30% ruling and sequence of events

30% ruling

30% ruling and sequence of events, what is that about? That is about making the difference in a successful 30% ruling application.

30% ruling and sequence of events

We often are asked about the impact of the Dutch tax system on the personal life of a potential expat in the Netherlands. This person contacts us already from abroad. Either this person has a substantial wealth or earns a good salary in their own company. Two reasons why they should not come to the Netherlands, tax wise.

The reason for coming to the Netherlands is often the partner who is either Dutch or received a Dutch assignment. Then we are asked about the impact of the Dutch taxation. We try not to horrify them, hence we inform about the 30% ruling.

The 30% ruling

We published many articles already on this subject. In short, the 30% ruling makes that only 70% of your employment income is taxed and non of your world wide assets, during the first five years of your stay in the Netherlands.

That is if the ruling is actually granted to you. The most important criteria is you being attracted from abroad. This implies you cannot start thinking about this setup if you have been in the Netherlands already for a short period of time.

Sequence of events

The sequence of events is that you already set up the BV company while you are still living abroad. We can facilitate this service for you. Then upon arrival you sign the employment agreement with your own BV company.

If you then also meet the criteria of a minimum income of roughly EUR 60.000, you have in the past 25 years not been a Dutch tax resident,  and you were not living closer to the Dutch border than 150 km in the two years before arrival, your chance of you getting the 30% ruling is very good.

It turns out you like the Netherlands

The worst thing that can happen to you is that you actually like staying in the Netherlands, hence the five year period is exceeded by you. That implies you start paying tax over the full amount of your salary. That will be something you need to digest, but then again, everybody does the same.

The challenge is with your world wide assets. If you want to prevent your assets to become subject to the very much disliked wealth tax, you need to act on that when the BV is being set up.

Again sequence of events

The moment the BV is set up you can indicate the share capital. The minimum is EUR 0,01 which is that silly it is often forgotten to be actually paid. That implies the limited liability never started. We recommend to put a significant proportion of your worldwide assets as payment on share capital.

Your salary income is taxed in Box 1 with the progressive tax rate up to 49,5%, the dividend income from your company is taxed in Box 2 currently with a 26,9% tax rate and in Box 3 are taxed your world wide assets with a maximum tax yearly of roughly 1,6%. By making a large deposit in share capital in your BV company, that money moves from Box 3 to Box 2. No more wealth tax. On top of that, if you repay yourself the share capital, this is a tax free procedure.

Tax is exciting

We think tax is exciting. Working with the rules and regulations gets us excited as well. Currently we see opportunities to have you enjoy the Netherlands, tax wise as well. Contact us for more information.

No more 30% ruling, what has changed?

Entrepreneurs deduction (zelfstandigen aftrek)

No more 30% ruling is the situation that occurred to many internationals on January 1, 2021. The 30% ruling period has been updated and all periods have been reduced to max 5 year period. The one date on which this all came together was December 31, 2020.

No more 30% ruling, what has changed?

On December 31, 2020 the 30% ruling holders that still had a 12 year period, 10 year period, 8 year period have been reduced to 5 year period on December 31, 2020. Most of them had as per that date no more 30% ruling.

The immediate change was the net salary of the January 2021 salary specification. Not the best start of a new year. The net salary is only one part of the changes.

World wide assets are now taxed

The question we receive a lot these days is what to do with the world wide assets, now there is no more 30% ruling.

The timing of that question early 2021 is not good. The world wide assets taxed in the 2021 income tax return are valued on January 1, 2021. In other words. If you were going to take action, you are already too late for the 2021 income tax return.

But then we wonder what is it you would like to do? The only method to reduce your wealth is spending it or giving it away. Paying the tax over your assets is then cheaper.

No more 30% ruling

What wealth is actually taxed?

Taxed is your world wide wealth, such as your:

  • world wide bank account balances,
  • your share portfolio,
  • properties you own around the world,
  • receivables you have on your company or friends and families.

The bank accounts is a fixed number. The tax offices around the world communicated with eachother, if you ‘forget’ to mention your foreign bank account, the tax office will remind you in the next 12 years, plus a 300% penalty. The 300% penalty is taken over the tax you should have paid, and you can see that as an incentive to report properly.

Pension value

The share portfolio is not always straight forward. If you are a US national and you have a brokerage account for your 401K or IRA, then this 401K and IRA value is not part of the Box 3 taxation. Your instantly reaction will be a relief, but then you wonder why is it not taxed.

The reason why the 401K and IRA are not in Box 3 is that the actual pay outs of these funds will be taxed in Box 1 at the 38% to 49% brackets. This applies to all pension situations. A true pension is not taxed in Box 3, but taxed in Box 1 the day you start receiving pension benefits. The exemption to the rule is state pensions. If you were a civil servant, in the military or embassy, this pension is taxed in the state you served for only.

