The maximum applicable period for the 30% allowance facility (also called the 30% ruling) will be limited to 5 years as from January 1, 2019 in the Netherlands. Currently, the maximum period is 8 years. The 5-year period will apply to both new and existing cases. State Secretary for Finance Snel announced in a letter to the Dutch Lower House that the government plans to include this measure in the 2019 annual tax bill.
Employees recruited from abroad to work in the Netherlands can apply for the 30% allowance facility if they enjoy an annual wage of at least EUR 37,296 (as of 2018) and fulfill certain additional criteria. The facility is primarily aimed at expats and is functions as a reimbursement for the additional expenses often incurred for their temporary residence in the Netherlands. More general information on the 30% allowance facility can be found below.
As long as the 30% allowance facility applies for a given employee, up to 30% of the employee's wage may be paid tax free. Under the new rules, this will be the case for a maximum of 5 years. As an alternative to applying the 30% facility, it is possible to compensate the employee for his or her actual expenses of the temporary residence in the Netherlands tax free. It was announced in the letter from the State Secretary that the government plans to implement the 5-year period for this reimbursement for actual expenses as well. The same goes for the 'partial non-resident taxpayer' (partiële buitenlandse belastingplicht) regime. This regime functions as a beneficial tax arrangement with regard to Dutch income tax on personal holding companies ('box 2') and savings and investments ('box 3') for many expats.
The limitation of the maximum period is a result of the evaluation of the 30% allowance facility that took place in 2017. The new government already resolved to limit the maximum period of the 30% allowance facility in its coalition agreement, which was published last year. The letter from the State Secretary also discusses two additional options for amendments to the facility that were mentioned in the evaluators' report: an increase to the minimum distance of 150 kilometers at which employees need to have lived from the Dutch border prior to being recruited in order to be eligible for the facility, as well as a cap on the wage to be paid tax free for employees with an annual income of over EUR 100,000. The letter states that the government plans not to implement these measures.
General information on the 30% allowance facility
The 30% allowance facility is a tax facility for employees coming from outside the Netherlands who are employed in the Netherlands on a temporary basis and who meet specific conditions.
These employees are deemed to incur extra expenses related to their stay outside their country of origin. As compensation for these extra expenses - extraterritorial expenses - the employer may grant a fixed tax-free allowance of up to 30% of the salary if the employer and the employee jointly submit an application with the Dutch Tax Authorities, who will then issue a ruling.
Currently, the maximum term of validity of the tax facility is 8 years (this is to be limited to 5 years as of 2019).
It is irrelevant whether or not the employee continues to live abroad or moves to the Netherlands.
In addition, if a 30% allowance facility ruling has been issued, an employee who lives in the Netherlands may opt – in his or her income tax return - for a limited tax liability for income tax, the partial non-resident taxpayer status.
As an alternative to the 30% allowance facility, the employer can compensate the actually incurred extraterritorial expenses tax free without requesting a ruling from the Dutch tax authorities, though this will need to be substantiated with documentary evidence.
Conditions for 30% allowance facility
The following cumulative requirements should be met in order to qualify for the 30% allowance facility:
- The 30% allowance facility is available to employees only;
- The employee must be seconded to the Netherlands or recruited from outside the Netherlands and must have lived at a distance of more than 150km from the Dutch border during more than 2/3 of the 2-year period preceding the start of employment in the Netherlands;
- The employer must be a Dutch wage tax withholding agent;
- The employee should have a specific expertise which is not or scarcely available on the Dutch labour market. If the taxable annual salary of the employee is higher than EUR 37,296 (2018) then it is assumed that the employee has specific expertise.
- Employee and employer should jointly file an application at the relevant Dutch tax office within four months from the start of the employment (i.e. in order to be able to benefit from the 30% allowance facility as of the first working-day). If filed later, then the 30% allowance facility can apply as of the month succeeding the month in which the application was filed, while the time already spent in the Netherlands will be deducted from the 8-year period.
- Employer and employee should agree in writing (e.g. in the employment contract) that a separate tax-free allowance for extraterritorial expenses will be paid in addition to the gross salary, amounting to a maximum of 30% of the remuneration.
Please note that each specific situation should be checked to determine whether it is possible to opt for the 30% allowance facility.