3. What are the conditions of the 30% ruling?
This series addresses the most relevant topics regarding the 30 percent ruling. In this post: What are the conditions for the 30% ruling?
Below you find a summary of the most important conditions of the 30% ruling. Having or not having the 30% ruling makes a big difference for you or your employee. Therefore it always makes sense to check eligibility with your advisor. Even if you have little or no doubt.
1. Recruitment from abroad
In order to apply the 30% ruling, there must be an employer and an employee.
The 30% ruling is specifically privileged to employees posted or recruited from abroad by a Dutch employer or a foreign employer registered as a Dutch wage tax withholding agent. Please note that partial relief of this condition may apply to university doctorates.
Self-employed contractors may also be able to benefit from the 30% ruling when properly arranged and managed. They should set-up a BV prior to arriving to the Netherlands, which can be regarded as the employer.
2. 150km condition
The employee should (in principle) have lived more than 150 km from the Dutch borders in at least 16 of the 24 months prior to the Dutch employment. The Dutch tax authorities are increasingly challenging this criteria and requiring excessive proof in this regard.
Certain exceptions apply to this rule for employees who benefited from the 30% ruling before.
3. Specific expertise
The employee must have specific expertise. This is based upon a (fiscal) salary norm that needs to be met. For regular employees, this salary norm is € 38,347 (2020) (not including the tax free allowance). Special salary norms apply for certain employees younger than 30 with a MSc title or scientific personnel, researchers and medical staff.
By law, the specific expertise should not or hardly be available on the Dutch labour market (condition of scarcity). However, in practice this condition of the 30% ruling is only tested marginally and for specific jobs where the salary level in itself is not a decisive factor for assessing someone’s specific expertise. Football players and dentists are professions where the Dutch tax authorities are challenging the scarcity. For football players, other specifically agreed conditions apply.
5. Contractual agreement
The application of the 30% ruling must be specifically agreed upon between employer and employee (i.e. the 30% allowance must be classified as a cost allowance for so-called extra-territorial expenses). Most employers choose for a cost neutral method, meaning that the gross salary is reduced with an amount equal to the 30% tax free cost allowance. This often arranged in an addendum.
Employees meeting the above-mentioned criteria, arriving in the Netherlands in 2020 or after the 30% ruling can be granted for a maximum period of 60 months (5 years). This period will be reduced by periods of previous stay and/or (deemed) work performed in the Netherlands as based on the reduction rules. Please note that prior to 2020, the 30% ruling was available for a maximum period of 96 months (8 or 10 years) and, in 2019 and 2020, a transitional arrangement applies to employees who were availing the 30% ruling prior to 2019.
Detailed explanation conditions of the 30% ruling
This is one of the most important conditions of the 30% ruling, even though all conditions must be met. The employee should be posted or recruited from abroad by a Dutch employer or a foreign employer registered as a Dutch wage tax withholding agent.
Therefore, if an employee is already working or living in the Netherlands when concluding an employment contract with a new employer, the 30% ruling will not be granted. This applies for instance in case of local hiring. It may also be difficult to argue this condition is fulfilled for someone with prior involvement in the Netherlands. Think of foreign students in the Netherlands or accompanying partners who at some point start working in the Netherlands. In some situations we have been able to argue a positive decision.
Timing is crucial as eligibility may be totally lost.
The recruitment from abroad test does not apply to university doctorates who have come to live in the Netherlands (or a country within the 150km radius from the Dutch country borders, e.g. Belgium) to obtain their PhD and afterwards start working in the Netherlands within a year. This is provided they also meet the other conditions, such as salary norm.
Change of employment
In case of a change of employment (or withholding agent, e.g. due to internal reorganizations), the 30% ruling can be continued for the remaining duration period (under conditions) with that new employer. Note that the specific expertise test (i.e. salary norm) must continuously be met and, furthermore, the period between termination of the previous employment and acceptance of the new employment must not exceed three months. A new application should be filed.
Contractors coming from abroad to start a business in the Netherlands may, instead of setting up a sole proprietorship, choose to setting up a BV (or a foreign limited company). That way they can benefit from the 30% ruling since the contractor is under an employment relationship with the BV. Professional assistance is best obtained as the BV should already exist before moving to the Netherlands or starting working activities.
