Free Allowance for Extraterritorial Costs - the 30% Ruling

The Netherlands offers tax advantages to foreign investors coming to open companies here, but also to foreign citizens working here. This is also one of the main reasons why the Netherlands boasts one of most skilled workforces in Europe. In order to attract professionals, the government has enabled a scheme through which foreign employees of Dutch companies may benefit from a free allowance for extraterritorial costs, simply known as the 30% rule or Dutch 30 ruling.

Our company formation agents in the Netherlands can offer information on all the benefits foreign employees can take advantage of, including Dutch 30 ruling. 

What does the Dutch 30 ruling mean in the Netherlands?

The Dutch 30% tax allowance means an employee will only receive 70% of the salary agreed upon with the employer, while the remaining 30% will be exempt from the income and the wage taxes. This will also be for the benefit of the company in the Netherlands which will be exempt from taxation when reimbursing the extraterritorial costs of the worker, hence the name of the ruling.

Qualification requirements for the Dutch 30% ruling

The most important thing to know is that the Dutch free allowance for extraterritorial costs (Dutch 30 ruling) does not apply to all foreign employees. This measure has been introduced to enhance the quality of the workforce, but also to encourage those seeking to open a company in the Netherlands to hire specialists. In order to benefit from the Dutch 30 ruling, a foreign employee must meet the following conditions simultaneously:

• -          the work relation must be based on an employment contract;
• -          the foreign employee must be recruited directly by the employer;
• -          the 30% allowance must be introduced in the employment agreement;
• -          the qualifications of the employee must be exceptional or rare in the Netherlands;
• -          the gross salary must be above the annual minimum wage.

The 30% ruling also applies to foreign employees transferred from a parent company abroad to a Dutch subsidiary or branch office, as for the salary of the employee, the minimum amount is adjusted on an annual basis. Under the new legislation which was enabled in 2012, an employee may change jobs and still benefit from the 30% ruling in the Netherlands.

For complete information on the advantages of both employer and employee under the Dutch 30 ruling, please contact our company registration consultants in the Netherlands.