You see me mention the word ‘true’ in front of pension. That implies there are also not true pensions. Indeed. A non true pension is a pension fund that might carry that name, but you are entitled to touch the capital before the pension date had actually been reached. That is according to Dutch rules not a pension capital. Consequently, such a ‘pension’ capital is taxed in Box 3.

The IRA roth is also taxed in Box 3.

Property abroad

If you own property abroad, or like is common in Russia, part of the family property abroad, then this property value is mentioned in Box 3. Mentioned implies it is reported, but not taxed.

The tax treaties around the world often mention in article 7 how property is taxed.  All treaties stated that the property is taxed in the stated where the property is actually situated. Logic solution, as it is that state that has the burden on their soil of such a property, hence they should be the state to tax the property.

The purpose of the exercise of mentioning the property in the Dutch Box 3 tax return and then claiming for the same amount a double taxation relief is as follows. Should the property be sold at any given moment and the income is received in your bank account, you can explain where the money came from. The Dutch tax office then do not need to assume you had hidden bank accounts abroad.

By the way, the double taxation relief on the property is not a 100% double taxation relief. The calculations are not pure, the tax free amount is taken into account, causing less value to be corrected.

Tax is exciting

We think tax is exciting, we do understand that paying tax again over your assets that were already taxed when you obtained them, is not exciting at all.

You have choices what to do in this situation. You can decide to enter in a ‘construction’ that promises you a more nice yield than the interest you receive, if any, in the bank. But will you ever see your money again?

You can invest in property abroad, value could go up, can go down.

You can also accept that part of being a Dutch tax resident is paying tax over your world wide assets. Nobody likes to pay this tax, but gambling with your assets to avoid taxation might cost you more.

30% ruling and moment of arrival

The 30% ruling has one moment of arrival, even though some think you can be flexible with this moment. What is that about?

The 30% ruling and moment of arrival

We have addressed the 30% ruling in earlier messages. If you like to learn more about what this ruling implies, click on the link to the articles. This article is about the moment of arrival.

The 30% ruling has one reference moment and that is the moment of first arrival in the Netherlands. At that moment you need to have met the conditions of:

– being attracted from abroad by a Dutch employer;

– You cannot have lived closer to the Dutch border than 150km in the two years before arrival

– you were not a resident in the Netherlands in the past 25 years.

The moment of arrival

Often we are asked by students if they can have the 30% ruling. Obviously we reply that this is not possible, as they arrived in the Netherlands for a study. They were not attracted by a Dutch employer. For such a situation is one exception. If you receive the Doctor title after your study, you can study the last year in the Netherlands and still be awarded the 30% ruling. Anything else does not apply.

These students then claim that they have always remained a tax resident in their home country, hence never arrived in the Netherlands before. That is how they think they can apply. And then quickly it is added that all other students makes their application like this and is always granted.

We disagree with this approach as it is incorrect. It jeopardizes all the ruling stands for. We need knowledge from abroad hence this ruling. The 30% ruling is not meant for people that took a Dutch education, that knowledge we apparently already have.

30% ruling and moment of arrival
30% ruling and moment of arrival

Court case

Recently a similar situation was in court. A daughter who remained in the family home while the parents were send abroad to serve our country moved out. She moved out because she went to study in a big Dutch city. From that moment the house was no longer the main residence of any of the family members. Hence no more mortgage deduction.

The relevance for us is not the mortgage deduction, but the daughter moving out. The Dutch tax office and the court had the opinion that if the daughter moves away, she is no longer part of the house hold. Even if she comes back for the weekends.

This is exactly the case with the foreign students arriving in the Netherlands. They are no longer part of the family house hold. They have become Dutch residents. Hence their first arrival in the Netherlands is because of a study. This is a denial for the 30% ruling.

Tax-is-exciting

We think tax-is-exciting. Part of that are the rules and regulations based on which taxation is executed. If then a rule is misused based on “everybody is doing this” we feel not excited at all. For us that is not a base to play the game.

Sorry for the dashes in the middle of the word tax-is-exciting. Apparently Google has a dirty mind and sees only a three letter word that we refer to when we practice to reproduce ourselves. Anything related to that word is spam, hence this devout solution

30% ruling ends – For many December 31, 2020 – what then?

The 30% ruling ends, the best tax benefit we have and for many of you this benefit is terminated on January 31, 2020. What then?

30% ruling ends

The 30% ruling is the best tax benefit we have and an old one. In the past it was the 35% ruling, in a period where 60% to 72% income tax rates existed.

The ruling was reduced to the 30% ruling. The twelve year period to a ten year period. The ten year period to an eight year period, now we have the 5 year period.

If you received the ruling for a 10 year period in 2011 or a 8 year period in 2013, if you have used the ruling for at least 5 years, it ends December 31, 2020.

Or if you received a specific announcement from the tax office with a different date, that date rules.

30% ruling ends

30% ruling ends – what then?

