2. What are the benefits of the 30% ruling?
This series addresses the most relevant topics regarding the 30 percent ruling. In this post: What are the benefits of the 30% ruling?
Benefits of the 30% ruling for employees
The benefits of the 30% ruling for an employee are as follows:
- Lower taxable basis and effective tax rate.
An employee will only be taxed on 70% of his income from current employment as 30% is considered as a tax free allowance. As a result, the Dutch (maximum) personal tax rate on the employment income is reduced from 51.75% to 36.23% The benefit of the ruling can favour employees (higher net income) or employers (reduction of salary costs). Read more about the employer benefits.
- International school fees.
Subject to conditions international school fees for children may be reimbursed tax-free by an employer in addition to the 30% allowance. Considering the significant contributions involved, this can result in a substantial saving. Where employers do not reimburse the school fees, employer and employee can agree to a salary sacrifice scheme that is often beneficial to both.
- Exchange of foreign drivers’ license.
The employee and direct family members can exchange their foreign drivers’ license for a Dutch drivers’ license without having to take a Dutch driving test.
- Partial non-resident status.
With the 30% ruling, a Dutch tax resident can elect to be treated as a so-called partial non-resident taxpayer of the Netherlands for the duration of the 30% ruling. As a consequence, he is only taxable on Dutch source (as opposed to worldwide) income from substantial interest (Box II) and income from savings and investments (Box III).
Example of 30% ruling benefit
An employee qualifies as Dutch resident taxpayer and is covered by the Dutch social security system. His original salary is € 100.000 per annum and his total amount of savings is € 250.000 (after deduction of personal allowances).
Example 1 – No 30% ruling applicable
|Taxable part||Tax rate||Dutch taxes due|
|Salary||€ 100.000||Progressive rates||€ 42.130|
|Savings||€ 250.000||Effective 1,2% (30% on 4% deemed ROI)||€ 2,797|
|Total||€ 350.000||€ 44.927|
Example 2 – 30% ruling applicable
|Taxable part||Tax rate||Dutch taxes due|
|Salary||€ 70.000||Progressive rates||€ 26.578|
|Savings (no reporting)||€ 0||Effective 1,2% (30% on 4% deemed ROI)||€ 0|
|Levy rebate||(€ 1.243)|
|Total||€ 70.000||€ 25.335|
The difference amounts to € 19.592 (e.g. benefit 30% ruling in this example). The net employment income increases with over 35% in this example.
Note: Due to the reduced taxable income, the employee may easier become entitled to certain benefits or obtain greater benefits (e.g. child-related benefits, higher levy rebates).
The 30% ruling can also be beneficial for employers. Below is a summary of the main benefits:
- Be more attractive to employees from abroad.
With the same salary costs, employers are able to offer employees from abroad a more attractive net salary.
- Reduction of salary costs.
Or employers can reduce their own salary costs, for instance in case of net salary arrangements or agreeing on a lower gross salary (since the net salary is still higher than local employees). We refer to our calculation tool (available soon, you can call us for a calculation in the meanwhile) that compares the net salary with and without the 30% ruling.
- Reduction of social security costs.
The reduction of salary will decrease the basis for social security contributions. When the salary is below € 55,927 (2019) the Dutch social security savings can be as much as approximately 20% of the difference between the reduced salary and the threshold of € 55,927 above which no contributions are due.
- Reduction of company pension costs.
Similar as for social security, savings may be obtained for (Dutch) company pension contributions, as due to the salary reduction the pensionable salary. This means that the build-up of pension rights will be lower and, as such, the employee and employer contribution would also be lower. Next to these consequences, a lower pensionable salary also influences the build-up of widow and orphan pension rights. Such negative side-effects can be avoided. In this respect, note that from a tax point of view there are no limitations, but it depends on the Dutch pension scheme whether it is allowed to build up pension on part of the salary that is received as a tax free reimbursement. This must be fine-tuned with the pension insurer.