Last week, the House of Representatives unexpectedly approved a plan to cut back the 30% facility (the facility for foreign employees with scarce specific expertise or “incoming employees”).
Under the current facility, these employees are now not liable for tax on (a maximum of) 30 percent of their gross salary for a maximum of sixty months, because that 30 percent serves to cover the extra costs they incur because they are (temporarily) outside their country of origin (the so-called “extra territorial costs” or “ET costs”).
The bill includes two crucial changes:
30-20-10: the bill shortens the aforementioned 30%-period from sixty to a maximum of twenty months. Subsequently, for twenty months, instead of a percentage of 30 percent, a percentage of 20 percent applies. Finally, for the last period of 20 months, a percentage of 10 percent applies instead of a percentage of 30 percent.
There will be transitional law for existing 30% rulings. An employee for whom a 30% ruling applies in December 2023 will remain entitled to a tax-free reimbursement for ET costs of 30 percent for the entire term of the 30% ruling granted to him or her. However, if they change employers and do not subsequently start working for the new employer, they will lose the transitional right and the new facility will also apply to them from the moment of the interruption. The above does not affect the previously announced capping of the 30% facility at the level of the WNT standard.*
Box 2 and Box 3: the other change in the bill concerns the abolition of the partial tax liability as deemed non-resident as from 2025.
Currently, foreign employees who have been granted a 30% ruling are now (optionally) allowed to declare their income in Box 2 and in Box 3 as if they do not reside within the Netherlands. This is the so-called “partial foreign tax liability”. The House of Representatives agreed to abolish this as of January 1, 2025. In practice, this will mainly mean that employees with a 30% ruling will now also have to pay Box 3 income tax and Box 2 on foreign substantial shareholdings.
A transitional grandfathering rule also applies here. An employee who is entitled to a 30 percent ruling in December 2023 may continue to opt for partial foreign tax liability until December 31, 2026. However, if they change employers prematurely and do not subsequently work for the new employer, the partial foreign tax liability only applies until the moment of the interruption.
As already indicated, the Bill was adopted by the House of Representatives last week and will be discussed by the Senate for approval on December 19, 2023. The adopted Bill will be discussed for ratification by the Senate for approval on December 19, 2023. Although the Minister of Economic Affairs strongly opposes this ratification, we should proceed on the assumption that this Bill will be adopted by the Senate as well.
Assuming this is the case, in our view the introduction of the graduated scheme as mentioned under 1. in the payroll administrations of many companies may potentially lead to huge practical errors.
For current qualifying new situations, the 30% ruling should be applied for before 31 December 2023 in order to keep the 30% ruling a maximum of 5 years and the partial deemed non-resident status for a maximum of 3 years.
* The 30% ruling for incoming employees will be capped as of January 1, 2024 at the standard for top executives in the Top Income Standardization Act (WNT standard). The capping measure of the 30% facility as of January 1, 2024 is part of the 2023 Tax Plan. In 2024, this WNT standard will be € 233,000 annually. Capping within the 30% facility is therefore an issue if the basis for a 30% ruling is higher than € 233,000. By joining this, a maximum of € 69,900 (30% of € 233,000) may be reimbursed tax-free within the 30% facility. These amounts are on an annual basis. If an employee comes to the Netherlands or returns abroad during the year, you apply this maximum amount pro rata based on time.