Understanding the 30% Ruling: Tax Benefit for Expats in the Netherlands

1. What is the 30% Ruling?

The 30% ruling is a Dutch tax facility that was introduced in 2001 to attract highly skilled expatriates to work in the Netherlands. It allows eligible employees to receive a tax-free allowance of 30% of their salary, which is meant to compensate for the additional expenses associated with living and working abroad. The 30% ruling is applicable to both employees who are recruited from abroad and employees who are temporarily assigned to work in the Netherlands.

The main purpose of the 30% ruling is to attract and retain highly skilled expats with specialized knowledge or expertise that is scarce in the Dutch labor market. It is intended to make the Netherlands a more attractive destination for international talent and to promote economic growth and innovation in the country.

2. Eligibility Criteria for the 30% Ruling

To be eligible for the 30% ruling, an employee must meet certain criteria, which include:

1. Specific expertise: The employee must have specific expertise that is not readily available in the Dutch labor market. This expertise should be evidenced by their education, work experience, or skillset.
2. Employment contract: The employee must have an employment contract with a Dutch employer. The employment contract should specify that the employee is eligible for the 30% ruling.
3. Minimum salary requirement: The employee must have a minimum annual salary, excluding the 30% allowance, which is set by the Dutch tax authorities. You have that expertise if your salary, not including the tax-free allowance in the Netherlands, is more than: €41,954 in 2023. There are some exceptions. For example, if you are under the age of 30, conducting scientific research or training to be a doctor. Look for all exceptions on the website of the Dutch tax authorities. The minimum salary requirement is reviewed annually and depends on the employee’s age and the calendar year in which the ruling is applied. 
4. Application within 4 months: The 30% ruling must be applied for within four months from the start of the employment or assignment in the Netherlands. If the application is filed after this deadline, the ruling can only be applied from the month following the month in which the application was filed.

It’s important to note that the 30% ruling is granted for a maximum period of five years, regardless of the duration of the employment contract. However, the ruling can be revoked or shortened if the employee no longer meets the eligibility criteria, such as if their salary falls below the minimum requirement or if they leave the Netherlands for a continuous period of more than three months.

3. Benefits of the 30% Ruling

Above we discussed exactly what the 30% rule means and when you qualify for it. But what are all the benefits of this regulation? Below you will find all the benefits of the 30% ruling for expats coming to work in the Netherlands.

1. Tax-free allowance: The most significant benefit of the 30% ruling is the tax-free allowance of 30% of the employee’s salary. This allowance is not subject to Dutch income tax, social security contributions, or other wage-related taxes. As a result, the employee receives a higher net salary compared to their gross salary, which can significantly increase their take-home pay.
2. Simplified taxation: Another benefit of the 30% ruling is that it simplifies the taxation process for expats. Under the ruling, a flat-rate 30% of the salary is considered as an allowance for extraterritorial expenses, and the remaining 70% is subject to Dutch income tax as regular salary. This simplifies the tax calculation and eliminates the need to apply for various tax deductions or reimbursements related to extraterritorial expenses separately.
3. Social security benefits: The 30% ruling also has implications on social security benefits. Expats who qualify for the 30% ruling are exempt from paying Dutch social security contributions on the portion of their salary that is considered as the tax-free allowance. This means that their social security benefits, such as pension contributions and unemployment insurance, are calculated based on the reduced salary, resulting in lower social security contributions.
4. Flexibility in housing and education expenses: The 30% ruling provides flexibility in housing and education expenses for expats. Under the ruling, expats can opt for the “30% ruling method” for their housing expenses, which allows them to receive a fixed tax-free allowance for housing costs without having to provide actual proof of expenses. Similarly, expats can choose the “30% ruling method” for their children’s education expenses, which provides a fixed tax-free allowance for education costs without having to provide actual proof of expenses. This flexibility can provide expats with additional financial benefits and reduce administrative burdens.
5. Mobility budget: The 30% ruling also allows eligible employees to receive a “mobility budget” in lieu of the tax-free allowance. The mobility budget is a lump sum payment that can be used by the employee to cover various mobility-related expenses, such as transportation, housing, or education. The mobility budget is subject to Dutch income tax, but it provides flexibility for the employee to use the funds as needed, making it a convenient option for expats who may have diverse financial needs.
6. Competitive advantage for employers: The 30% ruling can also provide a competitive advantage for employers in attracting and retaining highly skilled expats. The tax-free allowance and other benefits provided by the ruling can increase the net salary of the employee, making the job offer more attractive compared to other countries or employers that do not offer similar tax benefits. This can help employers in the Netherlands to attract top talent from around the world and enhance their global workforce.

Conclusion

The 30% ruling is a tax benefit that provides significant advantages to eligible expat employees in the Netherlands. It allows for a tax-free allowance of 30% of the salary, simplifies the taxation process, provides flexibility in housing and education expenses, and offers other benefits such as the mobility budget. However, it’s important to note that the 30% ruling has specific eligibility criteria and is granted for a maximum period of five years. Therefore, expats who qualify for the 30% ruling should carefully consider their eligibility, benefits, and limitations in consultation with tax advisors or experts.

If you are an expat employee in the Netherlands or considering working in the country, it’s essential to understand the 30% ruling and its implications on your finances. It’s advisable to seek professional tax advice to ensure that you meet the eligibility criteria and can fully benefit from this tax facility. The 30% ruling can provide expats with a significant financial advantage and make the Netherlands a more attractive destination for highly skilled international talent. 

If you fulfill all the requirements, you can apply for permission to use the 30% facility along with your employer. The application form needs to be completed and submitted to Dutch tax authorities. Their response will be sent to you within a maximum of 8 weeks.