Proposed changes to Dutch tax incentives for international workers expected to be implemented from January 2024

The 30%-facility is a tax incentive for employees who are seconded or hired from abroad to work in the Netherlands. This regime will be revised starting on 1 January 2024, pending approval by the Dutch Senate (expected at the end of 2023).

Currently, employees eligible for this scheme do not pay taxes on up to 30% of their income for a maximum of five years.

Proposed revision

Based on the proposed legislation, the 30% ruling will gradually transition to a 10% ruling over five years. During the initial 20 months of the period, 30% of the income can still be received tax-free.

Over the following 20 months, this percentage decreases to 20%. For the last 20 months the tax-free allowance will be set at 10% of the income.

Transitional arrangements are in place for employees who were already granted the 30% ruling in December 2023. This applies to both existing employees with the 30% ruling and employees whose employment in the Netherlands commences before 31 December 2023.

Abolition of the partial non-resident Dutch tax regime

Currently, employees who reside in the Netherlands and have the 30% ruling can opt for the so-called partial non-resident Dutch tax status. On this basis, employees' taxable income from a substantial interest (box 2) or from savings and investments (box 3) will be determined on the basis of non-resident Dutch tax rules (that is, in practice income from non-Dutch sources is not taxed in the Netherlands).

The proposed legislation, which also requires the approval of the Dutch Senate, abolishes this partial non-resident Dutch tax status, effective from 1 January 2025.

Employees who were granted the 30% ruling by 31 December 2023, can still benefit from the partial non-resident Dutch tax status until the end of 2026 based on transitional arrangements.

If the Dutch Senate approves the proposed legislation, it will lead to an additional reduction of tax benefits for incoming employees, in addition to the already planned capping of the 30%-facility, which will take effect on 1 January 2024.

Cap of the 30%-facility vs actual expenses

As of 1 January 2024, the tax-free allowance under the 30%-facility will be capped at 30% of the so-called "WNT-standard" which is a yearly indexed standard linked to top salaries (€233,000 for 2024).

Currently, the maximum tax-free allowance under the 30%-facility is €349,500 for 60 months if the employee's annual wage is equal to the WNT-standard of €233,000. If the proposed legislation is adopted, the maximum tax-free allowance will be significantly reduced given that the last 40 months are decreased to 20% and 10%.

There are transitional arrangements in place for this cap. For employees granted the 30% ruling in December 2022, the cap will not apply until 1 January 2026.

If employees' extraterritorial expenses go beyond the capped amount allowed by the 30%-facility, it may be better for the employer to reimburse these costs tax-free instead of relying on the 30%-facility. It is advisable to conduct a comprehensive review of employee compensation packages to identify opportunities tailored to the particular case.

Impact assessment

Performing an in-depth analysis to see how the new 30%-facility rules may affect organisations can be a useful exercise which provides insights into potential required adjustments.

Osborne Clarke can review and assess your employees' compensation package to identify opportunities tailored to your case, ensuring alignment with the latest regulations. We can examine the agreed 30%-facility rules in the employment contract to ensure they align with the latest changes, providing recommendations for any necessary amendments.

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