Introduction: The 30% facility
Over the last few weeks, many news reports have appeared which focussed on the Dutch 30% expatriate tax facility. This facility's main feature is to enable qualifying employees to receive 30% of their wages free of tax in the form of a fixed allowance for so-called "extraterritorial costs" — the (extra) costs of living outside one's home country. Currently, the maximum term of the 30% facility is eight years. On Budget Day 2019, proposals were submitted covering the 30% ruling, which showed the Dutch government's intention to reduce the term of the facility from the current eight years to five (for both new and existing cases) as per 1 January 2019.
No transitional rules
No transitional rules were proposed in connection with this term reduction, except for international school fees. The possibility to reimburse these costs free of tax (an extra benefit provided under the 30% facility) was to be continued in the 2018/2019 school year, provided that the facility would have applied under the current rules. In the original proposal, the shorter five-year period applied to all employees currently granted the 30% facility, even if they had already been working in The Netherlands before 1 January 2019. If an employee had, therefore, used the facility for five years or longer, it would expire on 31 December 2018. If the facility had been in place for less than five years on 31 December 2018, the end date of the grant would be reduced by three years.
Following publication of the original proposal, it was noted from various sides that the decision not to include transitional rules could lead to reputational damage for The Netherlands, as it might convey the message that taxpayers can no longer rely on an agreement made with the Dutch government. When the proposed abolition of the Dutch dividend tax was cancelled, the Cabinet announced a review of its original plans for the 30% facility. This review has now taken place and shows the intention is still to keep the term reduction in place, but with the inclusion of a transitional arrangement for the years 2019 and 2020 for current 30% facility holders.
The new proposal implies that the 30% facility will not expire for those employees who would have lost it prematurely in the years 2019 or 2020 according to the initial proposal. Although the wording of the new proposal is not entirely clear at this stage, it appears that employees, whose 30% facility was granted with an end date of 1 January 2021 or later, will lose the facility prior to the date mentioned on their actual 30% grant, in the case that they had it for five years or more by 1 January 2021.
We would advise employers to inform their employees, who either have, or will be granted, the 30% facility, about the latest developments. We suggest informing these employees clearly on whether (and if so, how) the company intends to remedy potential tax disadvantages. Furthermore, we encourage affected employees to verify their current 30% facility position and to identify the (adjusted) expiration date under the new proposal. Naturally, we would be happy to assist with any of these actions going forward. Our contact details are rendered below: