The 30% tax facility for expats living in the Netherlands effectively attracts highly skilled migrants and enhances the business climate. As Parliament considers abolishing the rule, a new report suggests maintaining a stable percentage to avoid negative economic impacts and increased administrative burdens.
Why is this important?
Skilled workers are needed to support Dutch innovative efforts. Especially in deeptech, many of those workers come from abroad, which is caused by a lack of Dutch tech specialists. With a 30% tax facility, the Netherlands is a more attractive country for these foreign talents. A new study finds that banning the rule would be risky, especially for high-tech regions like Amsterdam and Eindhoven.
A comprehensive evaluation by SEO Economisch Onderzoek, commissioned by the Dutch Ministry of Finance, underscores the significant role of the 30% tax facility in attracting highly skilled migrants to the Netherlands. This scheme, which offers a tax break to expatriates, is deemed crucial for the country’s business climate and economic growth.
The study, which spans 2016 to 2022, indicates that the 30% facility effectively lures top talent, enhancing the Netherlands’ appeal to international companies. The report warns that planned changes to reduce the tax relief from 30% to a stepped 30-20-10% by 2024 could lead to a 10-15% decrease in highly skilled migrants, with a potential 40% drop if the rule is completely abolished.
A stable and predictable tax facility
The report emphasizes the importance of a stable and predictable tax facility to avoid detrimental effects on investment decisions and administrative costs. “We find no evidence for a reduction in extraterritorial costs with the length of stay,” the report states, suggesting that a consistent percentage would better align with actual cost developments and reduce administrative burdens for employers and the tax administration.
The operations of the expat tax schemes:
● 30%-facility: An employer may reimburse 30 percent of the salary to the employee for 5 years tax-free. A salary requirement focuses the scheme on highly skilled migrants with specific expertise that is not or scarcely available in the Netherlands.
● Partial foreign tax liability: This is an optional scheme for 30% of users to be taxed in the country of origin for box 2 and box 3 assets.
● Extraterritorial costs scheme (ETK scheme): An employer may reimburse actual extraterritorial expenses tax-free for all employees. Extraterritorial costs are additional costs of temporary stay outside the country of origin in the context of employment
The 30%-facility, which currently allows employers to reimburse 30% of an expatriate’s salary tax-free for five years, is praised for its positive impact on the business climate. Interviewees from various sectors highlighted that the scheme helps attract talent essential for knowledge-intensive industries, particularly in regions like Amsterdam and Brainport Eindhoven.
Reconsider the changes
In light of these findings, the report urges policymakers to reconsider the proposed changes. It advocates for maintaining a stable percentage to continue attracting top talent and supporting the Dutch economy. The evaluation also suggests tightening the expertise requirement and exploring a training requirement for labor migrants from outside the EU to align better with the needs of the economy.
As Parliament debates the future of the 30%-facility, this report provides a critical data-driven perspective, highlighting the need for policies that balance fiscal responsibility with the necessity of attracting and retaining global talent.
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