At the moment, the 30% ruling allows individuals to avoid paying income tax on 30% of their salary for up to five years. It also grants the status of “partial tax resident,” exempting individuals from taxation on assets in box 3 and partially in box 2. However, all of this is at risk of changing dramatically.
What happened
On October 25, 2023, the Lower House (Tweede Kamer) voted to adopt two major amendments to the 30% ruling as part of the 2024 tax plan.
The first amendment, proposed by Peter Omtzigt, concerns a gradual reduction in the 30% ruling benefits. The second amendment aims to abolish partial tax resident status starting in 2025.
Tax discount
The first amendment introduces a phased reduction in the tax discount:
- First 20 months: 30% discount.
- Next 20 months: 20% discount.
- Final 20 months: 10% discount.
These changes will apply to expatriates who receive the 30% ruling after January 1, 2024. Those who obtained and began using the ruling before this date will retain the full 30% benefit until the end of their eligibility period, provided there are no breaks in employment.
Partial tax resident status
The second amendment abolishes partial tax resident status for new holders of the 30% ruling starting January 1, 2025. For those who already hold this status before 2024, it will remain valid until January 1, 2027, as long as they maintain continuous employment.
Once abolished, individuals will be required to declare their global assets (box 3) and foreign dividends (box 2) in full to the Dutch tax authority and pay taxes accordingly.
Why are these changes happening?
The initiator of the amendments, Peter Omtzigt, claims the changes are necessary because “wealthy expatriates have flooded the housing market in Amsterdam, and ordinary citizens are suffering.” In reality, the changes are expected to generate up to €194 million annually by 2029 to help reduce interest rates on student loans.
Despite warnings from Deputy Minister of Taxes Marnix van Rij and the Minister of Economy, Adriaansens, about the economic impact of these changes, the Lower House approved the amendments. Businesses, universities, and startups relying on expatriates are particularly concerned.
Options for further development
Opinions are divided. Dutch trade unions and student organizations welcome the changes, while businesses and educational institutions oppose them. The next step is a vote in the Upper House (Eerste Kamer) on December 19, 2023, followed by ratification by the king.
What to do?
For those already in the Netherlands
Employers still have the option to choose between applying the 30% ruling or directly compensating for expatriate extraterritorial expenses. While the latter might become more beneficial for employees, it introduces more bureaucracy, increased accounting efforts, and potential tax inspections.
Questions remain unanswered: What happens to those with rulings valid for less than five years? How will employment gaps be handled? How will the tax authority control the timing and percentage of discounts?
For those not yet in the Netherlands
Time is of the essence. If you move to the Netherlands before the end of 2023, you will likely secure the full 30% discount. If partial tax resident status and tax-free capital immigration are important to you, 2024 is the last chance to benefit.
For now, we wait and monitor developments closely.