The maximum period of the 30% ruling, a favourable tax regime for employees from abroad, is to be reduced from 8 to 5 years as of January 1st. 2019. How will this affect your company and your employees from abroad?
The reduction was expected as it was part of the discussions to form the coalition government and is believed to save 284 million euros on the expatriate regime.
However, it was not expected that the proposed reduction would be applicable to both new and existing cases. Under previous changes to the 30% ruling, the government always included a transitional period or grandfathered the existing 30% ruling granted. The measure seems to be a further step in diminishing the Netherlands' appeal for and attraction of global companies.
Under the 30% ruling, employees hired or assigned from abroad whom meet certain requirements can have (up to) 30% of their salary paid out in the form of a tax-free allowance. The indicated measure is thus targeted at the period in which employees would be eligible to make use of this ruling. For certain employees with an existing 30% ruling, the indicated measure means that their 30% ruling would effectively end per January 1st. 2019. This part of the measure is questionable as the 30% ruling grants typically stipulate an 8 year period of validity.
The alternative option to provide a tax-free reimbursement of actual extra-territorial costs will also be limited to the aforementioned 5 years period.
If implemented, the measure is expected to have profound consequences for current holders of the 30% ruling whom will see their Dutch tax bill increase significantly after January 1, 2019. Companies may also be faced with a significant increase in personnel costs, especially multinational companies that operate a traditional expatriate policy.
Brain James, Manager tax Global mobility services: "The timing of the proposed change remains questionable, especially since many companies are considering changing headquarter locations in connection with Brexit. Even if the proposal is not adopted in its current form by Dutch Parliament, uncertainties about the investment climate may sway companies to look elsewhere to set up their headquarters."
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