Netherlands: Upcoming Modification in Regulating Tax Advantage for Expats

In 1964, the Dutch government first introduced a tax advantage for highly skilled workers. The rule itself is quite simple: expats are exempted from paying tax on 30% of their total income for a maximum of 5 years. The reason behind the exemption is to compensate the expats for the extra costs related to working abroad. This, of course, attracts more highly skilled workers, which is beneficial for the Netherlands.

Conditions for the 30% measure

The employer has to request the tax advantage for its highly skilled employees from abroad. To be eligible for the 30% measure, an expat must at least meet the following conditions:

1. The employee must have specific expertise. In 2024, expertise is assumed from an annual salary of EUR 46,46 for workers above 30 years old. For expats under the age of 30, the assumption applies starting at a salary of EUR 35,048.
2. In the 24 months prior to starting work in the Netherlands, the employee must have lived at least 16 months at a distance of at least 150 km from the Dutch border.

Changes per January 1st 2024

As per January 1^st 2024, the tax advantage has been retrenched to some extent. These are the modifications:

• The percentage of income that is excluded from tax will gradually reduce over time. For the first 20 months, the advantage is still set at 30%. For the next 20 months, the percentage decreases to an advantage of 20%. For the last 20 months, the advantage is set at 10%.
• There is an income cap at EUR 223.000 a year. Meaning, any yearly income above this amount will not be exempted from the obligation to pay taxes. This amount gets indexed every year.
• It is no longer possible for employees who are subject to the 30% measurement to elect partial foreign tax liability. Beforehand, an employee using the 30% rule could use partial foreign tax liability when filing income tax returns, resulting in the expat being considered a foreign taxpayer for Box 2 and Box 3 even when living and working in the Netherlands. A transitional rule applies: any employee who has made use of this arrangement before 31 December 2023 may continue to do so until the end of 2026.

Changes per January 1st 2027

Remarkably, a new set of changes on the income tax advantage for highly skilled workers has already been announced for 2027.The retrenchment has partially been reverted as a result of a recent evaluation highlighting the negative impact the changes have on the Dutch business climate.

The following amendments will be made:

• The new rule indicates a tax advantage of 27% for a maximum of 5 years.
• The minimum income under which it is assumed that an expat has specific expertise will be increased to EUR 50.436. For expats under the age of 30, the minimum will be set at EUR 38.338 and will continue to be indexed every year.

The abolishment of the use of partial foreign tax liability will, however, stay in place. The same goes for the salary cap (and its yearly indexation).

Transitional law

For expats who have been using the 30% rule before January 1^st 2024, they will still be able to enjoy the full 30% tax exclusion for 5 years. For expats who have only started using the 30% rule after January 1st 2024, the gradual reduction is in force as mentioned above until December 31^st of 2026. From that point onwards, the maximum percentage of 27% is in force for the remainder of the 5 years. After January 1^st 2027 the minimum income standard will increase from EUR 46.107  to  EUR 50.436 (see above for the amount for expats under the age of 30). The income standard will apply to anyone regardless in what year the rule has been applied for the first time.

Key points HR:

• Be sure to inform employees covered by the transitional law what will change for them with the modifications to the tax advantage rules.