What is the 30% ruling?
Many expats living in the Netherlands benefit from the 30%-ruling. With permission from the Dutch tax authorities, 30% of their salary is paid tax free. This benefit is meant to cover so called extraterritorial costs, such as double accommodation costs or travel expenses to visit family and friends in the country of origin. The maximum duration of the 30% ruling is 8 years, provided that the Dutch tax authorities issued the decision to apply the 30% ruling after 1 January 2012.
Changes to the 30% ruling
In October 2017 the Dutch government presented plans to reduce the maximum duration of the 30% ruling to 5 years instead of 8 years. The government announced in April 2018 that these changes would take effect from 1 January 2019 without applying any transition period. This meant that the new duration would not only be applied to new expats who relocate to the Netherlands after 1 January 2019, but also to expats who had already been benefiting from the 30% ruling. As a result, expats to whom the 30% ruling has been applied for 5 years or longer, would lose their entitlement on 1 January 2019, despite an earlier decision from the tax authorities that the ruling applies for a period of 8 years.
However, on 15 October 2018 the government decided to introduce a transition period. The maximum period of 8 years will continue to apply to expats whose 30% ruling benefits terminate in 2019 and 2020. Expats who received a decision from the tax authorities that the 30% ruling terminates in either 2021, 2022 or 2023 will remain entitled to the 30% ruling until 1 January 2021. A maximum duration of 5 years will apply to expats to whom the tax authorities issued a decision with a termination date in 2024 or later. So for those expats the initial duration of 8 years will be shortened to 5 years.
This is good news for expats who have already been in the Netherlands for 6 years or longer. Unfortunately there is still a group of expats who initially received a decision that they were entitled to the 30% ruling for 8 years and are now faced with a shorter duration. In my opinion, the government should have continued to apply a maximum of 8 years to that group in line with the decision already issued by the tax authorities to those expats. At least, this group will still have some time to make arrangements in their financial situation to deal with the consequences of the government’s decision.
If you have any questions or would like to know more about the recent developments, please do not hesitate to contact me.