The 30% ruling is a tax relief that can be granted to employees who were hired from abroad to work in The Netherlands.
The way it works is that 30% of an expat’s gross salary is paid tax free and the other 70% are taxed normally, using the standard tax rates.
However, it’s not something that’s available to every foreigner, but only to people who are recruited under the kennismigrant visa. The literal translation is “knowledge migrant”, but officially it’s translated as “highly skilled migrant”. To qualify for this visa and thus the 30% ruling, the highly skilled migrant needs to satisfy some conditions such as:
- Being brought or sent to The Netherlands for work,
- Living more than 150km outside the Dutch border for a certain amount of time before the first working day,
- Earning more than a certain threshold, based on the level of education,
- Having an expertise in a field where labor is scarce in the local market, etc.
Things like that. Also, you and the company hiring you need to agree that they’ll apply for the tax benefit on your behalf.
The idea behind the 30% ruling is to help expats cover the extraterritorial expenses, but the extra cash can be spent freely on weed and prostitutes as well (#amsterdam #420 #RLD). What I’m trying to say is: nobody is checking how the highly skilled migrants spend their money, but the motivation behind the tax relief is to assist them to integrate and start a life in the Dutch society. And it makes sense, because if the purchase power was the only decisive factor and there was no tax incentive, everyone having the skills and thus the option to choose would go in Munich instead of Amsterdam.
Yes, the salaries are comparable, but the cost of living in the major Dutch cities, especially the housing costs, are insane. So, how much difference does the 30% ruling make?
How much difference does it make? A few examples
Needless to say, having the 30% ruling will bump your net salary significantly as The Netherlands is in the top 10 list of countries ordered by income tax in descending order.1 Having 30% of your gross salary tax free is a great benefit when the tax rates are up to 52%.
Just to give an example, a foreign knowledge worker earning €60k per year would have the same net salary as a Dutch worker earning €80k per year.
Yes, you read that correctly. But you might want to see the difference in net salary when two people earn comparable gross income.
Well, let’s compare the impact of the 30% ruling using the same salary for a local and an expat – a gross salary of €120k per year or a nice round number of €10k gross per month.
If a Dutch person earns €10k gross per month, it would net him 5628€.
But if an expat earns the same amount, only 70% of the salary would be taxed and the other 30% will be paid out net. So the net salary will be 3000€ from the tax benefit plus 4214€ (the remaining 7000€ taxed at a normal rate). In total, the expat would earn 7214€.
By the way, I’m using thetax.nl – a great, reliable, and straight forward tool for calculating net salary in the Netherlands.
With that out of the way, let’s continue to the second part of the post.
What happened with the 30% ruling?
Before getting into what happened with it, let me address the questions the most probable readers who’ll stumble upon this post would have: those researching how to get a job in The Netherlands and those wondering if the 30% ruling is applicable to them.
Here are the answers to both of those questions:
- Start applying today – there are always openings listed on StackOverflow’s job page. Pay close attention to those with a “Visa sponsor” tag.
- When you’re at the later stage of the interviews, ask your employer if they will apply for the 30% ruling on your behalf.
So now, the reason why I wrote this post.
The Dutch government used to grant the 30% ruling for a duration of 10 years, but cut it to 8 years in 2012.
Last year (2018) a decision was made that they’ll decrease the duration of it to 5 years.
It sucks, but it is what it is. Fiscal policy, 80% of the expats stay in NL for 5 years, the government knows what’s best for the country, they decide how to allocate the money, blah blah blah.
However, what followed may shock you.
Retroactive cuts to the 30% ruling
They didn’t only decide to shorten the duration from 2019 onward, but to retroactively apply this change to existing people under the scheme.
I’ll repeat it once again: The Netherlands decided to apply the shortened duration to existing people benefiting from the 30% ruling.
Yes, you read it right as well!
I’ll repeat it one more time, just in case.
The Nederlands decided to shorten a tax benefit granted to knowledge workers and applied the shorter duration retroactively.
In case you wonder if you’re missing something – no, you’re not.
You get a signed document, sent directly from the tax authorities, granting you a tax relief until a certain future date. And all of a sudden you get a letter, which between the lines is saying “contacts doesn’t mean anything in this country”.
Yes. This happened in Western Europe.
The Dutch government stabbed around 60000 expats in their backs.
What happened next?
There were cases where people were finishing their fifth year of stay in The Netherlands and a few months in advance they were told that their benefits will end from the beginning of next year. Have in mind, many people got mortgages, negotiated salaries, and built lives around the budget they were promised and expected to get.
Small digression, they could’ve made it easier for themselves if they were self-reliant, financially literate, saved money, and built an emergency fund. Never rely on government entities or government benefits. There may not be a catch, but there may always be a change. It’s usually a vote away.
Anyway, the objections were loud and many. Especially from those who got hit with the harsh reality and were about to lose ~20% of their monthly cash inflow in a few months time.
There were petitions and organizations emerging to fight this injustice. One notable example was United Expats of the Netherlands (UENL), who worked with lawyers to investigate whether this change was legal and helped the victims object. Here is a video they released on the topic.
After some time, the Dutch government introduced a “transition period” until 2021, after which the shortened duration will still be in force. Although this is less brutal than the initial decision, the decision itself was not revisited, just postponed. A small battle was won, but the war was lost. And it left many expats with documents that somehow became void.
More specifically, the people who came in or after 2016 still lose 3 years of benefits. If you came to The Netherlands on a highly skilled migrant visa in 2016, you were granted the tax benefit until 2024 (8 years). However, from 2021 it will be shortened to 5 years for everyone making your 30% ruling end 3 years in advance.
The power was abused and unleashed upon the least deserving. On the hard working people – the people who contribute the most to the economy. Not only though paying taxes on their above average and thus highly taxed salaries, but also through working for companies who hired them on a visa called “highly skilled migrant” because they couldn’t find local talent to fill the positions with.
Great job.
Why am I writing this at all?
I don’t expect anything, to be honest. I’m only doing this to raise awareness that these kind of things are happening in EU.
I feel like it’s taken way too lightly by the tamed majority, so I just want to contribute to this information reaching more people. And if you want to spread the word as well, I’d appreciate a share.
As personal finance and investing are recurring topics on MonkWealth, I want to add that after losing close to €40k of guaranteed future cash-flows in a single day, any volatility in a portfolio would be a joke compared to the scale of this loss.
A lesson was not learned, but conformed. You should never rely on a government entity for important things in life.
Build a life and sustain it yourself.
That’s the message I want to convey to my readers.
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