Your 30%-ruling will expire per the end of 2020; what are the tax consequences and tax planning opportunities?
This article was originally published on expatcentreleiden.nl
In the beginning of 2018, the Dutch government announced a reduction of the maximum duration of the 30%-ruling from eight to five years. This change in legislation entered into force as per January 1, 2019. Initially, no transitional law was planned as a result of which many expats would lose the 30%-ruling before the end date mentioned on the grant letter. On October 15, 2018, the Dutch government introduced a transitional law for the group of expats for whom the 30%-ruling would end in 2019 or 2020 as a result of the shortening of the maximum duration from eight to five years. The transitional law gave many expats, for whom the 30%-ruling would otherwise end per December 31, 2018, up to two more years to benefit from the 30%-ruling. Since the end of 2020 is rapidly approaching, it is now time to start thinking about the tax consequences and tax planning opportunities!
What are the tax consequences?
For many expats, the 30%-ruling will end at the end of this year. What are the most important tax consequences when the 30%-ruling expires per December 31, 2020?
- The 30%-ruling cannot be applied on your employment income anymore as a result of which your net income will decrease.
- You will lose the partial non-resident status as per 2021. This means that you will have to declare your worldwide savings and investments (Box 3) and have to pay income tax in case the value of your worldwide savings and investment exceeds the threshold of € 50,000, or € 100,000 in case you have a fiscal partner.
What are the tax planning opportunities?
As you will understand, the expiration of the 30%-ruling will have a negative impact on your net spendable income and wealth tax position. What are the most important tax planning opportunities you can think of?
- If you are entitled to an annual bonus payment that is normally paid out in 2021 (but relating to the year 2020), it is advisable to discuss with your employer whether it is possible to already receive the annual bonus payment in December 2020. As the 30%-ruling expires by December 31, 2020, the 30%-ruling cannot be applied anymore on salary payment(s) that you will receive after this date (even on payments that are relating to the year 2020, such as an annual bonus).
- The taxation on income from savings and investments (Box 3) in the Netherlands is based on a deemed return on your net assets (assets minus debts). The deemed return is determined progressively using three brackets and can increase to more than 5%. This deemed return is eventually taxed at 31%. There are several ways to structure your savings and investments more beneficial from a tax point of view. If your savings have reached a certain level, it can be interesting to set up a BV (limited liability company) and deposit your savings to the BV, where the actual return on investment is taxed at a lower corporate income tax rate and/or dividend tax rate. Another option would be to invest your savings into real estate property to generate a higher return on investment.
If you would like to receive further information about the tax consequences and/or would like to know more about the tax planning opportunities in your specific situation, please do not hesitate to contact us. We are more than happy to answer all your questions and think of a tailor-made solution for you!