By law, employees living in the border area (i.e. within a 150km radius from the Dutch country borders) do not qualify for the 30% ruling. This criterion generally rules out residents from Belgium, Luxembourg, western Germany, northern France and a very small part of the UK. See our map for a rough outline of the 150km radius.
In addition, the employee must have lived outside that 150km radius for more than 2/3rd of the 24-month period prior to the Dutch employment. As this can affect certain ‘bona fide’ cases, certain relief is given for two situations.
Situation 1: Renewed Dutch employments
Inbound employees, who previously obtained (or could have obtained) the 30% ruling and after a brief assignment abroad return to the Netherlands, could lose the 30% ruling. For instance, if the employee lived outside the Netherlands for less than 16 months prior to his return, he would not qualify for the ruling upon his return. To avoid disqualification upon return to the Netherlands, relief from the 150km condition is given for new or renewed Dutch employment/assignment provided that:
- The employee lived more than 2/3rd of the 24 month period outside aforementioned 150km radius prior to a previous Dutch employment, and
- This previous employment did not commence more than 8 years before the start date of the new Dutch employment.
Depending on the specific facts and circumstances, the 30% ruling previously obtained (with the same employer) may still be valid and thus no new application might be required. However, in such event, the time spent abroad during which the employee did not actually benefit from the 30% ruling (e.g. as he was taxable abroad) is lost (i.e. the duration period of the 30% ruling is not prolonged)
Situation 2: university doctorates
To encourage that university doctorates, who previously lived outside the aforementioned 150km radius, also qualify for the 30% ruling, the period during which they lived in the 150km radius is disregarded for determining if they are recruited from abroad. Note that this is only applicable if the doctorates take up a Dutch employment within one year of obtaining their PhD.
University doctorates still need to meet the salary norm, which depends on their age (younger than 30 or not) and/or where they will be working (educational and research institutes or other). Reference is made to further below.
The employee must have specific expertise. This is simply determined by an annual-based (taxable) salary norm. If an employee meets this salary norm (indexed annually), he is deemed to have a specific expertise. Note that the salary norm is a taxable salary norm.
|Excluding 30%- allowance||Including full 30%- allowance|
|General||€ 38,347||€ 54,782|
|Masters younger than 30||€ 29,149||€ 41,642|
|Certain scientific personnel / researchers / medical specialists||N/A||N/A|
Under the 30% ruling, an employer is allowed to provide the employee with a lower tax free reimbursement than the maximum allowance of 30% of the employee’s income from current employment. This creates the possibility for an employer to provide a tax-free allowance to the employee who does not meet the salary norm when considering the maximum reimbursement of 30%.
It is also possible that a lower allowance is given than 30% of the original gross salary, for instance 10%. As such, the 30% ruling can for instance also be obtained by an employee older than 30 years with a salary of € 40,000. The maximum tax free allowance is then € 40,000 – € 38,347 = € 1,653.
Furthermore, specific attention points goes out to situations where an employee starts working during the tax year or when an employee with a Masters title becomes 30 years old. Special rules apply to determine whether the employee meets the salary norm in such cases. A check before year end is recommended to avoid eligibility being lost even after receipt of the official approval.
This is one of the conditions of the 30% ruling that is often overseen. The 30% ruling must be contractually agreed upon separately from the salary between employer and employee. Generally, the so-called cost-neutral method is chosen. This means that it is agreed that the employees receive a 30% tax free allowance by means of reducing employee’s salary level with 30% (i.e. exchange of salary into tax free allowance). This is often agreed per a specifically designed addendum based on an approved draft provided by the Ministry of Finance.
Note that it is not accepted that the salary is divided into a taxable component and a tax-free allowance for accounting purposes only. Under the cost-neutral method, the gross salary must thus be reduced in such a way that 100/70th of the new agreed salary is equal to the initially agreed (100%) salary. In addition, a tax-free allowance of 30/70th of the new agreed salary (i.e. 30% of the initially agreed (100%) salary) is agreed to. This is typically done by including a specific clause in the employment contract or via an addendum to the employment contract.
One final thing to consider is that the reduction in salary may influence salary-related benefits such as social security and pension entitlements.