The Netherlands has a tax expat scheme for foreign workers, called the 30% facility, which allows them to pay less tax on part of their income. This scheme, which was originally designed to encourage the recruitment of highly skilled foreign workers, has been amended several times since 2012. Below we describe the operation and conditions of the 30% facility for the 2024 tax year.
What is the 30% facility?
The Dutch 30% facility is a tax scheme as part of the payroll tax that allows employers to compensate up to 30% of a foreign employee’s salary tax-free. This compensation is intended to cover so-called extraterritorial costs, such as relocation, temporary accommodation or living expenses. The scheme makes it attractive for companies to bring highly qualified employees from abroad to the Netherlands.
Although the scheme helps employers to attract international talent, there is a view in the current political debate that the benefits of the 30% facility lead to unfair competition with Dutch employees. As a result, the scheme has recently been reduced and is expected to be further reduced from 2025.
How does the 30% facility work?
The 30% facility provides a flat-rate tax-free compensation of up to 30% of an expatriate’s salary. It is an alternative to the reimbursement of actual extraterritorial costs, such as travel and accommodation costs, arising from a temporary stay outside the country of origin. In most cases, the 30% facility applies to employees posted to the Netherlands from abroad or specifically recruited from abroad for a job in the Netherlands.
In practice, the employee’s gross salary is often reduced to 70% of the original salary in order to apply the 30% compensation. For exxample, an agreed gross salary of €70,000 is reduced to €49,000, with a tax-free compensation of €21,000.
What are the requirements for the foreign employee from 1 January 2024?
To qualify for the 30% facility, an employee must meet the following conditions:
- The employee is employed by an employer in the Netherlands.
- The employee has a specific skill that is not or hardly available in the Dutch labour market. The existence of specific expertise is assessed on the basis of a salary criterion. The gross annual salary excluding the 30% compensation must be at least €46,107 in 2024. A lower income requirement of €35,048 applies to employees under 30 with a Master’s degree. Employees conducting scientific research at a recognised Dutch research institution or doctors in training to become specialists, are always eligible for the 30% compensation, regardless of their income level.
- In the 24 months prior to employment, the employee must have lived more than 150 kilometres as the crow flies from the Dutch border for at least 16 months. This excludes many employees from border areas.
- The employee has a valid decision from the tax authorities in order to qualify for the 30% facility.
How to apply for the 30% facility?
The application for the 30% facility must be submitted jointly by the employee and employer to the tax authorities, preferably within four months of the first working day. If the application is made later, the five-year period will be reduced by the delay time.
Validation of the 30% facility
After approval by the tax authorities, a decision is issued, which is valid for a maximum of five years. The employer applies the scheme in the payroll. The duration of the scheme can be shortened if the employee has previously worked or lived in the Netherlands. If the employee has previously used the 30% facility or has resided in the Netherlands in the past, the new term will be shortened by the previous periods during which the facility was used, provided these periods exceed 20 days per year.
During the term, an annual test must be carried out to determine whether the employee still meets the salary criterion. If the salary in any year is below the threshold, the scheme will cease with retrospective effect from 1 January of that year. This means that previous tax returns will have to be corrected and additional tax may be due.
Up to what salary will the 30% facility apply?
From 2024, there will be a cap: the tax-free compensation will not exceed 30% of a salary of €233,000 (WNT norm, regulated in the Dutch Standards for Remuneration Act), regardless of the actual salary. This means that employees with a higher salary will no longer receive tax exemption on the amount above this norm. If the tax-exempt amount exceeds this limit, the excess is taxed according to the regular payroll tax, or this part can be classified as working expenses according to the Dutch work-related expenses scheme. If the 30% facility only applies for part of the year, the maximum tax-free allowance will be recalculated time-proportionally.
For example: an employee receives a salary of €250,000. The tax-free compensation based on the 30% facility would be €75,000, but is limited to €69,900 due to the capping rule. The amount of €5,100 will be taxed or can be covered by the work-related expenses scheme.
There is a transitional rule for this adjustment: if an employee received a 30% compensation in the last payroll period of 2022, the above adjustments will be disregarded until 31 December 2025. This means that the cap will apply to these employees from 1 January 2026. If an employee is re-employed after 31 December 2022 after a break, the transitional rule will apply until the break and the cap will apply thereafter. For employees for whom the 30% facility is first applied on or after 1 January 2023, the transitional rule will not apply and the capping rule will apply from 1 January 2024.
In addition, the compensation is reduced in phases as the duration of the facility progresses. For the first 20 months, 30% of the salary can be reimbursed tax-free, for the next 20 months 20%, and for the last 20 months 10%.
What happens when the employee resigns or changes employer?
If the employment contract is terminated during the year, the salary must be converted to an annual salary to determine whether the income standard is still met. If the salary is lower, the 30% facility will lapse permanently.
If an employee changes employer, the scheme can continue, provided the new application is submitted within three months of the last working day with the old emmployer. The new decision will apply for the remaining term.
What other benefits does the 30% facility offer?
Until 31 December 2024, foreign employees can opt for partial foreign tax liability under the 30% facility. This means that the employee will be considered a foreign taxpayer for box 2 (income from substantial interest) and box 3 (income from capital), which means that foreign income in these boxes will not be taxed in the Netherlands. However, this advantage will expire on 1 January 2025.
The scheme also has other practical advantages. For example, employees with a non-European driving licence can more easily convert it into a Dutch driving licence, and non-European employees can obtain a residence permit more quickly thanks to the 30% facility.
Choice between the 30% facility or reimbursement of actual costs?
Employers have the choice between reimbursing the actual extraterritorial costs or using the 30% facility. The choice must be made in the first pay period of the calendar year and is valid for the entire year. A combination of the two schemes is not permitted. If the actual costs, such as double housing costs, are higher than the 30% flat-rate compensation, it may be advantageous to opt for the actual expense reimbursement.
Once a choice has been made, it cannot be changed mid-term, except in the case of a new employment within the same year or at the end of the provisional application.
NeD Tax supports employers who wish to apply for the 30% ruling for their expats. Fill in our contact form and we will get in touch with you at short notice.
