The 30% ruling is a special cost reimbursement scheme in the wage tax. It is a contribution from the tax authorities for the extra costs that an employee incurs by working abroad. This applies both to Dutch employees who are sent abroad for work, and to foreign employees who come to work in the Netherlands and are liable to tax here.
In both cases, the tax authorities meet so-called extraterritorial costs: extra costs that follow working in another country. Think, for example, of (extra) housing costs or the more expensive living expenses.
The tax authorities do this by offering employers the opportunity to reimburse such costs to employees untaxed. Or instead, the employer may choose to apply the 30% ruling. 30% of the salary may then be paid to the employee tax-free.
In this article, Lexlupa briefly explains what the scheme is, when you comply with it and what you as an employer and employee should pay attention to.
What exactly does the 30% ruling entail?
The scheme therefore means that 30% of the gross salary can be provided tax-free and premium-free. You do not pay tax on this. The bottom line is that the employee ends up with more net income to cover extraterritorial expenses.
To illustrate, we have made an example:
Gross salary € 1000,-
Tax € 500,- (50%)
Net salary € 500,-
Situation with 30% ruling
Gross salary € 1000,-
30% scheme € 300,-
Subtotal € 700,-
Tax € 350 (50%)
Net salary = € 350,- + € 300,- = € 650,-
When does the 30% ruling apply?
To make use of the 30% ruling, the employee must meet four conditions:
- The employee is subject to Dutch tax liability
This can be both employees who have been recruited from abroad, and Dutch people who are sent abroad by a Dutch employer.
2. The employee meets the expertise requirement
Not all employees who go to work from or from abroad are entitled to the 30% ruling. To do this, they must meet a 'specific expertise'. For this you must meet a number of conditions.
The expertise requirement is subject to a salary standard that is indexed every year. For 2020, there is a specific expertise if you have an annual tax salary of € 38,347 (excluding the free allowance) or more. For employees who are younger than 30 years old and have a completed Master's degree, a reduced salary standard of € 29,149 applies.
In addition to the salary standard, you meet the expertise requirement if your expertise is not or hardly to be found on the Dutch labor market. This is the case, for example, with professional footballers or scientific researchers.
3. The employee meets the definition of incoming employee
The employee falls under this criterion if he lived at a distance of 150 kilometres or more from the Dutch border for at least 18 months before the work in the Netherlands. Someone who lived closer to the Dutch border is therefore not eligible for the scheme.
4. The employee has a disposition
In order to be entitled to the tax-free percentage of the salary, the employer and employer must apply for a decision. After assessing the application form and the requested annexes, the tax authorities will determine whether or not a decision will be issued. Only when the decision has been issued may the 30% ruling be applied. Do you want to apply for a decision and do you need help with this? Lexlupa supports employers and employees with applications.
How long does the 30% ruling apply?
The decision for the 30% ruling applies for a maximum of five years. If you change employers within this period, the decision can be issued in the name of the new employer. The decision is valid for the remaining period.
Please note: until 2019, the scheme was applicable for eight years. A transitional arrangement applies to current schemes. The shortening of the term will also apply to existing cases from 2021. From 2012 to 2018, the maximum duration was eight years. Until 2011, the term was a maximum of ten years.
How does the 30% ruling affect my tax liability?
If you live in the Netherlands, you are in principle liable to tax domestically. This means that in the Netherlands your worldwide income is taxed. With the 30% ruling you get the opportunity to opt for partial foreign tax liability. This means that you remain liable to tax domestically and can make use of the deduction options in box 1. A number of provisions (profit from a substantial interest and income from savings and investments; boxes 2 and 3) are regarded as foreign tax liability.
How does the 30% ruling affect my pension accrual?
The 30% ruling affects the pension base and the calculation basis for holiday and end-of-year bonuses and employee insurance premiums. A WW benefit is calculated on the gross salary minus the 30% ruling. This means that any unemployment benefit will be lower. Pension, over the 30% part, can be supplemented under certain conditions.
What about the car addition and the 30% ruling?
The addition has an influence on the 30% ruling. With a company car you can take into account 70% of the list price. You can add 70% of the list price and include it as the basis for the 30% ruling.
Want to know more?
Applying for a 30% ruling requires good preparation. Check on the website of the Tax Authorities what is involved in working (temporarily) abroad for tax purposes. Do you want to use the 30% ruling? Together with your employer, you submit this application form to the tax authorities.
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