Cutbacks on the Dutch 30 procent facility

Highly skilled foreign workers (expats) can receive an annual tax-free allowance of up to 30% of their salary for up to 5 years. This expat scheme compensates for travel expenses and home furnishings. Since Jan. 1, 2024, this tax benefit has been gradually reduced and new rules apply. What exactly will change? Arjan Möller, Pension Specialist at Meijers, explains the differences between the 30% facility before and after January 1, 2024.

What is the purpose of the 30% facility?
The 30% facility is a tax measure in the Netherlands designed to attract foreign employees to come and live and work in the Netherlands. Under this regulation, employers can grant a tax-free allowance of (maximum) 30% of the salary to foreign employees for a period of 5 years. This allowance is exempt from taxable income. This means that the employee does not pay tax on this part of the income. What is the purpose of the 30% facility?

1. Attract foreign talent: The Netherlands wants to be attractive to highly skilled foreign employees. The 30% ruling allows employers to offer attractive conditions to foreign employees, this facilitates the attraction of international talent.
2. Promoting knowledge migration: The Netherlands wants to promote a knowledge-intensive economy and strengthen its competitive position. By attracting highly skilled knowledge workers with favorable tax schemes such as the 30% rule, the country can benefit from their expertise and contribute to innovation and economic growth.
3. Compensation of extraterritorial costs: Foreign workers moving to the Netherlands may face extra costs. Such as double housing costs, travel costs and costs for maintaining contacts with the home country.

The 30% facility compensates for these costs by allowing a tax-free allowance of up to 30% of the gross salary.

The 30% facility before January 1, 2024
Before Jan. 1, 2024, eligible employees received a tax-free allowance of 30% of their salary for five years. The allowance had previously been capped and the total salary, including the 30% allowance, could not exceed €233,000 gross.

The 30% facility as of January 1, 2024
The biggest change is the phasing out of the 30% rule. Until 2024, there was a maximum duration of 5 years. As of January 1, 2024, the 5-year term is divided into 3 periods of 20 months, with the tax-free base being phased out. The change applies to employment contracts entered into on or after Jan. 1, 2024. This adjustment will obviously affect the net income of these employees.

• The first 20-month period, the allowance is 30%
• The second period of 20 months the compensation is 20%
• The last period of 20 months the compensation is 10%

Transitional law
If the application was made to the Tax Office before January 1, 2024, there is a transitional right. For these cases, the old regulations apply.

Questions?
Would you like to know more about the 30% facility? If so, please contact us. The specialists at Meijers will be happy to help you.