In recent weeks, the Dutch government unveiled its Tax Package to the House of Representatives as part of its 2025 budget. Among the proposals featured were significant changes to the 30% tax rate, which impacts foreign workers and international contractors. In this article, we will discuss the upcoming changes, why the ruling has been revised once again and what they mean for international contractors and workers and the organisations that hire them.
What is the 30% ruling?
Also known as the 30% facility or 30% ruling, this directive was initially implemented by the Dutch government to attract skilled professionals from overseas with industry-specific knowledge that was in deficit in the Netherlands. It reduced the percentage of one's salary that could be taxed by the Dutch government, leading to savings for the tax bill of skilled foreign workers to help compensate for additional costs associated with relocation and cost of living.
What are the proposed changes?
Under their budget 2025 proposals, the Dutch government included a revised amendment to the current 30% ruling. The previous amendment saw the 30% ruling confined in 2024, reducing the tax-free allowance to 30% for the first 20 months, 20% for the next 20, and 10% for the final 20 months. Read more on the previous amendment here. However, this is due to change from January 1 2025, depending on the date one began availing of the 30% ruling.
If one began availing of the 30% ruling before January 1 2024, the income requirement remains at €46,107 (Adjusted accordingly for annual inflation). Once the worker meets the eligibility requirements, the maximum tax-free amount under the ruling remains at 30% for 5 years.
If one begins availing of the 30% ruling after January 1 2024, the income requirement stays at €46,107 (Adjusted accordingly for annual inflation) until January 1 2027; after this date, the requirement rises to €50,436. From 2024 - 2026, one can avail of the full 30% allowance once they meet all eligibility requirements. However, from January 1 2027, this rate of remuneration will drop by 3% to 27%.
It is important to note that there will also be an adjusted rate for younger employees under 30 with a master's degree. Starting on January 1, 2027, the existing income requirement of €35,048 will rise to €38,388 (Adjusted accordingly for annual inflation). For more information, please see the government website.
Despite the reversal of many aspects of the previous amendment to the ruling, the partial non-resident scheme, which saw those with partial residence status able to avail of the 30% ruling, is due to cease on December 31, 2024. This scheme previously enabled those who met the requirements for the 30% rate to be categorised as a partial non-resident taxpayer for Dutch income tax. From January 1 2025, this option will cease to be available. However, a transitional period will be available to those currently under the scheme until it is fully phased out on January 1 2027.
Concerns & criticisms:
The phased reduction of the 30%-ruling to 10% initially sparked concern within the Dutch business community, as it was seen as detrimental to attracting foreign talent. Businesses and expats living in the Netherlands have voiced their worries about the ruling's impact on the country's competitiveness and the attractiveness of the Dutch labour market. Research commissioned by the Ministry of Finance confirmed these fears, showing that the changes could negatively affect the business climate. While the partial reversal addresses some concerns, there remains to be apprehension about the long-term impact of the upcoming reduction to 27%.
Conclusion
The Dutch government's partial reversal of the 30% ruling aims to address the concerns raised following the previous revision of the ruling. The proposed amendments would mean expats working in the Netherlands would still benefit from significant tax relief, as well as working to attract skilled foreign talent to work in the Netherlands.
The world of freelancing and contract work is ever-changing, and those working in this space must stay informed about changes that may affect them or their clients. Regarding the changing legislation in the Netherlands, our team at 3C Global strives to ensure comprehensive compliance with all relevant legislation so that our clients can have peace of mind. Please do not hesitate to contact us today to get started in the Netherlands!
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