Understanding the 30% Ruling

The 30% ruling is a useful tax advantage for highly skilled migrants working in the Netherlands. It allows 30% of your salary to be tax-free, which covers the extra costs associated with living abroad. This ruling is generally available for up to five years, but it’s important to check your specific terms as recent changes might affect the duration.

 Eligibility Criteria

1. Skilled Migrant Requirement: The applicant must possess skills or expertise considered scarce in the Dutch labour market. Typically, this is evidenced by a higher educational level or specific experience relevant to the job.
2. Salary Threshold: There is a minimum salary requirement to qualify for the 30% ruling. As of the latest updates, the required gross salary (excluding the 30% exemption) should meet a specific threshold set by the Dutch tax authorities, which is periodically updated. This ensures the rule applies to highly skilled migrants.
3. Employment Relationship: The applicant must have an employment relationship with a registered Dutch employer or a group company of such an employer. The employer must agree to apply the 30% ruling in the payroll administration.
4. Recruitment From Abroad: The highly skilled migrant must have been recruited from another country by a Dutch employer or transferred from another country within a company group to a Dutch entity. Moreover, before moving to the Netherlands, the applicant must have lived more than 150 kilometres from the Dutch border for at least 16 out of the 24 months preceding their employment contract in the Netherlands. This includes some parts of the UK being ineligible due to being too close to the Netherlands.
5. Previous Stay in the Netherlands: Applicants who have previously lived or worked in the Netherlands may find their eligibility affected. Generally, prior stay in or near the Netherlands can reduce the maximum duration for which the ruling can be granted.
6. Application Timeline: The application for the 30% ruling must be submitted within four months of starting work in the Netherlands. If the application is submitted later, the ruling, if granted, will be effective from the month of application, not from the start of employment.
7. Duration: The ruling can be granted for a maximum of five years. However, this period can be shortened if the individual has spent significant time in the Netherlands before employment, or if there are changes in the employment situation. 

Strategies After the 30% Ruling Expires

When the 30% ruling period ends, your taxable income will rise since the tax benefit ends. Here are some strategic moves to consider:

1. Maximize Deductions: Don’t miss out on other tax deductions such as mortgage interest if you own property, educational expenses, or specific healthcare costs.
2. Investment Opportunities: Look into investing in Dutch tax-efficient schemes, such as green investments, which can lower your taxable income.
3. Pension Contributions: Increasing your pension contributions reduces your current taxable income and is a savvy way to save for the future.
4. Optimize Tax Residency: It might be beneficial to reassess your tax residency based on your circumstances. Adjusting where you are taxed can significantly impact your financial health.
5. Consult a Tax Professional: The intricacies of tax laws mean it’s essential to consult with a professional who can tailor advice to your specific situation and ensure all strategies are legal and effective.

Real-Life Impact: Scenario Analysis

Here is an example of a client who is moving to the Netherlands with an annual salary of €100,000.

With the 30% Ruling:

• Gross Annual Salary: €100,000
• Tax-Free Allowance: €30,000
• Taxable Income: €70,000

This benefit reduces the taxable income, enhancing his net income due to lower tax liabilities.

Without the 30% Ruling:

• Gross Annual Salary: €100,000
• Taxable Income: €100,000 His entire salary is taxed, potentially leading to a higher tax bracket and a lower net income.

Net Income Comparison:

• With 30% Ruling: About €72,000 (after estimated taxes)
• Without 30% Ruling: About €63,000 (after higher taxes)