The 30 procent ruling in Dutch Payroll Taxes
Employment Tax for all employees residing in or earning from all businesses operating in the Netherlands is taxable at progressive rates. The tax rate can go as high as 52%. Therefore, there has been a strategic move by the Dutch government to offer an incentive to attract foreign highly skilled workers to the Netherlands, by creating a favorable tax regime for skilled employees in the country.
This regime, famously known as the Dutch thirty percent ruling, the employee is taxed on only 70% of his or her total employment income. This results in a substantial reduction in the effective tax due.
This calculation (52% of total tax being applicable to only 70% of the income) effectively reduces the maximum tax rate to 36.4%, widely regarded at the thirty percent ruling in the Netherlands. The thirty per cent ruling in the Netherlands generally applies to employees assigned to the Netherlands, or recruited from abroad for the purpose of employment in Holland. There are some conditions, however, that apply to the said employees for them to be eligible for coverage under the dutch thirty percent tax rules. The foremost among these is that the employee must be employed by an employer recognized as a Dutch resident or a foreign employer who is a wage tax withholding agent in the Netherlands.
Another critical qualification for the dutch thirty percent ruling that the employee has to pass is that they must have specialized and niche skills or knowledge that is not easily available in the Dutch Labor marketplace. This is commonly referred to in industry jargon as the specific expert test.
There have been some changes to the Dutch expatriate tax regime of the Dutch thirty percent ruling ruling as of 2012. In the 2012 budget plan, the Dutch State Secretary of Finance’s office announced the following amendments:
- The maximum grant period of the thirty per cent ruling in the Netherlands will be limited to 8 years from the first date of employment
- The so-called specific expert test will be based on a minimum taxable salary level only.
- The retrospective applicability regarding the reduction rules on the grant period that reduce the duration of the Dutch thirty per cent ruling by previous days of stay/work n the Netherlands is extended to 25 years.
- Individuals employed within a radius of 150 kms from the Dutch borders will not qualify for the Dutch thirty percent ruling. It is also a lot easier for University Doctorates to obtain the thirty percent ruling in the Netherlands for themselves.
The advent of the new amendments in the Dutch thirty percent ruling being quite substantial, the methodologies that the Dutch Government are using to adapt to these include new application forms, an upfront assessment of the salary levels via a statement of the employer which indicates that the required salary level is met. Through the payroll administration, the Dutch Tax Authorities are in a position to continuously review the salary levels, and if these are not met, the subsequent thirty percent ruling in the Netherlands becomes non-applicable at the time.
As a result of this, the Authorities, under these circumstances, may retroactively file an additional wage assessment to collect the incorrectly hitherto un-withheld Dutch Payroll Tax, which may include interest and penalties and thereby implement the Dutch thirty percent ruling.