The Dutch free allowance for extraterritorial costs, shortly known as the 30% ruling, is available for foreign employees who are hired from other countries or relocated to the Netherlands. The tax regime was modified at the beginning of 2024. Below, our agents for starting a business in the Netherlands present the new provisions of the regime and conditions to obtain the free allowance for extraterritorial costs.
| Quick Facts | |
|---|---|
| Program availability | The 30% ruling is available for foreign employees only. |
Applicability to all foreign employees (YES/NO) | No, not all foreign employees are eligible for the free allowance for extraterritorial costs. |
Eligibility criteria for employees | Only highly skilled migrants who have been recruited from abroad or transferred to the Netherlands qualify for the program. |
| Other applicable conditions | The worker must have lived further than 150 km from the Dutch borders for at least 16 months in a period of 2 years. |
| What does the Dutch tax scheme consist of? | A refund of the extra costs generated by living in a country other than the home state of the employee |
| Program options | The tax scheme provides for the reimbursement of the extra expenses or a salary partial tax exemption. |
| Who must file for the 30% ruling? | The employer must submit the necessary documentation for the 30% ruling. |
| Availability of the program for employees sent abroad by Dutch companies (YES/NO) | Yes |
| Minimum salary condition availability (YES/NO) | Yes, employees must meet certain minimum income requirements in accordance with their skills/expertise. |
| Availability of a living cost allowance (YES/NO) | Yes, living costs that are higher in the Netherlands compared to the beneficiary’s home country can be reimbursed through this scheme. |
| Reimbursement of traveling costs to the Netherlands availability (YES/NO) | Yes, these costs can also be reimbursed. |
| Availability of the 30% ruling for document issuance/exchange | Yes, costs associated with obtaining a residence permit or exchange of the driver’s license are covered by the ruling. |
| Accommodation costs | Accommodation costs are covered only if the employee lives in the home country and stays in hotels while in the Netherlands. |
| Family-associated expenses coverage (YES/NO) | Yes, costs of travelling with family members are also covered by the free allowance for extraterritorial costs. |
| Are tax return filing costs covered by the 30% ruling? (YES/NO) | Yes, such costs are also eligible for the Dutch 30% ruling. |
Table of Contents
The new 30% ruling in the Netherlands
Starting with January 1st, 2024, the tax scheme has undergone an important change: the 30% ruling will be lowered gradually to a 10% tax exemption in the following 5 years, as follows:
- until September 2025, 30% of the income will be tax-free;
- in the next 20 months, the tax-free percentage will decrease to 20%;
- in the last 20 months, the tax-free income will be 10%.
It should be noted that, for employees who benefit from the free allowance for extraterritorial costs, transitional agreements are in place.
If you want to hire employees, you can rely on the support of our local consultants with respect to the tax advantages foreign workers can benefit from.
Qualification requirements for the Dutch 30% ruling
The most important thing to know is that the Dutch free allowance for extraterritorial costs (Dutch 30% ruling) does not apply to all foreign employees. This measure has been introduced to enhance the quality of the workforce, but also to encourage those seeking to open a company in the Netherlands to hire specialists. In order to benefit from the Dutch 30% ruling, a foreign employee must meet the following conditions simultaneously:
- the work relationship must be based on an employment contract;
- the foreign employee must be recruited directly by the employer;
- the 30% allowance must be introduced in the employment agreement;
- the qualifications of the employee must be exceptional or rare in the Netherlands;
- the gross salary must be above the annual minimum wage.
The 30% ruling also applies to foreign employees transferred from a parent company abroad to a Dutch subsidiary or branch office.
What did the old Dutch 30% ruling mean in the Netherlands?
The Dutch 30% tax allowance meant that 30% of an employee’s salary would be free from taxes for up to 5 years. This would also be for the benefit of the company in the Netherlands which would be exempt from taxation when reimbursing the extraterritorial costs of the worker, hence the name of the ruling. We also have an infographic on this tax scheme below:
Other changes to thefree allowance for extraterritorial costs in the Netherlands
Another change to the Dutch 30% ruling refers to the maximum amount the allowance is available for. According to the Tax Authority in the Netherlands, starting with January 1st, 2024, companies may apply the free allowance for extraterritorial costs over a maximum amount of money that is calculated on a yearly basis.
The compensation can be made:
- by paying a percentage of the salary without taxes;
- by allowing the employees to claim the allowance in their tax returns, followed by its reimbursement by the employer.
Please note that the new changes will also affect you if you are interested in starting a business in the Netherlands. Our agents can help you with the incorporation and advise on this new tax amendment.
Extraterritorial costs entering the Dutch 30% ruling
Here are some of the costs that can be reimbursed or exempt from taxes under the Dutch free allowance:
- maintenance costs related to higher living expenses in the Netherlands compared to the costs of living in the employee’s country of origin, or the so-called cost of living allowance;
- traveling costs of the future employees to search for houses or schools for children;
- costs or fees associated with filing for various types of visas, residence permits, driving licenses, and so on;
- the costs related to medical examinations or vaccination schemes to complete in order to move to the Netherlands;
- accommodation costs;
- language courses-related costs;
- various types of travel expenses.
Considering the changes in the tax scheme, we advise business owners hiring foreign employeesto consult with our Dutch company formation agents with respect to these costs.
Costs that do not fall under the free allowance for extraterritorial costs in the Netherlands
The Dutch 30% ruling facility is quite complex, and even if it covers many costs, it is also useful to know that some of them cannot be reimbursed or exempt from taxes. This may be useful for employers, as they can fall under other available tax allowances. Here are some examples in this sense:
- the expat and overseas allowances that enter the secondment subsidies;
- capital losses registered in the Netherlands;
- real estate sale/purchase costs;
- tax equalization costs.
If you are interested in setting up a business in the Netherlands and hiring foreign employees, you can discuss the tax benefits available for you as an employer from the beginning. Such a discussion can help you optimize your costs.
Determination of the extraterritorial costs in the Netherlands
Both employers and employees must file tax returns in the Netherlands. They are the first documents to help you establish whether your workers can benefit from the free allowance.
To be eligible for the 30% ruling, employees must file tax returns in the Netherlands, in their home countries, or in both countries. The costs associated with the submission of the respective returns must be higher in the Netherlands.
We remind Dutch employers that, starting with the amended scheme, they can choose whether they will apply the 30% ruling or reimburse the expenses related to this tax allowance. If you are unsure about what to do, our company registration agents in the Netherlands can guide you.
We also invite you to watch our video below:
The abolishment of the partial non-resident tax status in the Netherlands
Another change targeting the 30% ruling is the termination of the partial non-resident Dutch tax status. This tax benefit was available for employees who live in the Netherlands and are covered by the free allowance for extraterritorial costs. The former incentive implied for the income obtained abroad to be tax-free in the Netherlands.
The partial non-resident tax status entered into effect starting on January 1st, 2025. An exception to this rule is available for employees who benefited from the 30% ruling by December 31st, 2023, and who have transitional agreements until 2026. It is also useful to note that starting in 2027, the tax allowance will become the 27% ruling.
For complete information on the new Dutch 30% ruling, please contact our company registration consultants in the Netherlands.