Decrease net salary

We are frequently asked about the fiscal consequences of the 30% ruling ending. The consequence is that you will be doing the same job, with the same effort, but you simply get paid net much less. That is often not motivating.

Some people assume the employer will compensate the drop in net payment by losing the 30% ruling. We often have to crash that party thought, as nearly no Dutch employer will give you a 30% rise in net salary.

Tax deductions

The tax deductions, we assume , are not much affected and if they are, in your advantage. As the taxable base goes up by losing the 30% ruling, the tax deduction is taken at a higher taxable salary.

Box 3 taxation

Suddenly you need to report your worldwide assets after the 30% ruling has  been lost. We are often asked how to prevent that. You cannot. Your assets are your assets and any creative construction will not change that. Keep in mind that the tax is a small proportion of your assets, so please do not make more costs in preventing tax to be paid than you actually are asked to pay in tax.

What to do with my assets

Is a question we are asked,  but we are not authorized to give financial advice nor are we educated in this field.  We could say “Pay back your mortgage”. The mortgage loan is in Box 1, so you move Box 3 money to Box 1. However, once you repaid your mortgage, the bank is not giving it back to you if you are short of money due to for instance Covid 19. Then the question is, is cash king or no debt the best debt. That are questions only you can answer for yourself, nobody else.

Tax is exciting

The 30% ruling ends and for those we would like to become more Dutch, do become more Dutch after the ruling is no more. You then pay tax over the same basis as regular Dutch do. Obviously a part of you becoming Dutch you can do without.

You are to report your world wide assets. Please keep in mind, foreign property is only taxed abroad. We will be glad to assist you in filing your income tax return.

Not enough income, will I lose my 30% ruling?

The 30% ruling is a much desired ruling, but sometimes you make decisions in life you regret. Or you start to regret certain decisions after you met with us.

Will I lose my 30% ruling? Pension

The 30% ruling we address in a number of articles. Recently a (former) 30% ruling holder contacted us about a problem he had.

This employee was offered during his employment in 2017 to make an extra pension contribution. A pension contribution is tax deductible, so in high earning employments a 100% contributions basically costs you roughly 50% of the amount. The employer immediately sets of the contribution in the salary specification against the taxable salary. The result however is that your fiscal salary drops.

Two years later the employee switches jobs and applied to continue the 30% ruling with the new employer. This request was being denied by the Dutch tax office. To the surprise of the employee his 2017 fiscal salary was not meeting the minimum income requirement.

During the 30% ruling period you need to meet every year the minimum income requirement. This income requirement increases every year a little bit. The month you make a change that will result the annual salary will be below the minimum income requirement, that month is the last month the 30% ruling can be applied for.

The employee now has two problems. The 30% ruling will not be granted anymore and the tax office is going to investigate how is salary was processed in a part of 2017 and in 2018 and 2019. The employer was not aware apparently that the minimum income requirement was not met in 2017. Which implies the ruling expired at that moment. The fact that the employee did have enough income in 2018 or later does not change the fact that the 30% ruling had terminated in 2017 and will never come alive again for this employee.

will I lose my 30% ruling?
will I lose my 30% ruling?

Hence not only the employee will have a much lower net salary with his new employer than he anticipated, but also he has now a discussion with his previous employer about who will pay for the too much net salary received by the employee. We recommended the employee to contact a labor lawyer. Such a lawyer you need at your side during these moments. It will not change the fact you cannot have the 30% ruling, but it might prevent you paying back too much salary you received. Salary you already spend, as you did  not anticipate the salary specification to be incorrect.

Will I lose my 30% ruling? Part time

More common is the working part time decision. You could decide to work less because of any reason. Often extension of the family make persons decide to work a day less. A day less work, is a day less gross salary. This decision might jeopardize the existence of a 30% ruling. As the minimum income requirements it not related to the hours worked. It is a fixed amount regardless.

Will I lose my 30% ruling? Exempt from appearing to work

In a severance agreement the employee can be offered to stay away for the remaining period of time. For your information, the 30% ruling does not apply at all to severance agreements. But now you are offered a severance amount at the end of the period and till the end of the period you are offered to stay away from the office. Will you lose your 30% ruling?

Basically you already lost it, as the start of the period you are asked not to come to the office anymore, is the start of the three months during which you need to find a new employment where you can continue the 30% ruling with.

Orange Tax Services

Often when we touch the subject of the 30% ruling no longer being applicable, we are shown the 30% ruling statement. Indeed, that statement we are very much aware of. However, if during the 30% ruling period the 30% income condition is not being met, the ruling has terminated the very first moment it became clear the income was no longer enough.

The 30% ruling is the most precious tax benefit an employee can have in the Netherlands. So when you think about making changes to your employment, best is to check before you do, if that change affects aspects as the 30% ruling.

30% ruling and the days worked abroad

The 30% ruling is the best tax benefit we have in the Netherlands. If you are a US national the ruling has even more advantages, but mind the 30% ruling and the days worked abroad.

