30% ruling shortened to five years as of January 1, 2019

On April 20, 2018 the Dutch State Secretary for Finance presented the government response to the evaluation of the 30% ruling to the House of Representatives.

The 30% ruling is a specific tax regime for foreign employees that meet certain criteria and who are temporarily assigned to, or hired from abroad by an employer in the Netherlands. When meeting certain requirements, 30% of the employee’s salary can be paid out as a tax-free allowance to cover extraterritorial costs. In addition, the employee may, at his/her request, benefit from a tax treatment as a non-resident taxpayer regarding income from a substantial interest and income from savings and investments.

In 2017 the effectiveness of the 30% ruling was evaluated and the results were published in a report. Although the 30% ruling was found to be both effective and efficient, several suggestions were included in the report to make the ruling more effective.

In aforementioned response it is announced that the government will adopt the recommendation to shorten the period for which the 30% ruling is granted from eight years to five years as of January 1, 2019. It is important to note that this change will also apply to existing 30% rulings. The reduction from eight to five years is in line with the proposal included in the coalition agreement (published in October 2017).

Due to the shortened duration of the ruling, the period during which the employee may opt to be treated as a partial non-resident tax payer will also be shortened from eight to five years.

At this stage we recommend to verify the 30% rulings in your organization and re-determine the remaining term of the 30% ruling insofar possible, as it is still uncertain how the shortening of the duration for existing cases will exactly work out (also from a principle of protection of legal interests). This should be further clarified by the Tax Plan 2019.

If you have any questions in this respect, feel free to contact us.