30% ruling cut: How will it affect you and your finances?
De Boer Financial Consultants are specialised in expat mortgages. José de Boer is the owner and director and has many years of experience dealing with a wide variety of expat-related legal and financial matters.
The 30% ruling is a Dutch tax advantage for employees who are hired from abroad to come and work in The Netherlands. If several conditions are met, the employer is allowed to pay out the top 30% of your salary as a tax free allowance.
The 30% ruling
This allowance was introduced to attract highly educated staff (knowledge migrants) to the Netherlands with the rationale that expats have higher living costs such as: extra travelling to their home country, visa and legal costs, double housing and initial housing costs etc. And, of course, tax equalisation costs.
The ruling used to be for a 10 year period but, as per January 1, 2012, this period was reduced to just 8 years. However, this only affected the new applicants for this ruling and not existing users. This makes sense, since the ruling has quite an effect on people’s financial planning.
Changing the ruling for existing cases would be totally unfair and would make the Dutch government seem unreliable. As it did not affect existing cases, there was not a lot of opposition back in 2011 when plans to limit this tax advantage were announced.
Reduction of the 30% ruling
Things are a bit different today. The normally stable and trustworthy government has announced that already, per January 1, 2019, the duration of this tax benefit will be reduced to 5 years! And if this is not bad enough, this will also be the case for those already receiving the tax advantage.
This time around there is a lot of opposition to these plans and many employers, universities and expat groups are gathering forces to fight this change in the law. Expats and expat organisations feel that the cut to this tax break will not only damage the country’s reputation, but more importantly hurt many people financially. The lack of a transition period will affect many people.
Financial implications for expats
Knowledge migrants have very likely based the choice of school for their children on the duration of the ruling, or the house they bought with a matching mortgage. The mortgage bank will have based their mortgage amount on the duration of the ruling. Those renting a house will have based the monthly rent they can afford on their financial situation for the first 8 years of the ruling etc.
There are other advantages to the 30% ruling that will also be lost. Whilst you are benefiting from this ruling, you don't have to pay wealth tax on your assets in box III. When the 30% ruling is shortened, instead of not having to pay Dutch wealth tax on your assets for a period of 8 years, you will only be exempt for 5 years.
As a result of these developments, is not surprising that close to 25.000 people (probably more when this goes to press) have signed a petition calling on the government to honour its commitments to the international community: United Expats of The Netherlands - honour 30% ruling for current expats. A Deal is a Deal.
Want to know more about how the new changes to the 30% ruling will affect your personal situation? Contact De Boer Financial Consultants and find out!