The Netherlands' 30% Ruling: A Comprehensive Guide for Freelancers and Small Business Owners

Ioana Cretu -

For freelancers and small business owners considering a move to the Netherlands or hiring international talent, understanding the Dutch tax system is crucial. One essential aspect you should be aware of is the 30% Ruling. This tax facility is designed to attract skilled employees from abroad and offers them a significant tax benefit. In this comprehensive guide, we will delve into what the 30% Ruling entails, who can apply for it, and the recent changes that you should be aware of as of 2024.

What is the 30% Ruling?

The 30% Ruling is a tax facility in the Netherlands that provides a substantial tax benefit to employees recruited from outside the country. It allows these employees to receive up to 30% of their gross remuneration as a tax-free allowance. This tax benefit is intended to compensate for the extraterritorial costs incurred by employees working in a foreign country.

Conditions for Applying

To be eligible for the 30% Ruling, several conditions must be met. These include:

  • Recruitment from Abroad: The employee must be recruited from outside the Netherlands.
  • Specific Expertise: The employee should possess specific expertise that is not readily available in the Dutch labor market.
  • Residence Distance: The employee's previous place of residence must be at least 150 kilometers from the Dutch border for more than 16 out of the last 24 months before starting work in the Netherlands.

Both the employer and the employee need to agree to apply for the 30% Ruling jointly and meet these conditions.

Maximum Salary and Recent Changes

Starting from January 1, 2024, a significant change will affect the 30% Ruling. The tax-free benefit will be capped, meaning it cannot be applied to employment income exceeding the "WNT-norm" or "Balkenende-norm." In 2023, the WNT-norm is 223,000 euros, resulting in a maximum tax-free allowance of 66,900 euros.

This change means that if an employee's annual income surpasses this threshold, they will receive less than 30% of their income as a tax-free amount.

Reimbursement of Actual Extraterritorial Costs

While the capped maximum tax-free amount affects the 30% Ruling, it doesn't impact the reimbursement of actual extraterritorial costs. In some cases, it may be more advantageous for employees to be reimbursed for their actual costs rather than applying the 30% Ruling.

Exception for 2022 Beneficiaries

There is an exception for employees who benefited from the 30% Ruling in 2022. They can receive a two-year extension on the cap, delaying its implementation until January 1, 2026, instead of January 1, 2024. However, this exception does not apply to those who only become eligible for the 30% Ruling in 2023 or later.

Tax Relief and Salary Split

The 30% Ruling may impact situations where an employee's remuneration is subject to taxation in multiple countries, including the Netherlands. If an employee has a salary split, meaning their income is taxed in different countries, it could affect the 30% tax-free allowance. The introduction of new legislation may change how the 30% Ruling is applied in such cases.

Importance of the Capping

Understanding the capping of the 30% Ruling is crucial, especially for employees with high incomes. Starting from January 1, 2024, those earning above the "Balkenende-norm" will see an increased Dutch income tax liability. This means they will receive less than 30% of their income as a tax-free amount. Additionally, the capping affects the amount applicable to prevent double taxation.

Details about the 30% Ruling in the Netherlands

What Is the 30% Ruling? The 30% Ruling, also known as the free allowance for extraterritorial costs, is regulated by the Wage Tax Act of 1964. It aims to compensate employees for the costs associated with relocating and integrating into the Netherlands.

Conditions for Applying: To be eligible for the 30% Ruling, certain conditions must be met, including being recruited from abroad, possessing specific expertise, and not having lived within 150 km of the Dutch border for the last two years.

Advantages of the 30% Ruling: The scheme offers several benefits, including a reduced salary for the employee (with a corresponding 30% reduction in expenses), tax-free allowances for school fees, and the option to become a partial non-resident taxpayer.

The 30% Ruling in the Netherlands is a valuable tax facility for international employees and employers alike. Understanding its conditions, recent changes, and implications for your specific situation is crucial for making informed decisions. Whether you're a freelancer or a small business owner, knowing how to leverage the 30% Ruling can greatly benefit your business and your employees, attracting and retaining valuable talent in the Dutch market.