What to do when your 30% ruling ends?
BDO is a global top-five accounting firm, with more than 2.000 skilful and experienced employees in the Netherlands.
The 30% tax ruling that many expats benefit from has been the subject of discussion for a while now. On Prince’s Day, the Dutch cabinet announced the (definitive) intention to shorten the maximum duration of the 30% ruling from eight to five years as part of its tax plans for 2019.
At first, no transitional law was planned to be introduced, meaning that the maximum duration of eight years would be reduced to five years on January 1, 2019. This new maximum would apply to new and existing cases. Luckily the cabinet reconsidered. On October 15, 2018, the cabinet wrote to the House of Representatives (Tweede Kamer) that they wished to amend (part of) the 2019 tax plans that were announced on Prince’s Day.
One of the changes was the introduction of a transitional law for the group of expats for whom the 30% ruling would end in 2019 or 2020 due to the shortening of the maximum duration from eight to five years. How the transitional law will work exactly is still to be determined. But at least this news should calm the uproar that arose in expat land for the most part.
Many expats probably wondered what the consequences would be for them when their 30% ruling tax break would suddenly end. In this article, we would like to inform you about the consequences of the 30% ruling benefit ending and perhaps give some tips & tricks to ease the transition for you.
For incoming employees, the maximum period the 30% ruling can be applied is eight years (in 2018). The duration of said period starts on the first day of labour for the employer who qualifies as a withholding agent for Dutch wage tax purposes. The duration period ends:
- On the last day of the wage period following the wage period in which the employment ended; or
- On the date mentioned in the decree that was received from the Dutch Tax Authorities.
During the transition period from having the 30% ruling to no longer having it, the question can arise whether the 30% ruling can still be applied to certain wage elements.
For example, say your 30% ruling decree ends on November 30, 2018. In December 2018, you receive a bonus for reaching your targets in 2018. In principle, the bonus relates to the period in which you had the 30% ruling for (November / December). Can the 30% ruling then be applied to this bonus for November / December? The answer is no. The 30% ruling only applies to wages that were actually received during the decreed period.
Tip! If you know beforehand that you might be entitled to a bonus that will be paid out after your 30% ruling ends, it is advisable to reach out to your employer to check whether it is possible to receive the amount within the 30% period.
If your 30% decree ends due to the fact that your employment ends, you get one wage period (month or 4-weeks) “extra”.
For example, your last workday is on November 19, 2018, and the wage period is monthly. In that case, the 30% ruling can be applied to all payments from your current employment made to you until the end of December 2018. Note that this extra wage period is meant for back-payments. It does not apply to, for example, severance payments, as these qualify as wages from former employment.
Reimbursement of actual extra-territorial costs after the 30% ruling ends?
The 30% ruling reimbursement is intended to cover the extra-territorial costs (hereafter: ET-costs) incurred due to the fact that one is temporarily working outside one’s country of origin. During the application period of the 30% ruling, either the fixed 30% can be reimbursed free of taxes or the actual ET- costs incurred can be reimbursed free of taxes.
However, this does not mean that when the 30% ruling ends, an employer can then choose to reimburse the actual ET-costs free of taxes. The Dutch Tax Authorities have announced that they assume ET-costs, costs that are made due to temporarily working outside one’s country of origin, are also now incurred for a maximum period of five years.
Partial non-tax residency
The 30% ruling also has advantages when filing a Dutch income tax return. As a 30% ruling holder, you can choose to be treated as a partial non-resident for Dutch tax purposes. This means that for income derived from substantial interest (box 2) and savings and investments (box 3), you will be treated as a non-resident taxpayer. You are then taxed in box 2 and / or 3 only for income derived from a Dutch source instead of your worldwide income.
Income derived from a Dutch source can be substantial interest from a Dutch company or real estate situated in the Netherlands. Since partial non-resident taxpayer status is directly related to qualifying for the 30% ruling, this period will consequently also be shortened from eight to five years.
This means that after this period, you will have to include foreign assets in your income tax return and be taxed for them as well, unless a tax treaty to avoid double taxation determines otherwise.
Tip! If you and your fiscal partner both have the 30% ruling but with a different end date, it could be beneficial to attribute certain assets to the partner who has the 30% ruling the longest. Ask your tax advisor about the possibilities.
Losing your 30% ruling benefit could mean less net pay. But how much will your net pay really decline? To give you an idea, here is an example. There are multiple ways to calculate the 30% ruling reimbursement depending on the agreement the employee made with the employer. We have included an example where the employee agreed to a gross salary of 60.000 euros including the 30% ruling.
|Net pay whilst having the 30% ruling||Euros||Net pay after the 30% ruling ends||Euros|
|Agreed upon gross salary||€60.000||Agreed upon gross salary||€60.000|
|Taxable salary||€42.000||Taxable salary||€60.000|
|Taxes due during 30% application period (3rd bracket percentage used)||€17.157||Taxes due after 30% application period (3rd bracket percentage used)||€24.510|
|Net salary during the 30% application period||€42.843||Net salary after the 30% application period||€35.490|
Please note that in this example, the employee stays within the 3rd bracket after the 30% ruling ends. The difference in net salary will be bigger if the employee falls under the 4th bracket after their 30% ruling ends.
Losing the 30% ruling is unfavourable, to say the least. Unfortunately, this will happen a bit sooner than expected for some. To make the most of your time as a 30% ruling beneficiary we advise you to keep track of the tips mentioned in this article.
1 Please note that the government intends to introduce a transitional law with regard to tuition fees for international schools. Under these transitional provisions, tuition fees for the entire school year 2018 / 2019 could still be reimbursed free of taxes, even if your 30% ruling ends due to the announced shortening.
Do you want to know more about the 30% ruling and how it ending may affect you? The BDO expat tax team has a wide knowledge regarding wage and income tax, social security and the 30% ruling. Please feel free to contact BDO for more information.