Contracting in The Netherlands through CPM
Contracting in The Netherlands through CPM - Factsheet 105 (PDF)
Factsheet 105
The 30% ruling and other tax incentives for expatriate individuals
A major tax reform has taken place in the Netherlands and came into force effective January 1, 2001. This article emphasizes on a major tax incentive, the 30% ruling, for foreign expatriates who are going to work in the Netherlands. This 30% ruling replaces the 35% ruling which had been in place from 1995.
The 30% ruling has its origin in the early 1950’s, the post Second World War period, and was intended to reduce the costs for persons with special skills especially from the United States and to make the Netherlands a more attractive country for business development. Due to its importance the ruling has been changed and clarified many times. The 35% ruling was officially published firstly in 1986. From 2001 the 35% ruling changed into a 30% ruling and is now enacted in the Dutch wage tax act and wage tax implementation decree.
Under the “old” 35% ruling roughly 35% of the total remuneration could be paid tax free to the expatriate. The percentage of the expatriate’s remuneration that can be reimbursed tax free by the employer is reduced to 30% from January 1, 2001. However, due to the general reduction of the tax rates with effect from January 1, 2001 it is unlikely that the net income of the expatriates will be substantially affected. The new tax rates run from 32.35% (including social security premiums) to 52%. The effective tax rate on salaries under the 35% ruling was a maximum rate of 39% (60% top rate of 65% of income) and is a maximum rate of 36.4% (52% top rate of 70% of income) presently under the 30% ruling. The 35% ruling is automatically converted into the 30% ruling.
The basis for the calculation of the 30% tax free disbursement is the regular employment income. In principle, bonuses, stock option income and severance pay do not fall under the scope of the 30% ruling if the employer and expatriate did not agree on these remunerations in advance.
To qualify for the 30% ruling the expatriate must have specific expertise and/or experience that is not or scarcely available on the Dutch labour market. For example the expatriate is highly qualified, has had a specialized education and/or has experience in a certain field that Dutch individuals do not have. Another criterion can be whether or not the foreign net income relating to this or a similar function abroad is higher than the net income in the Netherlands. The specific expertise and/or experience must be proven by way of diplomas and resumes. A top manager of an international group, who has at least 2 ½ years working experience within this group, is considered to have specific expertise that is not or scarcely available on the Dutch labour market. The 30% ruling is intended to import know how to the Netherlands, therefore it is essential that the expatriate is hired abroad. Expatriates who are already living in the Netherlands are not eligible to the 30%-ruling. However, if the 30% ruling has already been granted, it is possible to change employment and remain eligible for the 30% ruling. In case of change of employer, e.g. after dismissal or voluntary redundancy, a new employment must be effective within three months. The company hiring the expatriate is obliged to run a pay-roll administration and to withhold Dutch wage tax.
The 30% ruling will be valid for a maximum period of 120 months and an official application needs to be made. If the 30% ruling is applied before the expatriate starts his or her employment or if it is applied for within 4 months after the start of the employment, the 30% ruling shall be effective from the beginning of the employment. If the 30% ruling is applied for after 4 months the 30% ruling shall be valid from the first day of the month following the month in which the request was made. The total duration of the 30% ruling will be reduced with previous periods of Dutch employment or stay in the Netherlands. Previous periods are not taken into account if a period of more than 10 years has elapsed
Health insurance
When you work and your salary does not exceed NLG 64,600 gross per year, you are automatically insured through the National Health fund (Ziekenfonds). You pay a small contribution yourself and you are insured for most basic health services such as doctor, hospital or dentist. You have to arrange this insurance yourself with your chosen insurance company.
About CPM
Based at Haseley Manor in rural Warwickshire, the philosophy behind the company is simple – make life for the freelancer as easy and straightforward as possible by providing comprehensive administrational support services, allowing them to spend the maximum amount of time doing what they do best – IT contract work.
CPM aims to provide IT-specific administration services to the tens of thousands of freelance contractors in the United Kingdom more cost effectively than those offered by traditional accountancy practices.
It provides a comprehensive portfolio of services, which can be tailored for every freelance UK IT professional, and specialist working at home or abroad, whether they are working as a consultant or as a freelance operative within a management, support, programming or hardware structure. They may also be operating on a PAYE Limited company or self-employed basis.
CPM is managed by a team of former IT industry employees who genuinely understand the individual needs of the freelance contractor. These include founder Solomon Williams, a Chartered Certified Accountant, who has extensive experience in a variety of business start-ups and operations throughout the UK and Europe.
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Disclaimer: The information contained in this factsheet is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts Involved. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in information contained in this factsheet. Accordingly, the information on this factsheet is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult a CPM professional.