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Amended Expatriate Tax Regime Impacts Multinationals


Netherlands Taxand's TakeThe Dutch government has announced changes to the expatriate tax regime for specific skilled employees and executives (commonly known as the '30% ruling'). The changes will be effective as of 1 January 2012. Currently, foreign mid-level employees with specific skills (e.g IT, finance etc.) are effectively subject to an average tax rate of 36.4%. As a result of the amendments which impose stricter conditions, foreign employees and executives may end up being subject to tax at a rate of 52% if the conditions are not met. Such amendments may therefore adversely affect multinationals operating in the Netherlands as foreign employees and executives may no longer be willing to be transferred to the Netherlands due to the higher tax rate.

In addition, the new regime may also result in multinationals deciding against establishing their operations in the Netherlands or to leave the Netherlands, leading to an unfavourable business climate in the country. Taxand Netherlands discusses the implications of the new regime on multinational businesses.

Multinationals operating in the Netherlands can, jointly with their foreign employees who are hired from abroad, or executives who start working in the Netherlands apply for the 30% ruling. Based on the 30% ruling, employees may receive 30% of their gross salary tax free for a period of 10 years.

The new important conditions which may impact the Dutch business climate include, amongst others, the following:

  1. the employee has to be recruited from abroad (this requirement is not met if the employee has been living two thirds of the two year period preceding the application within a 150 km radius of the Netherlands)
  2. the employee has to earn at least an annual gross salary of EUR50,000 without the application of the 30% ruling. The ruling will only be granted if the annual gross salary is at least EUR50,000.
  3. the employee's expertise should be scarce on the Dutch labor market and the application period will be reduced to 8 years. This reduction does not in this instance relate to scarcity

The above changes may make it more difficult for multinationals operating in the Netherlands to attract international employees and retain their current level of international employees in the Netherlands. IT companies in the Netherlands have already indicated that the new regime will have a negative impact, particularly on their highly skilled foreign IT specialists. These specialists who benefit from the current ruling are not likely to meet the conditions of the new ruling due to their salary levels This would also likely apply to employees of multinationals who are assigned to the corporate head office in the Netherlands as part of their rotational traineeship.

The changes to the ruling will not immediately impact the current workforce in the Netherlands which benefits from the previous '30% ruling'. However, after 5 years from the effective date of the 30% ruling, the Dutch tax authorities will assess whether an employee still meets the requirements. With the stricter conditions under the new regime, there is a possibility that the employee will not meet the conditions after 5 years. This means that all 30% rulings applied previously for which the 5 year assessment term expires after 2012 will be assessed and where conditions are not met, the employee will lose his 30% ruling.


Taxand's Take

With the new expatriate tax regime, the Dutch business climate for multinationals may become less favourable as it will become more difficult for them to attract highly skilled employees to the Netherlands and to retain highly skilled employees who will no longer be eligible for the 30% ruling.The tightened regime is also likely to discourage multinationals from establishing their business operations or their corporate head office in the Netherlands due to the salary minimum of EUR50,000 for employees for which the 30% ruling only can be applied. (i.e for salaries below EUR50,000 the 30% ruling is not applicable).

In addition, multinationals assigning employees to the Netherlands or Dutch multinationals hiring employees from abroad should take into consideration the new regime upon hiring the employees i.e. with respect to the employee costs. Multinationals should also consider whether certain departments (e.g. IT Department which likely comprises skilled specialists) should remain in the Netherlands or should be transferred to other locations to ensure that the employees are retained. This could be more attractive for the employees and less expensive for the employer.

Employees currently working in the Netherlands under the 30% ruling should also evaluate whether the conditions under their current 30% ruling can still be met as of 1 January 2012, considering that the 5 year assessment term applies to them.

Your Taxand contact for further queries is:
Chris van Wijngaarden
T. +31 20 757 0940

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