“Aan de vruchten kent men den boom.” - A tree is known by its fruit.

United Expats of the Netherlands began as a grassroots organization in April 2018 and formed an official Stichting in August 2018. UENL is managed by a board of directors, all who live and work in the Netherlands. UENL was formed in response to a proposal (now law change) by the Ministry of Finance to reduce the term length of the 30% tax rule to 5 years for all recipients – both current and new – beginning January 2019. This law change breaks an existing deal between the Dutch government and highly skilled expats who are current recipients of policy.

UENL accepts and supports the right of the Dutch government to amend its tax legislation as it deems necessary. However, enforcing this policy change on current recipients has significant and severe consequences for recipients and their families, the businesses that employ these professionals, and on the long term financial health of the Netherlands.

UENL lobbied for the government to stand by the deal they made with current recipients of the 30% tax ruling so that any changes apply to future expats, not to those already here. With more than 40,000 signatures on our Change.org petition and global and local media coverage, UENL significantly rose awareness of the consequences of this proposal - and was deemed one of the most effective lobbying organization of 2018. Through its lobbying efforts and the support of many, transitional regulation was introduced so that the law would not take effect until 2021. However, here too, significant problems arose as still the agreement with expats remains broken - with many experiencing their length of their agreed tax policy shortened.

On 1 January 2021, the maximum duration of the 30% facility for all existing users – including users for whom the promised eight or ten year period has not yet expired – has been reduced to five years with immediate effect. For many expatriates, this means that they are faced with a reduction of the period of the 30% facility by one, two or three years. For these expatriates, the transitional provisions were not sufficient to cover their original end date of the 30% ruling. The reduction of the 30% facility to five years is a measure that negatively affects the financial situation of private individuals. This requires a strong justification, especially as this alteration has retroactive effect. However, justifications – except for the additional income for the Treasury – are lacking. The legislation does not comply with the principles of due diligence, legal certainty, proportionality and equality. Recipients of 30% tax rule were not personally informed in which way these new rules affected their personal situation. Some did not receive any correspondence from the tax authorities with an adjusted 30% ruling and others just received a short letter which stated the general reduction of the 30% ruling. As of January 2021, UENL has begun litigation (legal team Taxperience) to object the law change. UENL remains committed to the belief that good governance is paramount, and afspraak is afspraak

Afspraak is Afspraak.

The Backstory of the 30% Rule

The Netherlands is one of many countries in Europe that offers a specific tax policy for highly skilled international expats. In the Netherlands, this is commonly referred to as the 30% rule. This policy is designed to attract and support highly-skilled expats when they come to work in the Netherlands for a specific employment role. The 30% ruling is determined on a case-by-case basis after ensuring that the beneficiaries satisfy a list of strict criteria set forth by the Belastingdienst, the Dutch tax authority. The most important criteria is that the employer in the Netherlands must prove that a scarcity for that particular job function currently exists and the job is unable to be filled by someone currently in the country. There are also clear rules to prevent abuse of policy. When all of the necessary conditions are met, the Dutch Government tax policy allows the employer to exempt 30% of the gross salary from the calculations of Dutch payroll tax. The tax policy is considered “compensation for expenses that a foreign employee experiences when working outside their home country”.

The 30% tax ruling is guaranteed for a maximum of 10 and 8 years, depending on whether the decision was issued before or after January 1, 2012. Recipients received a ruling with a start date and an end date in 8 or 10 years’ time. Suddenly, this document could become invalid.

The Current Situation

In an effort to reduce the budget, the Cabinet was advised by the Dutch Audit Authority to evaluate the 30% rule. In early 2017, the Ministry of Finance (Directorate General Fiscal Policy) requested Dialogic (Strategic Advisory for public and private organizations) to carry out a research study and compile a report to evaluate the 30% ruling.

The results of this research were presented in a report dated June 2017. This report estimated that the 30% rule is an effective and efficient regulation but some changes may have a positive impact on the effectiveness and efficiency of the package, namely: reducing the term length; increasing the 150-km border; reducing the flat rate for income above € 100,000. In the report, it was also noted that 80% of the 30%-rule recipients do not use the 30%-rule for more than 5 years, and that those that do are less likely to be considered temporary expats and instead have migrated to the Netherlands permanently. This statistic seems to be the key argument to support the decision of the Dutch government to reduce the length of time skilled expats can claim the 30% rule to 5 years.

Ultimately and not less important, the report highlights the necessity of policy consistency and explains that government policy stability is valued by companies and employees (as indicated in interviews with companies and parties involved in foreign investment).Furthermore, the current political and economic landscape (e.g. UK referendum to exit EU, uncertainty regarding possible changes in the tax system of the United States), could incentivize companies to establish themselves in Europe hence leading to a competitive advantage for the Netherlands in terms of business climate.

In April 2018, the Cabinet sent a letter to Dutch Parliament which states that they have the intention to limit the duration of the 30% rule to 5 years, effective 1 January 2019, for both new and current cases. As such, starting January 2019, the maximum term length will be reduced to 5 years for all recipients of the 30% tax rule.

A complete copy of UENL’s mission and vision, as of November 2018, can be found here.

The government, acting on behalf of its constituents, has the authority to make such changes. United Expats agrees with and supports this right. However, this policy change will not only affect new expats but will also affect current expats. This is inconsistent with previous revisions to this policy whereby, in the past, current recipients were unaffected by tax law changes as a result of transitional regulation. Many experts agree that a transitional policy should again be enacted, just as it was in 2012 when the term limit was adjusted from 10 to 8 years. PricewaterhouseCoopers (PwC) has indeed pleaded for a transition mechanism to be added to this proposal.

