Following last Thursday’s vote of the Dutch Parliament’s lowest chamber, the thirty percent ruling will be scaled down. The measure, proposed by MP Pieter Omtzigt, passed the first vote, and it’s set to reach the first chamber for further approval. With over 1.2 million people without Dutch citizenship living in the country, the news is at the center of the debate.
- The Netherlands is scaling down its expat tax regime.
- With other European countries offering similar tax breaks, there’s the risk of falling behind in talent acquisition.
- The country is, according to expats, one of the best to work abroad.
Advantage for highly skilled migrants
The thirty percent ruling is a tax advantage for highly skilled migrants working in the Netherlands. Employees who reach a certain income threshold can apply for the benefit, having thirty percent of their salary exempt from taxation. The benefit is valid for five years. From January 1, 2024, the ruling will remain valid for five years, but the thirty percent will only be held for the first twenty months. In the following twenty months, only twenty percent of the income will be tax-free, decreasing to ten percent in the last part of the regime.
Following the vote, diverging sentiments emerged. The bill’s backers saw the ruling as disadvantageous for the young locals, who had to pay more taxes while having less purchasing power for houses, for instance. Those against the thirty percent ruling reform – among them the outgoing Economics Minister Micky Adriaansens – fear it will hinder Dutch competitiveness and innovation power in the long term.
Option B or C
If the new regime had been in place two years ago, Bernardo de Alba wouldn’t have relocated to the Netherlands from Mexico with his wife and a baby on the way. “The little benefits you get help you settle in the Netherlands, which is an expensive country, as compared to Mexico, whose currency’s value is lower than the euro,” he says. De Alba works for a multinational company and had a chance to move to the Netherlands, benefiting from the thirty percent ruling.
In his opinion, the scheme was a good way to attract talent to the country. When moving to a different country – or continent, in his case – the tax break was a great help even to purchase furniture or to afford a house for his family. With the new scheme looming, he fears the Netherlands won’t be able to attract the same number of talents.“It will become an option B or an option C; people won’t look at it right away,” he adds.
The rise of preferential tax regimes
According to the 2023 Global Tax Evasion Report, the number of preferential tax regimes has risen over the past years. These offer favorable fiscal treatment to specific target groups, including skilled workers, high-income people, or pensioners. 92,000 beneficiaries enjoy the thirty percent ruling, the report finds, being the preferential tax regime most popular in Europe. The publication also underlines how this measure cost €1.1 billion in 2020. Similar tax regimes exist in Europe.
In neighboring Belgium, since 2022, a similar scheme has been put into place. Expats earning at least €75,000 gross per year – not exceeding the €90,000 threshold – can apply to have thirty percent of their taxable income duty-free for five years. Denmark, Finland, and Sweden also have comparable measures, with 27, 32, and 25 percent rulings, respectively, applying under certain income conditions lasting more or less months.
Other European countries adopted different strategies. In Germany, no notable deduction for foreign workers exists. In Italy, the 2019 Decree of Growth set a favorable tax relief for foreign workers willing to relocate, taxing only thirty percent of their gross income for their first five years of employment. The break increases the bracket to ninety percent if the worker migrates to the country’s south. The bill is likely to be sensibly downscaled.
Expats across Europe
With competitive salaries and career possibilities, more and more expats moved to the Netherlands to work. Matching the EU’s data archive Eurostat’s figures on total and foreign population, as of January 1, 2022, roughly seven percent of the population resided in the country without citizenship. In Belgium, well over a tenth of the residents didn’t have Belgian citizenship. In Germany, that share was even higher. Luxembourg tops the chart, with almost half of its residents not having Luxembourgish citizenship.
Alongside Iceland and Switzerland regions, Dutch provinces are also those where expats have the highest employment rates – as per Eurostat data – with figures exceeding eighty percent in all the country. Besides the mostly developed countries of the continent, high foreign employment rates can be found in the capital regions of Warsaw, Poland, and Vilnius, Lithuania.
Expat Insider is InterNations‘ annual report on the conditions of working and living abroad. Collecting data from interviewees worldwide, it assesses different parameters of expats’ lives, presenting different indexes such as quality of life, ease of settling in, and personal finance. In the top ten of the 53 countries considered, two European countries appear: Spain (2nd) and Portugal (10th). Leisure options and culture are among the main drivers behind the results, with Spain ranking as the best country for quality of life.
Ernest Barons moved with his girlfriend from Norway to Barcelona. As he works remotely while doing a language exchange program, he clearly sees the benefits of life in the south of Europe. “You see, compared to Norway, a change in life quality in terms of contentedness.” Housing is becoming increasingly an issue even at those latitudes, as he spent five months finding accommodation.
At the top of the working abroad index is the Netherlands, which also scores well in its subindexes, such as career prospects and salary and job security. In this category, third and fifth come Sweden and Finland, with the latter also being third in the quality of life index. “The Netherlands is undoubtedly one of the best countries for finding a good career path. Work-life balance is good; you have a schedule that you follow, and that schedule is usually office hours, so you have time for your family,” says de Alba.
Yet, Dutchies also decide to move abroad for working reasons. Wouter Venema, for instance, moved to Denmark to work for a Danish multinational,. He finds life in the country as a highly skilled migrant attractive. “It’s different from the Netherlands. I expected people to work long days, but that’s untrue. The work-life balance is better here. At three o’clock in the afternoon, the roads are busy with people going home.”
The scientific world is also worried about the consequences of the new measure. The Financieele Dagblad (the main Dutch economy newspaper) reports the take of Dutch universities’ umbrella organization UNL, which warns about the potential blow research could suffer, with 10,000 Ph.D. students using the scheme. With the proponents of the new law wanting to abolish the tax break entirely by 2025, companies might consider relocating or hiring elsewhere. That’s the message conveyed in a LinkedIn post by Stef van Grieken, founder of biotech startup Cradle. “In the meantime, my advice to starting founders is: avoid the Netherlands and go to the UK, US, or Switzerland. The Netherlands is going downhill,” he writes.