Expatriate Tax Alert: Important Update on 30%-ruling changes November 2011

In September 2011, we informed you that changes were proposed regarding the 30%-ruling. Recently, the Dutch Parliament approved the budget for 2012, including changes to the 30%-ruling. Ultimately, the 30%-ruling will undergo more changes than were first announced in September 2011. Fortunately, some of the proposed criteria have been relaxed, specifically with respect to the salary level after pressure from representatives of various parties. However, these relaxed measures have come at the price of reducing the maximum period of the ruling from 10 to 8 years.

Below we have highlighted the main points of the changes.

1. Salary level and specific expertise
The specific expertise test will now be determined by a salary level per category.

In addition, the employee’s specific expertise must be scarcely available on the Dutch labour market. Scarcity will be determined by the following three criteria (formerly used for determining specific expertise):

• The level of education
• The relevant work experience
• The salary level

2. Maximum period
The maximum period of the 30%-ruling will be reduced from 10 to 8 years. This will apply to new cases as of January 1, 2012.

3. Review Period of 25 years
Periods of previous stay / work in the Netherlands in the last 25 years will be deducted from the maximum 8-year period of the ruling. In practice, this means that fewer employees with the Dutch nationality will qualify for the ruling. In addition, periods of employment abroad for a Dutch-based employer, will also be deducted from the maximum 8-year period.

4. 150km Zone
Employees hired from within 150 kilometers from the Dutch border, will no longer be eligible for the ruling if they spent 1/3rd or more of their time living in that zone in the last 24 months prior to being employed in the Netherlands. This will affect (future) employees hired from, in any case, Belgium France (northern part), Germany and Luxemburg.

5. Doctoral Candidates / Graduates
Doctoral candidates/graduates under the age of 30, who obtain – or are in the process of obtaining – their doctorate and find a job within 1 year of obtaining their doctorate and have a taxable salary of at least € 26,605.-, will qualify for the ruling. This covers not only doctoral candidates/graduates from Dutch institutions, but also doctoral candidates/ graduates from foreign institutions (even if hired from within the 150km zone).

6. Variable Pay
Under the proposed changes, the 30%-ruling will no longer be applicable on variable pay (e.g. bonus, options, etc.) after departure from the Netherlands unless the entitlement to such items is unconditional upon departure from the Netherlands.

7. Criteria must be met at all times
Employees receiving the ruling after January 1, 2012 (new cases) must meet the criteria for the ruling at all times. If an employee fails to meet the criteria for the ruling at any time, the ruling (automatically) comes to an end. This is in contrast to the current 5-year interim test.

8. Transitional measures
The Dutch Parliament also announced transitional measures that mainly affects employees who become subject to the 5-years interim test after January 1, 2012.

The final text of the new regulations will be released at a later date this year. In the meantime, it is advisable to check the following:

• Review your current 30%-ruling population in order to determine the consequences of the transitional rules as some employees may lose future eligibility for the ruling.
• Be mindful when recruiting new expatriates or when recruiting doctoral candidates on their eligibility for the ruling under current and future regulations.
• In case you are recruiting new candidates from abroad, it may be advantageous to commence their employment before January 1, 2012.
• Optimization of your compensation and benefits program with respect to expatriates may be considered since it is expected that fewer expatriates will qualify for the
• 30%-ruling. Certain cost allowances (extra territorial costs) can still be paid tax free.
• Optimization of variable pay while employees are still in the Netherlands.

The key measures and changes are now clear. However, the implementation of the changes still gives rise to some practical questions. Grant Thornton Expatriate Services will be in touch with the Dutch tax authorities in the coming weeks to seek further clarification on the aforementioned changes.

Questions
If you have any questions, please contact your tax advisor or one of our specialists at: GT Expatriate Services B.V. at: +31 20 547 57 57 or: expatriate@gt.nl.