The Dutch government has made some changes to its tax legislation for 2024 and 2025, including amendments to the 30% ruling regime, now referred to as the expat ruling.
Under Dutch tax law, some employees can receive a tax-free reimbursement for extraterritorial (ET) expenses, defined as expenses the expatriate employees may incur because they live and/or work outside of their home country. In principle, compensation for these expenses is based on the actual costs incurred by the expat.
The expat ruling regime was introduced for a special defined group of expats. It provides a tax-free allowance of up to 30% of the eligible expat’s taxable salary. The 30% tax-free amount is deemed to cover ET costs regardless of the actual costs incurred and is calculated based on the expat’s salary as determined in accordance with the provisions of the Wage Tax Act. The salary is multiplied by the factor 100/70 to obtain the basis for the calculation of the 30% allowance.
To qualify for the expat ruling, an employee must meet certain conditions:
For incoming employees for whom the expat ruling was applied in the last pay period of 2022 (December), a transitional rule is in place that will make the capping of the amount eligible for the expat ruling applicable on 1 January 2026 instead of 1 January 2024.
In addition to being subject to the income cap, the expat ruling regime will be further limited in other ways. As of 1 January 2027, the tax-free allowance of a maximum of 30% will be lowered to a maximum of 27%. For employees benefitting from the expat ruling as of the last payroll run of 2023, a transitional rule might apply whereby the maximum of 30% would apply for the entire period for which the expat ruling has been granted.
In another change that will be effective as of 1 January 2027, the salary threshold to be eligible for the expat ruling will increase by approximately 9% for employees who become subject to the expat ruling for the first time in 2025. For employees for whom the expat ruling was in place in the last payroll run of 2024, a transitional rule might apply whereby the salary threshold will not increase (beyond the annual indexation) during the entire period for which the expat ruling has been granted.
A fourth modification of the expat regime relates to the choice between applying the expat ruling or receiving reimbursement for actual extraterritorial expenses. As of 1 January 2023, it will no longer be possible to switch between the two choices -- expat ruling or actual ET costs -- within one calendar year, and the choice must be made at the beginning of the tax (calendar) year. The choice for the reimbursement of actual ET costs or the application of the expat ruling will apply for a calendar year, but an exception may be made during the first four months of the first year of employment.
Finally, the partial non-resident taxation scheme has been repealed as of 1 January 2025. However, a transitional arrangement applies for taxpayers who were already benefitting from the this regime on 31 December 2023. These taxpayers will continue to benefit from their partial non-resident status through 31 December 2026.
For more information on the expat ruling, please consult your regular BDO contact or the author of this article.
Robin Schalekamp
BDO in Netherlands
What is the Expat Ruling?
Under Dutch tax law, some employees can receive a tax-free reimbursement for extraterritorial (ET) expenses, defined as expenses the expatriate employees may incur because they live and/or work outside of their home country. In principle, compensation for these expenses is based on the actual costs incurred by the expat.The expat ruling regime was introduced for a special defined group of expats. It provides a tax-free allowance of up to 30% of the eligible expat’s taxable salary. The 30% tax-free amount is deemed to cover ET costs regardless of the actual costs incurred and is calculated based on the expat’s salary as determined in accordance with the provisions of the Wage Tax Act. The salary is multiplied by the factor 100/70 to obtain the basis for the calculation of the 30% allowance.
To qualify for the expat ruling, an employee must meet certain conditions:
- The expat must be hired from abroad or seconded to a domestic employer in the Netherlands;
- The expat must live at least 150 kilometres from the Dutch border during two-thirds of a 24-month period before the start of the activities in the Netherlands (for doctoral students and expats who worked in the Netherlands before special rules apply);
- The expat must be paid through a Dutch payroll; in other words, the expat’s salary must be subject to Dutch wage tax withholding; and
- The expat must have specific expertise that is not available or is scarce in the Dutch labour market.
Changes
As part of its 2025 budget plan, the Dutch government made a series of changes to the expat ruling regime. The first change is the introduction of a cap in the taxable salary to which the expat ruling can be applied annually to the “WNT norm,” effective from 1 January 2024. For 2025, the cap is set at EUR 246,000 annual taxable salary.For incoming employees for whom the expat ruling was applied in the last pay period of 2022 (December), a transitional rule is in place that will make the capping of the amount eligible for the expat ruling applicable on 1 January 2026 instead of 1 January 2024.
In addition to being subject to the income cap, the expat ruling regime will be further limited in other ways. As of 1 January 2027, the tax-free allowance of a maximum of 30% will be lowered to a maximum of 27%. For employees benefitting from the expat ruling as of the last payroll run of 2023, a transitional rule might apply whereby the maximum of 30% would apply for the entire period for which the expat ruling has been granted.
In another change that will be effective as of 1 January 2027, the salary threshold to be eligible for the expat ruling will increase by approximately 9% for employees who become subject to the expat ruling for the first time in 2025. For employees for whom the expat ruling was in place in the last payroll run of 2024, a transitional rule might apply whereby the salary threshold will not increase (beyond the annual indexation) during the entire period for which the expat ruling has been granted.
A fourth modification of the expat regime relates to the choice between applying the expat ruling or receiving reimbursement for actual extraterritorial expenses. As of 1 January 2023, it will no longer be possible to switch between the two choices -- expat ruling or actual ET costs -- within one calendar year, and the choice must be made at the beginning of the tax (calendar) year. The choice for the reimbursement of actual ET costs or the application of the expat ruling will apply for a calendar year, but an exception may be made during the first four months of the first year of employment.
Finally, the partial non-resident taxation scheme has been repealed as of 1 January 2025. However, a transitional arrangement applies for taxpayers who were already benefitting from the this regime on 31 December 2023. These taxpayers will continue to benefit from their partial non-resident status through 31 December 2026.
More information?
For more information on the expat ruling, please consult your regular BDO contact or the author of this article.Robin Schalekamp
BDO in Netherlands