30% ruling – deemed non resident

The 30% ruling we have explained in many articles before, you can find here the link to those articles. Now we would like to focus on the days worked abroad.

If you are a tax resident in the Netherlands and a US national or a US green card holder, then you are a tax resident in the Netherlands for your worldwide income and you need to file a US tax return based on your nationality.

The moment the 30% ruling is granted to you, you can choose to be regarded to become a deemed nonresident tax payer. This is a choice you can make every year, but basically all 30% ruling holders make this choice as then none of the world wide assets need to be reported.

Not all 30% ruling holders make this choice. The ones who think they can use the tax return the tax office (Belastingdienst) has set ready for them explicitly made the choice not to be a deemed nonresident tax payer, so they have to report their worldwide assets. Which of course they have not done as they are not aware. So they are not compliant.

30% ruling and the days worked abroad
30% ruling and the days worked abroad

The moment the choice is made, then the regular tax payer has become a deemed nonresident tax payer, but the US national or US greencard holder has become a true nonresident living in the Netherlands! Why a true nonresident? The US tax office simply assumes that if you are a deemed nonresident in the Netherlands, you are a resident tax payer in the USA.

The nationality in combination with the US tax rules, the Dutch American tax treaty and the possibilities in the 30% ruling make that US national in the Netherlands under the 30% ruling can become a deemed nonresident.

30% ruling and the days worked abroad – tax reduction

The consequence of the above is that a nonresident cannot be taxed in the Netherlands for the days the tax payer was physically not in the Netherlands.

The calculation is for the Monday to Fridays you work abroad, the calculation base is maxed by the Dutch court. Important is that you are physically outside the Netherlands. If you work one day in London, you go in the morning and return in the evening, then you were physically that day in the Netherlands and that day does not count.

If you leave Sunday and return Saturday for work abroad, you have 5 days discount.

Abroad is any other country, not necessarily the USA. Abroad for work we need to stress, not pleasure.

Even if you did work on a Saturday or Sunday, these days are not part of the calculation.

30% ruling and the days worked abroad – proof

The proof is the actual reason for this article. The obvious proof is a copy of the US passport and a copy of the 30% ruling. The most important proof is a signed list of days you worked abroad. This list needs to have been signed by your superior.

We often receive excel overviews with where a person was working and when holidays were taken up. We use that overview, but we stress to get it signed. The reply is often “yeh  yeh we will”. But is that the case. From experience we know that the tax office makes inquiries two years after the return was filed. The refund due to the days worked abroad discount can be huge. But if you need to repay the already spend refund because the administration is not up to date, you have issues.

30% ruling and days worked abroad case

A client of our office had many years ago the 30% ruling and the US nationality. This client worked many days abroad as he travelled the world for the company. So a EUR 25.000 refund was created by the calendar days worked abroad.

Tax return filed, refund received, money spend. Then two years later the tax office asked for the proof that this deduction could be applied. Proof such as 30% ruling, nationality and the signed list of days worked abroad.

Although we stressed to have the list signed, the client actually had not done that or forgotten about it. However, in the meanwhile he started to work for the competition. And the former employer was not happy about that. So when our client asked the former employer to provide a signed list, the request was denied. The client had to pay back the tax benefit.

This is how important a silly signature can become.

30% ruling days worked abroad – outcome

The outcome of the calculation can surprise you, depending on the size of your annual salary. The higher the salary, the higher the refund. However, the refund you receive is part of the US tax return. The US tax rate over this refund is significant lower, hence you still benefit from applying this calculation.

Orange Tax Services

We provide tax services and we are specialized in expats. That implies you are from abroad and work and live in the Netherlands, or you are still abroad and you purchased property in the Netherlands.

US nationals require always to file a Dutch tax return, as the Dutch tax return is the bases of the US tax return. The 30% ruling makes the Dutch tax return more simple, but does have implication that we never recommend to use the tax return set ready by the Dutch tax office. Yes we charge you for our services, but the tax office tax return contain incorrect details for the 30% ruling holder.

The US national can benefit from the day deduction and we are happy to included that in the tax return. All at the fixed fee of EUR 390 incl VAT including the tax partner.

US national & 30% ruling – Partial non-resident taxpayer status Netherlands

US nationals who have the 30% ruling can chose to have the regarded partial non-resident taxpayer status in the Netherlands, what does that imply?

Tax residence

You are a tax resident in the country where you have your central point of life. If you live and work in the Netherlands, that is simple, only the Netherlands is your tax residence. If you live and work in the Netherlands, but your wife and children live abroad, you are a tax resident in that country of your wife and children.

The other way around, if you are going to work in Dubai at zero percent income tax, but your wife remains living in the house you own, then you have remained a Dutch tax resident. Hence your worldwide income is taxed in the Netherlands. We do give a double taxation relief, but if there was not tax levied, there is not relief. In other words, contact a tax advisor before you make such a move.

