% ruling diminishes the benefits one may accrue.
Due to our experience, we are familiar with the Dutch tax system and all related legislation. Our specialized knowledge of the Dutch 30% ruling uniquely qualifies us to offer umbrella company services to expats working in the Netherlands. If you would like to know more about the 30 percent tax ruling in the Netherlands or need help applying for tax exemption, WePayPeople’s Dutch Umbrella Company can assist you. We have all the necessary expertise and our professionals guarantee the best results in any situation.