The recent amendments to the 30% ruling in the Netherlands have set the stage for a transformative shift in the expat landscape, sending ripples through the intricate web of international talent acquisition and fiscal responsibility. Adopted by the House of Representatives on October 26, 2023, these changes are poised to take effect on January 1, 2024, ushering in a series of substantial cutbacks that will significantly impact expats and their employers.
Central to these alterations is the previously announced introduction of a cap on the amount over which the 30% ruling may be applied, aligning it with the norm of the Wet Normering Topinkomens (WNT norm), currently set at €223.000 per year. This departure from the existing system promises to reshape the financial landscape for expats in the Netherlands, signalling a departure from the generous provisions that have long attracted foreign workers.
To intensify the austerity measures, the amendments have instituted tiered percentages for the untaxed refundable portion of taxable wages, categorised over successive 20-month intervals. The initial 20 months retain a 30% untaxed portion, followed by a reduction to 20% in the subsequent 20 months and a final decrease to 10% in the third 20-month period. This nuanced approach aims to curtail the financial benefits enjoyed by expats under the 30% ruling over an extended period, adding layers of complexity to financial planning for both employers and expats.
Simultaneously, the elimination of notional foreign tax liability for Box 2 and Box 3 introduces a transitional arrangement for employees already utilising the 30% ruling in the last pay period of 2023. While existing austerity measures and the capping at the WNT norm persist for this group, the reduction of the 30% ruling percentage does not apply. However, this reprieve is time-bound, with the option to opt for the fictitious foreign tax liability ending on December 31, 2026.
The immediate and long-term implications of these adjustments extend beyond individual expats to the desks of employers, who now face the onerous task of monitoring the changing percentages of the 30% ruling throughout a five-year period. The increased administrative burden goes beyond mere calculations, as employers must grapple with decisions related to reimbursing extraterritorial expenses, including the additional cost of living, furniture storage, dual housing costs, travel expenses and language course costs. This complexity adds a layer of uncertainty and financial intricacy to the employer-expat relationship.
Perhaps the most far-reaching consequence of these cutbacks is the decision to abolish notional foreign tax liability as of December 31, 2026. This implies that the option to opt for the notional foreign tax liability will not be honoured for all employees currently benefiting from the 30% ruling throughout its entire term. Moreover, the anticipated increase in the cost of preparing an income tax return further exacerbates the financial strain on expats, creating an environment where the economic considerations of working abroad become increasingly intricate
According to estimations, the savings from these adjustments could escalate from €3 million in 2025 to a staggering €194 million in 2029 and beyond. It has been proposed to utilise the freed-up money to reduce the interest on student loans, particularly for the "unlucky generation" - those who pursued their education without the support of a basic scholarship.
In the broader context, these impending cutbacks signify a seismic shift in the Netherlands' approach to attracting and retaining international talent. As the delicate balance between fiscal responsibility and global talent acquisition is recalibrated, expats and their employers find themselves navigating an evolving landscape fraught with financial intricacies and administrative complexities.
Of course, it should be noted in all this that although the proposals have been passed by the house of representatives, they still need to be approved by the senate before they can become effective.