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No 30 percent ruling during Garden Leave

The 30% ruling implies that 30% of the gross income is exempted from wage tax and social premiums if certain criteria were met and the actual 30 percent ruling was applied for and granted. This ruling is valid for an eight year period.

Garden Leave and 30% ruling

Recently a court in the Netherlands ruled that the 30% ruling does not apply to the income generated during a so called Garden Leave period. That is a period the employee is still employed but not performing any duties for the company.

In this case it was the CEO of a company who’s position was being terminated. This happened in August 2013, however, this CEO had a notice period of 12 months. Which implied that the termination could not be effected till September 2014. Nevertheless the company was of the opinion that this employee should also no longer perform for the company, hence a Garden Leave period was introduced.

This CEO was granted the 30% ruling when he arrived in the Netherlands, but his employer no longer applied this 30% ruling during his Garden Leave period. The CEO made a complaint and went to court.

The court decided that the 30% ruling applies to an actual working period. That was descripted as such. As this employee was not actual working, the ruling no longer applied.

Paid leave and 30 percent

Severance payment and 30% ruling

In my opinion this is in line with the severance payment. When the position of an employee is terminated and a severance payment is being made, the 30% ruling does not apply to this severance payment. The Garden Leave as mentioned above could be seen as part of a severance package. Not applying the 30% ruling is in line with regulations.

The better option for this CEO would have been to find a new job within three months in the Netherlands, have the one year salary paid and waive the notice period. With this new employer the 30% ruling could have been continued. However, we are not aware of the circumstances.

Notice and 30% ruling, what to do?

The moment you are given notice and you are a 30% ruling holder, you might be aware that you can have max three months unemployment before you lose the 30% ruling for ever. What to do?

After you visited the labour lawyer you decide what your options are. Finding a new job, hopefully within three months time or starting your own company.

If you think you are able to create your own income the only correct vehicle to use is the BV company. In the BV company you can be employed by yourself which implies you can obtain the 30% ruling again for the remaining period of time of the ruling in your own BV company. One of the requirements of keeping the 30% ruling is that you need to earn at least the minimum required income. And that income you can only earn when your BV company makes enough turnover or when you put enough capital in the BV company to make such salary payments.

Orange Tax Services

We will be glad to inform you about the possibilities you have. You can continue the 30 percent ruling if you are employed with a BV company by yourself. In case you cannot make the income to pay the minimum required salary or when the remaining period is rather short to set up the BV company, we suggest a one man company. Feel free to contact us for a meeting.

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