“Aan de vruchten kent men den boom.” - A tree is known by its fruit.
United Expats of the Netherlands formed in April 2018 in response to a proposal of the Ministry of Finance to reduce the term length of the 30% tax rule to 5 years for all recipients – both current and new – beginning January 2019. This proposal breaks an existing deal between the Dutch government and highly skilled expats who are current recipients of policy.
We accept and support the right of the Dutch government to amend its tax legislation as it deems necessary. However, enforcing this policy change on current recipients will have significant and severe consequences for recipients and their families, the businesses that employ these professionals, and on the long term financial health of the Netherlands.
United Expats is working to encourage the government to stand by the deal they made with current recipients of the 30% tax ruling so that any changes apply to future expats, not to those already here.
Afspraak is Afspraak.
The Backstory of the 30% Rule
The Netherlands is one of many countries in Europe that offers a specific tax policy for highly skilled international expats. In the Netherlands, this is commonly referred to as the 30% rule. This policy is designed to attract and support highly-skilled expats when they come to work in the Netherlands for a specific employment role. The 30% ruling is determined on a case-by-case basis after ensuring that the beneficiaries satisfy a list of strict criteria set forth by the Belastingdienst, the Dutch tax authority. The most important criteria is that the employer in the Netherlands must prove that a scarcity for that particular job function currently exists and the job is unable to be filled by someone currently in the country. There are also clear rules to prevent abuse of policy. When all of the necessary conditions are met, the Dutch Government tax policy allows the employer to exempt 30% of the gross salary from the calculations of Dutch payroll tax. The tax policy is considered “compensation for expenses that a foreign employee experiences when working outside their home country”.
The 30% tax ruling is guaranteed for a maximum of 10 and 8 years, depending on whether the decision was issued before or after January 1, 2012. Recipients received a ruling with a start date and an end date in 8 or 10 years’ time. Suddenly, this document could become invalid.
The Current Situation
In an effort to reduce the budget, the Cabinet was advised by the Dutch Audit Authority to evaluate the 30% rule. In early 2017, the Ministry of Finance (Directorate General Fiscal Policy) requested Dialogic (Strategic Advisory for public and private organizations) to carry out a research study and compile a report to evaluate the 30% ruling.
The results of this research were presented in a report dated June 2017. This report estimated that the 30% rule is an effective and efficient regulation but some changes may have a positive impact on the effectiveness and efficiency of the package, namely: reducing the term length; increasing the 150-km border; reducing the flat rate for income above € 100,000. In the report, it was also noted that 80% of the 30%-rule recipients do not use the 30%-rule for more than 5 years, and that those that do are less likely to be considered temporary expats and instead have migrated to the Netherlands permanently. This statistic seems to be the key argument to support the decision of the Dutch government to reduce the length of time skilled expats can claim the 30% rule to 5 years.
Ultimately and not less important, the report highlights the necessity of policy consistency and explains that government policy stability is valued by companies and employees (as indicated in interviews with companies and parties involved in foreign investment).Furthermore, the current political and economic landscape (e.g. UK referendum to exit EU, uncertainty regarding possible changes in the tax system of the United States), could incentivize companies to establish themselves in Europe hence leading to a competitive advantage for the Netherlands in terms of business climate.
In April 2018, the Cabinet sent a letter to Dutch Parliament which states that they have the intention to limit the duration of the 30% rule to 5 years, effective 1 January 2019, for both new and current cases. As such, starting January 2019, the maximum term length will be reduced to 5 years for all recipients of the 30% tax rule.
The government, acting on behalf of its constituents, has the authority to make such changes. United Expats agrees with and supports this right. However, this policy change will not only affect new expats but will also affect current expats. This is inconsistent with previous revisions to this policy whereby, in the past, current recipients were unaffected by tax law changes as a result of transitional regulation. Many experts agree that a transitional policy should again be enacted, just as it was in 2012 when the term limit was adjusted from 10 to 8 years. PricewaterhouseCoopers (PwC) has indeed pleaded for a transition mechanism to be added to this proposal.
Expats that are currently residing in the Netherlands began their employment with a clear promise from the government as to the term length of the 30% tax rule. Every skilled expat that is a recipient of this benefit has government documentation with a clear end date. To change this policy for current expats is tantamount to deal-breaking, and as the mantra goes, #afspraakisafspraak.