At the end of 2017, the Dutch government presented a plan to reduce the maximum duration of the 30%-ruling. These plans resulted in an announcement from the Dutch government in the beginning of 2018 to reduce the maximum duration of the 30%-ruling from eight to five years. This change in legislation entered into force as per January 1, 2019 and initially, no transitional law was planned for existing cases. This meant that the reduction would not only apply to qualifying employees that relocated to the Netherlands after January 1, 2019, but also to employees that were already benefitting from the 30%-ruling before that date. On October 15, 2018, the Dutch government introduced transitional law for the employees for whom the 30%-ruling would end in 2019 or 2020 as a result of the shortening of the maximum duration from eight to five years. The transitional law gave many employees, for whom the 30%-ruling would otherwise end per December 31, 2018, up to two more years to benefit from the 30%-ruling. This transitional period will expire per the end of this year. What are the most important tax consequences and tax planning opportunities for the employees that will lose the 30%-ruling per January 1, 2021?
What are the most important tax consequences?
As of January 1, 2021, the 30%-ruling cannot be applied on the employees’ employment income anymore as a result of which the net income will decrease. The employees with an annual employment income of more than € 70,000 will be hit hardest since this group is subject to tax at the marginal income tax rate of 49,5%. Another important change is that these employees will lose the partial non-resident status as per 2021. This means that these employees will have to declare their worldwide savings and investments (Box 3) and have to pay income tax in case the value of the worldwide savings and investment exceeds the threshold of € 50,000, or € 100,000 in case the employee has a fiscal partner.
What are the tax planning opportunities?
The expiration of the 30%-ruling will have a negative impact on the employees’ net spendable income and wealth tax position. Below are a few tax planning opportunities this employee can think of:
- If the employee is entitled to an annual bonus payment that is normally paid out in 2021 (but relating to the year 2020), it is advisable to explore whether it is possible to already receive the annual bonus payment in December 2020. As the 30%-ruling expires by December 31, 2020, the 30%-ruling cannot be applied anymore on salary payment(s) that will be received after this date (even on payments that are relating to the year 2020, such as an annual bonus).
- The taxation on income from savings and investments (Box 3) in the Netherlands is based on a deemed return on net assets (assets minus debts). The deemed return is determined progressively using three brackets and can increase to more than 5%. The deemed return is eventually taxed at 31%. There are several ways to structure personal savings and investments more beneficial from a tax point of view. If the savings and investments reached a certain level, it can be interesting to setup a BV (limited liability company) and transfer savings and investments to the BV. By doing this, the income from savings and investments (Box 3) will decrease with the amount which is deposited in the BV. The capital that is held in the BV is taxed at actual return on investment against a lower corporate income tax rate and/or a dividend tax rate. Another option would be to invest savings into real estate property to generate a higher return on investment.
It needs no explanation that the group of employees that will lose the 30%-ruling per the end of the year will suffer a financial loss, but this should not preventing this group to look for opportunities in order to minimize this loss. If you would like to receive further information about the tax consequences and/or would like to know more about the tax planning opportunities in your specific situation, please do not hesitate to contact us. We are more than happy assist and think of a tailor-made solution for you!
This publication has been created in collaboration with mr. Daniel van den Helder, a colleague of mine.