Tax residence & US national

The except to the rule is the US national. An US national or an US green card holder will always remain a US tax resident, regardless where the individual goes. If you, as US national, no longer want to contribute to the US tax system for whatever reason, you can give up your nationality, but then you still need to continue filing US tax returns for the next five years.

Partial non-resident taxpayer status
Partial non-resident taxpayer status

Partial non-resident taxpayer status

What does that mean? If you are an expat in the Netherlands, then you can obtain the so called 30% ruling if you meet the criteria. The 30% ruling is valid for a five year period, under the condition you keep on meeting the minimum income requirement.

The 30% ruling has all kind of benefits, but one in particular most expats like a lot and it is not the possibility to chance your driver’s license without taking the test. It is the choice to be regarded a deemed nonresident. This choice makes that you do not need to report your worldwide assets, neither does the tax partner need to report the world wide assets.

If you are a US national or greencard holder this choice as an extra impact. Because the US tax office already sees you as a tax payer, but nonresident, the Dutch nonresident status makes you for Dutch tax purposes a true nonresident tax payer residing in the Netherlands. A little complex, but the outcome is that you can deduct the days worked abroad from your Dutch tax burden. The tax refund resulting from this adjustment is taxed in the USA, but the US tax rate on this income is considerably lower than the Dutch tax rate.

Orange Tax Services

We are focused on the non Dutch national that needs assistance with their Dutch tax affairs. The US national with the 30% ruling we can help claiming back some Dutch tax for the days worked abroad for the Dutch company. Our fee to file this income tax return is EUR 390 including VAT including tax partner.

We can also liase you with the US tax prepare company in the Netherlands.

How not to use your UK Ltd in the Netherlands

The Ltd is the United Kingdom equivalent of the Dutch BV company. This UK Ltd is often used in the Netherlands and sometimes mis-used by lack of understanding the rules.

How to use your UK LTD in the Netherlands?

The moment you start to use your UK Ltd in the Netherlands for your activities either by starting a contract in the Netherlands via the UK Ltd or you set up an office in the Netherlands and you, the director of the UK LTD operate in the Netherlands, the UK Ltd becomes subject to corporate income tax and value added tax rules in the Netherlands.

The UK Ltd becomes a Dutch resident company and therefore subject to Dutch corporate income tax the moment the director is a tax resident in the Netherlands. When that is the case, the Dutch rules towards the minimum salary requirements etc apply. This is not often fully understood.

How not to use your UK Ltd in the Netherlands
How not to use your UK Ltd in the Netherlands

How not to use your UK Ltd in the Netherlands? Court case

The court ruled recently over a British couple that operated in the Netherlands through their UK Ltd company. The company was registered in the year 2007 with the UK companies house at the address of the UK accountant. The employment agreement was based on a Dutch address and that employment contract was also the basis of the 30% ruling application.

Both the husband and wife were granted the 30% ruling. The 30% ruling is to cover the extra costs expats have for moving to the Netherlands. The 30% is the maximum and an employer should not reimburse the employee besides the 30% ruling more extra territorial costs. And that is exactly what the couple did do. They enjoyed the 30% ruling and they reimbursed themselves double housing costs, living allowances and a fixed amount of general costs reimbursement. None of these reimbursements are legal, but they were processed for the period of 2009 to 2013. At least, the audit was for this period and hence noticed.

Moreover the husband and wife granted themselves a directors fee from their UK registered Ltd to themselves that was not included in the Dutch wage tax return. As it was clear they were residing in the Netherlands, the rules is that all they earn is subject to Dutch tax. There is a tax treaty article about directors fees, but that does not apply either, as the company was a tax resident in the Netherlands.

The Dutch tax office calculated the wage tax due over the non-reported income and wrongly deducted reimbursements for EUR 125.000 and increased that amount with 25% penalty.

The couple made a complaint in court against the assessment and penalty issued by the tax office. They claimed to be a UK resident company. But the court was clear on the case. The couple owned the house they lived in in the Netherlands, that makes them having their central point of life in the Netherlands. As they are the director of the company and the tax residence of the company is determined by the tax residence of the directors, the company was a tax resident in the Netherlands.

Moreover, the court noticed that the employment agreements which were the basis of the 30% ruling applications showed a Dutch address as the employee/director home address. Then, the employment agreement mentioned a Dutch address as the UK Ltd company address. In the UK Companies House the Dutch address was reported as their home address.  In their UK income tax return they reported living in the Netherlands and claimed not to be due any UK income tax over the directors fees paid from the UK company, as this was income earned while living abroad. In the Dutch income tax return the Dutch address was reported as their home, hence mortgage deduction was possible. Their children went to a Dutch school, which makes the statement of them being a Dutch resident stronger.

None of the arguments of the couple was valid.

