On October 27, the House of Representatives passed two amendments that will further restrict the so-called 30% facility, now referred to as the 30% facility, for foreign expats. Under the current 30% facility, a tax-free allowance can be applied up to a maximum of 30% of salary. The proposal is to phase out this allowance. Read this blog to find out exactly what the plans are and what the implications will be.
30% facility
The 30% facility is intended for employees who come from outside the Netherlands and work here temporarily. If they qualify for the 30% facility, no tax is due on up to 30% of their salary. In this way, the government compensates the employee for the additional costs of working in the Netherlands. Currently, the maximum duration of this facility is set at five years.
What will change?
The first amendment will gradually reduce the 30% facility for new applications during a five-year period to a 10% rule. This reduction will apply to new applications beginning January 1, 2024. This reduction will not affect employees who are already using the 30% facility prior to January 1, 2024. If that use is interrupted, the transitional rule will no longer apply, and the lower percentage will apply upon return.
In addition, the second amendment eliminates the ability of employees who are subject to the 30% facility to elect partial foreign tax liability. Currently, an employee using the 30% facility can use the partial foreign tax liability when filing income tax returns, resulting in that employee being considered a foreign taxpayer for Box 2 and Box 3. As of January 1, 2025, this will no longer be possible. A transitional rule applies: any employee who uses this arrangement before December 31, 2023, may continue to do so until December 31, 2026.
Practical tips
Since January 1, 2023, employers have the choice between applying the 30% facility or reimbursing the actual extraterritorial costs (“ET costs”). Now that the 30% facility is being further reduced, employers would do well to consider which of the two is most beneficial to their employees.
In addition, as a matter of good employment practice, employers can be expected to inform their employees of the potential consequences of the change in the law. This is particularly true in situations where an employee is already using the program prior to January 1, 2024, and that use is interrupted, for example, by a sabbatical. In such a case, the employer should inform the employee that if the employee wishes to use the scheme again, the new, more restricted conditions will apply.