In the Netherlands, we have an advantageous tax regime for employees who have been hired from outside the Netherlands or who have been seconded within the group to the Netherlands. This is called the 30%-ruling.
With a 30% ruling in hand, an employer may pay out up to 30% of the taxable wage as a tax-free expense allowance. This allowance is intended to cover so-called extraterritorial costs, costs that are incurred due to the fact that the employee works and/or lives outside his or her normal home country.
Transitional rule or grandfathering clause expires
In the past, a decision for the 30% ruling had a validity period of up to 10 years. As of January 1, 2012, this has been reduced to 8 years and as of January 1, 2019 it has been further reduced to 5 years. With the reduction to 5 years there also came new transitional rules. Those transitional rules expire on 31 December 2020.
Under the transitional rules, the 30% ruling may be applied until 31 December 2020 at the latest for employees:
- Who, on 31 December 2018, had a decision valid for more than 5 years (i.e. for a maximum of 10 or 8 years) and
- Who, on 31 December 2020, have made use of the 30% ruling for 5 or more years.
Therefore, even if the employee has not used up his full 10 or 8 years of the original decision on 31 December 2020, he may no longer make use of the 30% ruling as of 1 January 2021 if he has already used the 30% ruling for 5 years or more at that time.
Action before 31 December 2020
If you have employees or if you are an employee, for whom the 30% ruling ends on 31 December 2020 under the transitional rules, it is important to check whether there are still wage payments to be expected in 2021 that you could bring forward. If you pay out a bonus or other variable salary in December 2020 (instead of 2021), the 30% ruling may still be applied.
Now that we have your attention …
One of the conditions to get a 30% ruling is that an employee has a specific expertise that is not or scarcely available on the Dutch labor market. An employee possesses such specific expertise if he or she has an annual taxable salary of at least EUR 38,347 (2020 figures). If the employee is younger than 30 years of age and has a university master’s degree, he or she also possesses specific expertise if he or she has an annual taxable salary of at least EUR 29,159 (figures 2020).
This income test is a “dynamic” test. This means that the employee must meet the applicable wage requirement every year. At the moment that the employee’s salary no longer meets the wage requirement, the employee immediately and definitively loses the right to apply the 30% ruling. If you have employees or if you are an employee who is on the edge with the annual taxable salary, it is important to check at the end of the year whether the 30%-allowance paid and therefore the taxable annual salary still needs to be adjusted in order to continue to meet the wage requirement. For this purpose, it is required that such an adjustment of the amount of the 30%-allowance paid is explicitly agreed upon with the employee in, for example, an addendum to the employment contract. The adjustment can then also still take place in an additional, 13th salary run in the following year.
Take action now!
Check whether all employees with a 30% ruling still meet the wage requirement. If not, adjust the 30%-ruling in such a way that the annual taxable wages of those employees do meet the wage requirement.
Do you need help determining whether your employees with a 30% ruling still meet the wage requirement? Or do you have other tax questions regarding Wage Taxes, please contact Gertjan Buijsen – RED Tax Specialists B.V.