Expats that are currently residing in the Netherlands began their employment with a clear promise from the government as to the term length of the 30% tax rule. Every skilled expat that is a recipient of this benefit has government documentation with a clear end date. To change this policy for current expats is tantamount to deal-breaking, and as the mantra goes, #afspraakisafspraak.

THE ECONOMIC IMPACT

“De geschiedenis herhaalt zich” - If it happened once, it can happen again

Both experts and expats agree that, by breaking the current promise that the Dutch government has made with current recipients of the 30% rule, there will be severe and lasting consequences at both an economic and individual level.

The Economic Impact

• Creates an Uncertain Tax Environment. When setting tax legislation, it is important to create certainty in a tax environment. Businesses cannot make an investment if tax legislation is uncertain. That is why corporate and individual tax rates are always changed with application to future years.  It is undesirable to make changes that affect existing rulings. The people impacted are not able to make informed decisions. It is particularly unpalatable in this case as it affects people’s lives. Decisions were made to move country, pull children out of school, buy houses, all on a promise from the Dutch government. These are productive contributors to Dutch society, being treated in an unusually cruel and unfair manner.

• Penalizes Existing Companies. Companies that employ highly skilled expats could be penalized or experience other legal ramifications as their affected employees will likely require higher salaries, otherwise these talented and skilled expats will need to leave the country since they will be unable meet their financial commitments when their net salary is suddenly and significantly reduced.

• Decreases Attractiveness among International Business Community. The ruling will be perceived as negative by the international business community. The original tax law was created specifically to recruit skilled expats in order to ensure the Netherlands is a fierce competitor in the global knowledge economy. Many current skilled expats will no longer find the Netherlands an attractive place for employment and will opt to leave the country, and thus create a shortage of highly skilled talent.

• Hurts Goal of Knowledge Economy. It is a stated objective to enhance the position of the Netherlands as a knowledge economy.  The statement from Amsterdam city is an illustration of the policy:  “Increasingly, businesses in the Netherlands and abroad are choosing to settle in areas that offer a large pool of highly skilled talent. To ensure continued economic growth, it is vital that Amsterdam and the greater Amsterdam Metropolitan Area remain competitive at both regional and international levels. This can be accomplished by developing and strengthening talent as effectively as possible, focusing on attracting and retaining international talent, and promoting Amsterdam as an innovative knowledge centre.” The application of this ruling to current expats will cause severe damage to efforts designed to attract international talent.

• Harms Recruitment of Highly Skilled Talent. Companies will have a far more difficult time recruiting highly skilled talent since the Netherland’s reputation as a trustful employer will be dramatically reduced. As the saying goes, “de geschiedenis herhaalt zich” (if it happened once, it can happen again). Many organizations use the availability and access to skilled expats as a key selling point to recruit businesses to invest and open offices here in the Netherlands. These organizations employ a great number of individuals, expats and non-expats, and may opt to take their business elsewhere – increasing unemployment and resulting in a loss of tax revenue.

• Discourages Investment in Country. The companies employing expats are making a real contribution to the economy. They are paying office rent, buying materials, paying taxes and social charges, and buildings teams of skilled workers in the Netherlands.  This is what the goal of the policy should be. Changing the existing policy so that current expats are affected may discourage real investments into the Netherlands.

• Leads to Distrust among Highly Skilled Talent. Skilled workers considering the Netherlands will be aware that the ruling was changed from 8 and 10 years to 5 years and that this change affected current recipients. As such, not much weight will be given to the 5 years ruling, as people will not trust that it will be in place for the 5 years.

• Weakens Competitiveness of Country. As a result of this proposed tax policy affecting current recipients, talents might become in shortage and growth may stagnate – which could create a domino effect impacting the entire country competitiveness within the EU.

The Dutch government has always placed a priority on ensuring its business climate is attractive and competitive. Indeed, it is one of the reasons so many highly skilled expats have opted to call the Netherlands their home away from home. As noted by tax experts at PwC, the 30% rule has a ‘charisma’ abroad and its importance should not be underestimated – such an abrupt change without any transitional regulation will be perceived as negative by the international business community.

Put simply: the decision to break an existing deal with both its highly skilled community and very well established businesses in an effort to save 0.1% is bad business.

THE PERSONAL IMPACT

“De geschiedenis herhaalt zich” - If it happened once, it can happen again

Both experts and expats agree that, by breaking the current promise that the Dutch government has made with current recipients of the 30% rule, there will be severe and lasting consequences at both an economic and individual level.

The Personal Impact

While the economic trickle-down effect is perhaps the more concerning impact for the financial health and welfare of the Netherlands, the direct impact that this decision would have on the lives of so many current expats and their families should not go unnoticed.

Current recipients of the 30% tax ruling have taken financial liabilities based on their expected salary for years to come. This includes buying property (mortgages), school fees, loans to afford house renovation, pension contributions in their home country, starting or growing their families, turning down alternative employment offers, and more. Suddenly, these recipients are faced with the very real threat of a significant salary decrease – and along with this - the very real fear that comes with not being able to meet their financial obligations. People have made decisions for their lives, and their family’s lives, based on a Dutch government promise.  It is grossly unfair to change the rules of the game while its still being played. Afspraak is afspraak.

To hear personal stories from people impacted by this proposal, click here.