Orange Tax Services

You can use your UK Ltd in the Netherlands, but you need to understand some of the basics. If you as shareholder director of a foreign company become a resident in the Netherlands, or you have a job via your company in the Netherlands, then not only you but also your foreign company have become a tax resident in the Netherlands.

The rules we have in the Netherlands are not only for the Dutch, that would be discrimination. They are for all tax residents in the Netherlands. You and or your company are more quick a tax resident that you would think. Then it is key to comply and if you are not sure how to comply or if you should comply, you need to contact an expert. We are such an expert. On a daily basis we ask ourselves in client contact where is the fiscal residence of the client or his or her company. If that question is skipped, then you get court cases as you could read above.

Mind also the timeline please. The audit was over the period 2009-2013 and only now, late 2018, this case was decided. Nearly a decade has passed when you are charged with the correct amount of tax. You might not expect that at all, hence a good setup is crucial for your future financial planning.

30% ruling cut is partly postponed

The Government announced a rather rigid cut in the 30% ruling period last month. Now this rigid cut is softened for a part of the 30% ruling holders.

30% ruling cut

The 30% ruling makes that your 100% gross salary is taxed for 70% and 30% is paid out to the employee tax free. This is a ruling that does not cost the employer anything and it makes the employee chose to work in the Netherlands over the United Kingdom.

Part of the tax measures for the future was to cut the maximum period that the 30% ruling could be used from 8 years to 5 years regardless.

The Dutch Government works with budgets, and to pay for the dividend tax to be abolished, certain measures were taken, one of them this cut in applicable years.

30% ruling cut
30% ruling cut

No deal multinationals

The reason for the dividend tax to be abolished was to keep the headquarters of multinationals such as Unilever and Shell in the Netherlands. This was a deal made many years ago. Only a few weeks after the Government has met their part of the deal, abolishing the dividend tax, the multinationals announced that they do not keep their part of the deal. Unilever is moving their headquarters to the United Kingdom and soon Shell is expected to follow.

That made our Government lose face as they say in China. Part of losing face is apparently acting quick on the new information, hence the dividend tax is not being abolished. As this measure is not taken, we have 2 billion a year more budget to spend. This will be spend on the corporate part of the Netherlands.

30% ruling cut is partly postponed

Due to the multinational deal falling through there is budget to be less rigid on the 30% ruling cut, hence the ruling partly postponed. What does that imply?

That implies that the persons who would have been affected by the ruling no longer be applied in the years 2019 and 2020 can still continue to use their ruling in these years.

Who are these persons? That are the persons whom 30% ruling was used for more than 5 years in 2019 and or 2020. So the persons in their 6th, 7th or 8th year.

30% ruling cut not postponed

That implies that others, the persons whom ruling would not be affected in the years 2019 and 2020 still are entitled to use the ruling for a maximum period of 5 years. For instance an employee that obtained the ruling in 2017 for an 8 year period is indeed cut to a max 5 year period.

Orange Tax Services

We have the opinion that the Government has not been the trustworthy Government you would expect from the Dutch Government in this aspect, the 30% ruling issue. We, tax advisors, knew already a year ahead that the ruling would be cut to 5 years. But as the Government was not taking this stand point till late September, all expats trusted the change would shield existing holders from being cut. Only last week it started to sink in that this was never going to happen. Hence some expats took action and are soon moving away.

Now this week suddenly there is for some of the existing expats a softening in the rigid change, but so late in time this is being communicated, that for some expats who already took action to leave, or who shuffled their Box 3 assets, taking a loss, only to minimize taxation, are already affected.

Casualties of tax war? Maybe so, but no good showcase for the Government in place. Regardless of the change announced this week, such a rigid change to 5 years as announced before is never a good deal.

 

183 day rule is no rule

The famous 183 day rule is more often abused in assumptions that actually used in real life. How is that possible? The answer is really simple, the 183 day rule has two more rules that make it can hardly be used at all.

183 day rule – what is that about?

Some people spend time in the Netherlands for work, are horrified by our 52% tax rate and try to find solutions to the Dutch tax rates. One of them is to avoid becoming subject to the Dutch tax system by applying the 183 day rule.

What 183 day rule criteria do you need to meet?

Obviously you cannot be physically more than 183 days in the Netherlands. The day you take the airplane out is a physical day in the Netherlands. The 183 days apply to one calendar year, or if the tax year is not equal to the calendar year, like in the United Kingdom, the 183 day period is counted in the 12 months of that other calendar year.

During the period that you stayed less than 183 days physically in the Netherlands, you are paid by an employer that is not resident in the Netherlands.

And your salary cannot be allocated to a permanent establishment your non Dutch employer has in the Netherlands.

The two last paragraphs are making the rule no rule in most cases.

How not to use the 183 day rule?

Most simple situation is that you stay longer than 183 days. Some focus on the working days, some forget the travel days.

