From 30% ruling to 27% ruling – review expat ruling

Leaked budget agreements between the cabinet and the coalition, which will be officially presented on Budget Day 2024 (Sept. 17), reveal that the previously agreed upon austerity of the 30% ruling will be reversed.

In 2023, the House of Representatives decided to limit the tax benefit for expats. Originally, the tax exemption was to be gradually reduced from 30 percent to 10 percent. However, the cabinet and coalition parties now want to reverse this austerity.

Instead, it is now proposed to reduce the rate from 30 percent to 27 percent and then apply this rate for the entire maximum 5-year term.

Austerity of the 30% ruling

The 30% ruling allows employers to give foreign employees untaxed reimbursement of up to 30% of wages for up to 5 years (60 months) to cover the additional costs of working in the Netherlands. This was made more austere per the amendment by Omtzigt et al, part of the 2024 Tax Plan, effective January 1, 2024:

• For the first 20 months, a maximum of 30% of taxable wages can be reimbursed untaxed;
• For the following 20 months, a maximum of 20% of taxable wages can be reimbursed untaxed;
• During the remaining 20 months, a maximum of 10% of taxable wages can be reimbursed untaxed.

Negative impact

Following the adoption of this amendment, several employers expressed concerns about its potential negative impact on the competitive position of Dutch companies in attracting international talent and on the Netherlands’ establishment climate.

Evaluation of the 30% ruling

Already during the discussion of the amendment, the government was asked to bring forward the already planned evaluation of the 30% ruling and, based on this evaluation, to come up with an alternative proposal in the Tax Plan 2025 that would be less harmful to the economy.

The evaluation of the 30% ruling was published in June 2024 and concluded that the ruling is effective in attracting knowledge migrants, who contribute to the business climate in the Netherlands. Although the partial foreign tax liability will be abolished, the 30% ruling remains attractive for knowledge workers. Especially now that it has been shown that the option to reimburse actual extraterritorial expenses instead of a untaxed reimbursement is only used to a limited extent.

Austerity after all

With a reduction of the percentage from 30% to 27%, a large part of the austerity is undone but the ruling is still somewhat limited. The advantage is that the graduated scale (from 30 to 20 to 10%) that made the regulation unnecessarily complicated will be dropped.

And then, of course, we have to get used to a new name again: the 27% ruling.

But as always, these are budget agreements and a proposal in the Tax Plan 2025. There may still be adjustments to the proposal between Budget Day 2024 and January 1, 2025 as a result of further negotiations. And we don’t know yet if there will be transitional right for existing grants. Question is whether the reduction to 27% will only be applicable to new applications or only to new arrivals or will also affect current grants. So keep an eye on developments.