Tax breaks for expats will be curtailed. This follows the acceptance of the amendment tabled by MP Omtzigt “downgrade 30% scheme“. The amendment is not yet completely final. The amendment was passed in the House of Representatives, but the tax plans have not yet been adopted by the Senate (the vote on these proposals in the Senate is scheduled for 19 December 2023).
Decrease 30% scheme
The 30% scheme is part of the payroll tax and regulates that expatriates, who meet the conditions, can be paid a tax-free allowance of up to 30% of the expat's remuneration without further substantiation. This allowance is intended to cover the employee's so-called extraterritorial expenses. These are the extra costs incurred by the expat due to working outside the country of residence.
The ouster of the scheme means that the maximum tax-free allowance will still be 30% only in the first 20 months of the expat's employment in the Netherlands. In the next 20 months, it becomes a 20% scheme and in the last 20 months a 10% scheme.
Expats benefiting from the 30% scheme in the last period of 2023 are covered by a transitional arrangement. For them, during the remaining period of their 30% scheme, the tightening described above will not apply.
Fictitious foreign tax liability
The expat, during the period he or she benefits from the 30% scheme, may choose to be taxed as a foreign taxpayer in the Netherlands for income tax purposes. As a result, only certain specifically designated income components with strong ties to the Netherlands will be subject to income tax. For example, bank accounts held in the Netherlands or abroad by the expat will then not be taxed in the Netherlands as income from savings and investments (box 3).
This option expires with effect from 1 January 2025. Again, there is a transitional arrangement. Expats enjoying the 30% scheme in the last period of 2023 may still opt for notional foreign tax liability until 31 December 2026 (except, of course, if the term of their 30% scheme ends earlier).