More often it is a person from abroad that worked less than 6 months in the Netherlands, who thinks that no Dutch tax should be applied then. But that employee was not send from abroad by a foreign employer, was working for a Dutch company, hence the rule does not apply.

Subcontractors think they can use the 183 day rule if the contract only lasts for 6 months. But subcontracting can only be done in the Netherlands if the company for whom they are working, nearly always their own UK Ltd, if that UK Ltd is registered in the Netherlands as so called WAADI employment agency. Once that registration is done, the Dutch rules with respect to payment in the Netherlands apply. Hence Dutch tax rates apply.

Single persons staying a while in the Netherlands who forget that they have become a Dutch resident tax payer the first day they arrived, regardless how long they stay, as their fiscal residence is based on facts and circumstances. And those make them subject to Dutch tax immediately.

183 day rule

How to use the 183 day rule?

Your company sends you as employee out to the Netherlands to attend a fair, visit clients, do research, find clients. This can be a short stay, a longer stay, but would make doing business for a foreign company very complex if for every day spend in NL, or any other country in the world, a local payroll needs to be set up for the days spend in those countries. So it is a very practical solution.

Orange Tax Services

We are often contacted by subcontractors that want to use this 183 day rule, or even worse, have the opinion that as they work in NL for a UK company, their own UK Ltd, they should not need to pay any Dutch tax. Fortunately we have tax treaties that are very clear on the subject. Work done in a country is taxed in that country.

We prefer potential clients to contact us and simply ask how it works, then we can explain that with the 30% ruling in place, you pay in NL less tax than in for instance the United Kingdom. That always is a good selling point, unless you do not qualify for some reason for the ruling, then I hope the day rate you can earn in NL compared to abroad makes it still worth while moving over.

 

30% ruling – minimum income requirement and soon no more

The 30% ruling is a benefit with a time restriction to the use of this ruling that soon will be shortened to maximum 5 years. Soon no more ruling, what does this imply?

30% ruling – Soon no more

The 30% ruling can end due to the following reasons:

  • The period for which the ruling has been granted has lapsed;
  • The employee no longer earns enough income for the ruling;
  • The employee starts garden leave;
  • Government changes the rules of the game while the game is still being played.

30% ruling
30% ruling

30% ruling – minimum required income

The 30% ruling has an income requirement to be met which is EUR 37.296 for the year 2018. The EUR 37.296 is the salary where the 30% ruling has been applied to already, so  this is the 70% salary. Hence, in order to qualify for the ruling, the employee needs to have in his or her employment agreement a salary including holiday pay for at least EUR 53.280.

The exception to the rule is that when you are under 30 years old and you hold a master degree, the requirement minimum income is EUR 28.350, being a gross salary of EUR 40.500.

We do get a lot of requests by employees who do not meet the minimum income requirement. The question is then if it is possible not to use the 30% percentage, but a lower percentage in order to qualify for the ruling. That is possible. So your gross salary is EUR 50.000. If you then use 30%, the fiscal salary is EUR 35.000 and you are not entitled to the ruling. But if you then use a 25% percentage, the fiscal salary is EUR 37.500 and you still can qualify. Hopefully over time your salary goes up and you can fully use the 30%.

The mistake made in this assumption is that a lot think the EUR 37.296 is the gross salary to be met. But that is not the case. Neither would the application be granted, nor would the applicable percentage exceed 0%.

30% ruling – minimum income required turning 30 years old

The exception to the rule mentioned above is about the employee under 30 years old holding a master degree that needs a gross salary of EUR 40.500. The moment this employee turns 30 years old and his salary does not meet the corresponding minimum income requirement of EUR 53.280 the ruling is lost.

30% ruling – minimum income required daddy day

You might notice on a regular Friday that it is quiet in the office, in traffic, on the phone as most Dutch take the Friday off for pleasure time. That might appeal to you, hence you agree with your employer to work 4 days per week instead of 5 days per week. This has an impact on the 30% ruling.

The moment you work less days, you earn less salary.

Example:

The minimum income requirement is EUR 54.000 annually, the employee earns EUR 60.000 per year but then decides to work 1 day per week less. His salary then drops from EUR 60.000 to EUR 48.000. The moment the employee no longer meets the EUR 54.000 gross income the ruling is lost.

30% ruling – garden leave

Before the crisis of 2007 garden leave was very popular, except for the employees who took the leave just before the crisis, they had a permanent leave.  Garden leave is explicitly mentioned in the rules and regulations of the 30% ruling as a termination of the ruling immediately. So you can agree on the salary being paid, but you do not show up for work. That is regarded garden leave and then the ruling cannot be applied for.

30% ruling – Ended by the Government

The Dutch Government ends most rulings by limiting the period to max 5 years starting January 1, 2019. Even though we speak a lot of expats in disbelieve or in the hope it will be adjusted. It will not be adjusted. Instructions from the European Union that the Dutch Government stalled as long as they could, but now it is time to be in line with EU instructions.

