I found out that tax is not only about paying to the government,
there is also part where advantages and benefits are possible.
For example, 30% ruling is one of these tax advantages.
I believe most of you have already known something about it,
but what exactly is 30% ruling?
And how does it work?
Today I will talk you through it.
As described in my previous reports, tax rates in the Netherlands are higher than most countries in the world whose highest rate is up to 52%. High tax rate guarantees the productivity of national functions such as medical service. But do they ever consider the feelings of international employees working in the Netherlands? Yes, they actually did, that's how 30% ruling rules was come up with.
What exactly is 30% Ruling?
Ruling is literally translated as "裁决", I'm not sure why it is translated this way, but I think it is fair to also call it 30% tax facility, the main point is 30% here anyway. The rule means that when meeting conditions, the employer has the right to grant a tax-free allowance up to 30% of your annual salary. In other words, you only need to pay tax for 70% percent of your income, the other 30% will be paid as welfare. This rule is considered as a compensation for working far away from home.
The requirements of application
If you are recruited or seconded from outside of the Netherlands, then you can apply for 30% facility. But of course, you also need to meet with these conditions:
You moved from 150km away from Dutch border
Calculation rule: the distance between the city you lived to the nearest Dutch border.
To prevent applicants from temporarily moving to cities 150km away from Netherlands before they come and work here, the tax office will investigate accommodations applicants stayed during the 2 years before they come to the Netherlands.
Minimum required taxable salary
Until 2018, before applying for 30% ruling, your minimum required taxable salary is €37,296; if you are under 30 and have a master degree, then your minimum required taxable salary would be €28,350; If you do scientific research at designated scientific institution, then your salary doesn’t matter for 30% ruling application.
How to calculate?
Let me give you an example:
Assuming 31-year-old A is recruited to work in the Netherlands with €40,000 annual salary. If A successfully applied for 30% ruling, then the tax-free part of salary is €40,000 - €37,296 = €2,704 instead of €40,000*30%, otherwise the minimum taxable salary would be lower than €37,296.
Timing for 30% ruling application
You can apply for 30% ruling within 4 months after signing the employment contract. If applying after 4 months, the 30% ruling will be effective in the following month. If you have already worked in the Netherlands for a couple of years, you can still apply, but the previous working years will not be taken into consideration. The processing time may last 1-6 month depending on the circumstances.
The process of 30% ruling application
30% ruling cannot be applied alone. Employers and employees must work together to apply for it. Usually, HR and tax consultant in the company would submit the application to the Dutch Tax and Customs Administration according to the employee's condition, the related answers and documentations from employee required by tax authority (the motivation of coming to study/work in the Netherlands, Arrival/Departure records, etc.). Within 6 weeks, the applicant will receive formal result of application.
The maximum term of 30% ruling
The maximum term of 30% ruling is 8 years. For the employees who successfully applied before Jan 2012, the maximum term is still 10 years. According to Dutch media reports, starting from 2019, the maximum term is adjusted from 8 years to 5 years.
Its not easy to earn money in the Netherlands, and the benefit shrinks and shrinks…
The influence to 30% ruling if job hopping
Job hopping has little influence on 30% ruling. Keeping 30% ruling is relatively easy, as long as your new job starts within 3 months after your previous job ends. But let me remind you that the same application procedure must proceed within 4 months after you start your new job. And your new employee needs to once again provide a statement to prove you have provided specific expertise.
30% Ruling is indeed a favored policy, but it also has large influence on benefits such as unemployment benefit; tax refund and pensions. As these benefits depend on your taxable salary and 30% ruling relatively reduces taxable salary, the amount from other benefits will accordingly decrease.