On November 17, 2011, the Lower House voted on the Tax Plan 2012, including the adjustments to the 30% ruling and various amendments relating to the 30% ruling. Earlier, the Deputy Minister of Finance, Mr. Weekers, made suggestions for the salary threshold, both for academics and young masters, and in general. The submitted amendments concern the realization of the necessary cover for the salary threshold adjustments. This memorandum provides an overview of the current situation, starting with the most recent proposals. On September 8 and 28 and November 9, 2011, we also discussed the amendments to the 30% ruling.
The most recent proposals concern the general reduction of the originally proposed salary threshold to EUR 35,000, a specific reduction for young masters to EUR 26,605 and a salary threshold exemption for academics. In order to realize the proposed cover, the proposal was made to reduce its duration to eight years, instead of the current ten years. The proposals also contain transitional rules that, to a large extent, respect the current rulings.
1. Salary threshold reduction to EUR 35,000
In order for a specific expertise to be proven, only the salary will be assessed. The converted annual salary for tax purposes in the Netherlands must be at least EUR 35,000, excluding the untaxed 30% allowance. This is equal to a gross salary of EUR 50,000 including 30% allowance. A reduced salary threshold of EUR 26,605 will apply to masters up to the age of 30 who have been recruited from abroad; this is equal to EUR 38,008 including 30% allowance. Academics are exempt from the salary threshold. The amounts are index-linked and will be revised annually.
2. Maximum duration of eight years
The abovementioned salary threshold proposals will lead to additional costs. Various proposals have been made to cover these costs, such as the reduction of the free remuneration percentage or the maximizing of this percentage. The budget will be realized by maximizing the duration to eight years for new employments commencing after January 1, 2012. Rulings issued for employments with a commencement date before January 1, 2012, will not be affected by this measure.
3. Scarcity criterion
In addition to the specific expertise criterion, a scarcity criterion will also apply. The specific expertise must be scarce - or not present - on the Dutch labor market. The Deputy Minister has indicated that scarcity will only be assessed in exceptional situations. One of the professional groups that will be assessed on the scarcity criterion is that of professional football players. Agreements have been reached with the Royal Dutch Football Association (Koninklijke Nederlandse Voetbalbond, “KNVB”) on the assessment of these players for the 30% ruling.
4. Border workers
Employees living within a 150 kilometer radius of the Dutch border are considered to incur less extraterritorial expenses. This involves the distance - measured as the crow flies - between the place of residence and the nearest Dutch border. The 30% ruling also covers the situation of temporarily moving outside the 150 kilometer boundary. Prior to their employment in the Netherlands, an employee must have resided outside the 150 kilometer boundary for two-thirds of a 24 month period.
For doctoral students, the period of their doctoral research will not be taken into account when assessing whether an employee ‘is hired from outside the Netherlands’. As long as a doctoral student resided outside the 150 kilometer boundary before commencing their doctoral research, they will be eligible for the 30% ruling if their employment in the Netherlands commences directly on completion of their research.
5. Reference period for previous stays
The reference period for setting off previous stays in the Netherlands has been extended to 25 years. Each consecutive stay in the Netherlands will be separately rounded up to whole months. This means that a stay of two weeks in March and two weeks in August will result in a set off of two months.
The set off rule is also applicable to the period that an employee, while employed by a Dutch withholding agent, was not physically present in the Netherlands, or only physically present for a limited amount of time. This is of particular importance for directors of Dutch companies who do not, or only rarely, work in the Netherlands. Only employments commencing after January 1, 2012, will be assessed in accordance with the new reference period.
6. Assessing whether the conditions are met
Currently, the 30% ruling applies at least for a period of five years if, at the commencement of the employment, all the conditions were met. As of January 1, 2012, all the conditions will have to be met during the entire period of employment. This means that the 30% ruling will end as soon as the salary threshold condition is no longer met. The currently applicable interim assessment that takes place as of the sixth year will therefore be replaced by a continuous assessment. Transitional rules apply, see point 9.
7. Changing employers
If an employee changes employers during the period of the 30% ruling, the 30% ruling can be continued by the new employer. The current ruling includes the condition that the new employment must commence within three months after leaving the previous employment. The draft Implementation Decree makes the conclusion of the employment contract with the new withholding agent the deciding factor. This means that an employee who signs an employment contract within three months after ending their previous employment, but commences their new employment only after four months, will still be eligible for the continuation of the 30% ruling.
8. Duration
As indicated in point 2, the duration will be limited to eight years. The 30% ruling will, in any case, end on the last day of employment in the Netherlands. In this way, the Deputy Minister of Finance aims to achieve that the 30% ruling can no longer be applied to subsequent payments that were not yet final on the last day of employment in the Netherlands. It could be argued, based on case law, that the 30% ruling could still apply at the moment of taxation if a remuneration relates to the period of employment in the Netherlands to which the 30% ruling applied. We will have to await the Dutch Supreme Court’s decision in such a case. Rulings with a commencement date before January 1, 2012, will not be subject to the eight year limitation.
9. Transitional rules
Transitional rules have been proposed in order to prevent unreasonable outcomes in current situations. As stated earlier, both the new reference period and the limitation to eight years will only apply to employment situations commencing after January 1, 2012. The current terms and conditions will continue to apply to employment situations that commenced more than five years before January 1, 2012, i.e. before January 1, 2007. The current terms and conditions will apply, for the first five years, to employment situations with a commencement date after January 1, 2007. In the latter case, the salary threshold must be met as of the sixth year, by way of continuous assessment. Moreover, the employees must meet the 150 kilometer criterion at the moment their employment commences. The 30% ruling will end as soon as this condition is no longer met.
The developments regarding the 30% ruling follow in quick succession. The ruling is an important relief for staff recruited from abroad and is a significant factor in making the Netherlands more attractive as country of residence. As such, this summary is based on the current situation, but we do not expect further major amendments. The main goals appear to have been achieved, and the main objections have been removed. Nevertheless, the new regulation is an economized version of current policy. If employment situations in the Netherlands that have already been planned can commence before January 1, 2012 the transitional rules can be invoked, resulting in significant savings, in any event for the first five years.