30% ruling – ruling is lost, forever?

In our explanation above we state that when certain conditions are no longer met, the ruling is lost. What does that imply? That implies the ruling is lost and you are not able to reapply for the ruling ever. So once you lose the ruling, you have lost the ruling forever.

30% ruling- what happens if terminated?

More wage tax due over your salary, less net salary in your hand.

Box 3 world wide assets are to be reported in the 2019 income tax return.

Costs of the international school cannot be paid any longer by the employer, with the exception of the running school year 2018/2019. That can still be paid.

If you have a non Dutch BV foreign limited liability company, the dividend payments made to you are part of Box 2 the moment the ruling ends. So till you have the ruling, you can still benefit from this possibility.

No more swapping your non EU drivers license for a Dutch one, so you need to take the horrible Dutch exam.

For US nationals that worked abroad no more days deducted from your Dutch tax burden.

Orange Tax Services

The ending of the 30% ruling has massive impact on the employees who it concern. We are asked about what to do with the finances, but we are no financial advisors. We are asked what can be done to reduce the drop in income. Often the employee looks at the employer to compensate the difference, but we doubt that view is shared by the employer.

What we do know is that appealing the Government change in rules in relation to the 30% ruling permit granted with explicit dates, will not work. That is the general opinion among experts, based on experiences in the recent past with similar situations.

 

30% ruling – minimum salary requirement

The minimum salary requirement is one of the four requirements you need to meet to qualify for the 30% ruling. What is the minimum salary.

30%  ruling – minimum salary requirement

The minimum salary requirement is EUR 37.296. This is the 70% part of the salary. So the gross salary needs to be at least EUR 53.280.

The exception to this rule is that when you are younger than 30 years old and you hold a master degree, then your salary can be EUR 28.350 instead. Again this is the 70% part of the salary. The gross salary needs to be at least EUR 40.500.

The ultimate exception to the rule is when you work for a Dutch university, then no minimum salary is required. If that would be different, with the budgets of the universities no employee would qualify anymore, but we do need the researchers.

minimum salary requirement
minimum salary requirement

When do you need to meet the minimum income requirement?

There are more answers to this one question. The most important answer is on the moment you were attracted from abroad by the Dutch employer, you should earn the minimum required salary.  In other words, if you get a raise later that makes you meet, then this raise is too late.

The multiple answer to the question is in the minimum income constantly being monitored. You need to keep earning this salary, otherwise you still lose the ruling the moment you no longer meet the minimum income requirement. This is checked in the income tax return and wage tax returns.

Example minimum income requirement:

  • You have been attracted by a Dutch employer from abroad that offers you a EUR 60.000 gross salary.
  • You meet all the requirements, so the ruling is applied for and granted.

But nearly immediately you make less hours than the hours agreed in the employment agreement. Hence your salary drops in line with the lower amount of hours and suddenly you no longer meet the minimum income requirement. From that moment you have lost the ruling forever.

Example 2 minimum income requirement:

  • You were attracted by a Dutch employer when you are 28 years old.
  • You hold a master degree, hence the lower EUR 40.500 income requirement was applicable to you.
  • You were offered a EUR 50.000 salary, hence the 30% ruling was issued to you.

Then you turned 30 years old without a significant salary increase and you are under the EUR 53.280. That implies you have lost the ruling forever.

No more ruling – how is that communicated?

That is not communicated. It is the obligation of the employer to apply the correct rules to the salary. If that implies the 30% ruling needs to be examined if still applicable, then this is part of running the payroll.

No more ruling but ruling is still applied

If the employee no longer meets the requirements. Either the employee’s salary was too low or the employee took a garden leave exceeding 3 months, then the ruling no longer applies. If the employer does not acknowledge this and continues processing a salary with applying the ruling, the employer has a problem.

The problem is that not enough tax was calculated, hence the employer is to pay the difference plus a penalty of at least 25%. Then the employer needs to collect from the employee the too much salary paid. Any employer that ever tried to collect too much salary with the employee knows that the money is no longer available, so to say. Hence the employer waives that amount. But waiving the amount is in fact salary as well, that needs to be grossed up, plus social premiums and if not done correctly, with a penalty of at least 25%.

Orange Tax Services

We do come across these situations where the employee holds in their hand the 30% ruling statement issued by the tax office, but less hours were worked, hence the ruling is void. That is often difficult to digest by the employee.

Or the employer that finds out too late that the employee was not entitled anymore or the ruling lapsed. The question asked is often, what is the chance on an audit. The answer is: really small. But that is not the correct question to ask. The question is: will the tax office find out in the coming 12 years. The answer is then: probably. Do you then have issues? Indeed you have.

Now the period of the 30% ruling is shortened to max 5 years, you can expect that the tax office will make this a pin point investigation for next year. Plus due to all the news about this change, no employer can shield a mistake with the words: we did not know.