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Expat Briefing Editorial Team
11 September, 2017
In this feature, we look at the benefits and the terms and conditions of the Dutch "30 percent ruling," a special tax regime for expatriate workers designed to alleviate the financial burden of moving and working in a foreign country.
Introduction To The Netherlands
The Netherlands is a modern, industrialized and affluent Western European country which is bordered by Germany to the east, Belgium to the south, and the North Sea to the north and west.
The Netherlands is firmly ingrained into the Western institutional framework, having been a founding member of both NATO and the EEC (now the European Union).
At 41,543 sq km, the Netherlands is around twice the size of the US state of New Jersey.
Also known as Holland, the official language is Dutch, although English is widely spoken throughout the country. Frisian is also an official language in the Fryslan province in the north of the Netherlands.
The Netherlands has a marine temperate climate, with cool summers and mild winters. It is famous for being flat, and the country's landscape is typically coastal lowland, much of which was reclaimed from the sea. However, there are some hills in the south east of the country, and the highest point is Vaalserberg at 322m; the lowest point is Zuidplaspolder, which is seven meters below sea level.
The country's population is 17m people, and the area known as the Randstat, which includes the cities of Amsterdam, Rotterdam, The Hague, and Utrecht, is the most densely populated area. The country's northern region is less densely packed.
Amsterdam is the capital city, with a population of just over 1 million. However, The Hague, with a population of 650,000, is the seat of Government, and is the third largest city in terms of population. Rotterdam is the second most populous Dutch city, with a population of 993,000. Rotterdam is also home to Europe's largest port.
Just under 80 percent of the population is ethnically Dutch, but there are sizeable Turkish, Indonesian, Moroccan, and Surinamese communities, which together make up almost 10 percent of the population.
The dominant religion, where practiced, is Christianity, although 42 percent of the population identified as having no religious beliefs according to a 2009 estimate.
The Dutch economy is the sixth-largest in Europe and gross domestic product (GDP) at purchasing power parity was an estimated USD870bn in 2016. Using this measure, GDP per head was USD50,800 last year, higher than a host of large industrial economies, including Germany (USD48,200), Canada (USD46,200), the United Kingdom (USD42,500), France (USD42,400), and Japan (USD38,900), and was well above the European Union average of USD39,200.
Unemployment is relatively low, at an estimated six percent last year.
In 2009, health expenditure was just under 11 percent of GDP – one of the highest rates in the world. Life expectancy now exceeds more than 80 years.
The Netherlands plays an important role as a European transportation hub, with a persistently high trade surplus.
Industry, which accounts for about 18 percent of GDP, focuses on food processing, chemicals, petroleum refining, and electrical machinery. However, services now account for approximately 70 percent of economic output.
Agriculture remains an important facet of the economy of the Netherlands, and while the sector is highly mechanized and employs just two percent of the workforce, the country is the world's second-largest agricultural exporter.
The Netherlands is considered a high-tax economy, with tax revenue equal to 44 percent of GDP in 2016.
Generally, residents are taxed on their worldwide income under a progressive income tax system. The taxation of income from enterprise, employment and housing ("Box 1" income) starts at 36.55 percent and rises to a top rate of 52 percent. However, deductions are available on non-employment income, and entrepreneurs can utilize a tax base reduction.
Tax residence is based on a basket of factors, such as employment and family circumstances. Non-residents are normally taxed on their Dutch-source income only. There are some cases whereby non-residents are classed as limited Dutch taxpayers, and are therefore subject to tax on their foreign income, although they may be entitled to offset this tax by using tax credits.
Certain expat workers in the Netherlands can, however, substantially reduce their exposure to Dutch income tax by availing of the "30 percent ruling."
The 30 Percent Ruling For Expats
The 30 percent ruling does not mean that expats pay tax at a rate of 30 percent, as its name suggest. Instead, this special tax regime provides an income tax exemption of up to 30 percent, for a period of up to eight years. The exemption is intended to offset the additional costs expats may encounter when shifting their lives to the Netherlands for work.
According to this rule, the employer may grant the employee a tax-free allowance of up to a maximum of 30 percent of his or her remuneration. Remuneration includes incidental and flexible forms of income such as bonus payments and stock options. However, termination and pension payments are excluded.
In order to qualify for the 30 percent ruling, the employer must be able to demonstrate to the authorities that the employee possesses specific expertise that is either unavailable in the Dutch labor market, or is in short supply.
Employers must also abide by minimum income thresholds. In general, in 2017, the job in question must pay a minimum taxable annual salary of EUR37,000 (USD43,450, GBP33,430 at the time of writing). This equates to a gross salary of EUR52,857.
For those under the age of 30 and have a master's degree or a PhD, the minimum taxable salary is EUR28,125. However, there is no minimum income level for scientists, researchers and medical students.
The minimum salary levels are adjusted annually.
The employee must be recruited from abroad to qualify for the 30 percent ruling, and the employer must be a Dutch wage tax-withholding agent. Furthermore, the employee must not have lived in an area within 150km of the Dutch border for 16 or more months in the previous two years.
After a period of five years, the tax authorities can request that the employer demonstrate that the employee still meets the conditions.
At present, only those categorized as employees may qualify for the 30 percent ruling. Those in a self-employment situation cannot, although it is possible for a worker to become an employee of their own limited company and take advantage of the 30 percent rule.
For further information on expat life in the Netherlands, please refer to the Netherlands country section of Expat Briefing.
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