Last updated: Feb, 2025 by Ernst (disclaimer)

Introduction

The 30% ruling, a long-standing tax incentive for highly skilled foreign employees in the Netherlands, is undergoing significant changes. Initially, a gradual reduction to 10% was planned, but following concerns from businesses and economic analyses, the Dutch government reversed this decision. Instead, a 27% ruling will be introduced starting January 1, 2027.

Additionally, the salary threshold to qualify for the ruling will be increased beyond standard indexation. Employers and employees alike should be aware of these changes, their implications, and the transitional arrangements.

What Is the 30% ruling?

The 30% ruling is a tax advantage allowing employers to provide up to 30% of an employee's salary tax-free as compensation for the additional costs of working in the Netherlands (so-called extraterritorial expenses). This benefit applies for a maximum period of five years and is subject to specific eligibility criteria, including salary requirements and prior residence outside the Netherlands.

Previously, employers had the choice to either:

1. Apply the 30% ruling, allowing a tax-free allowance of 30% of an employee’s salary.
2. Reimburse actual extraterritorial expenses, which could involve administrative burdens.

In recent years, the 30% ruling has been under scrutiny, leading to multiple reforms. The Dutch government initially introduced a stepwise reduction to 10%, but this measure has now been revoked in favor of a fixed 27% ruling.

Overview of the recent changes to the 30% ruling

1. From 30% to 27% ruling

• The previous plan to gradually reduce the ruling to 10% has been abandoned.
• Instead, a constant flat rate of 27% will be introduced from January 1, 2027.
• Until that time, the tax-free allowance remains at 30% for 2025 and 2026.

2. Increase in salary thresholds

To qualify for the 30% ruling, employees must meet a minimum salary requirement, which is adjusted annually for inflation. However, as of January 1, 2027, the government has proposed a larger increase than usual:

• Standard salary threshold will increase from €46,107 to €50,436 (indexed annually).
• For employees under 30 with a qualifying master's degree, the threshold will increase from €35,048 to €38,338 (indexed annually).

3. Transitional rules