WHY INVEST IN HOLLAND? Tax Incentives

Transcription

1 WHY INVEST IN HOLLAND? Tax Incentives

2 Introduction Netherlands Foreign Investment Agency (NFIA) The NFIA (Netherlands Foreign Investment Agency) is an operational unit of the Dutch Ministry of Economic Affairs. The NFIA helps and advises foreign companies on the establishment, rolling out and/or expansion of their international activities in the Netherlands. The NFIA was established more than 35 years ago, and has since then supported thousands of companies from all over the world in the establishment or expansion of their international activities in the Netherlands. Besides its headquarters in The Hague, the NFIA has its own offices in the United Kingdom, Turkey, North America, Asia, the Middle East and Brazil. Additionally, the NFIA works together with Dutch embassies, consulates-general, and other organizations representing the Dutch government abroad, as well as with a broad network of domestic partners. Please be sure to stay in touch with your NFIA representative in order to keep up to date with any changes in the information which may occur over time and to visit your regional NFIA website for the latest news on business and investment opportunities in the Netherlands (all NFIA website addresses can be found on The information contained in these fact sheets has been compiled with great care by the Netherlands Foreign Investment Agency and is accurate to the best of its knowledge at the time of compilation. However, this document is provided for informational purposes only and no rights can be de rive d from it. Com pile d on 23 Apr

3 WHY INVEST IN HOLLAND? Table of contents Innovation Box R&D Deduction (RDA) Incentive for Research and Development Costs in the Netherlands (WBSO) Description Contribution Conditions Who is the target group? Information and application Wage Cost Subsidies Subsidieregeling Praktijkleren Description Contribution When do you qualify? Tax Incentive for Shipping Companies Tonnage tax regime Accelerated depreciation Labor cost subsidy: reduction of wage tax MIA and Vamil Free Depreciation (MIA/VAMIL) Contribution MIA VAMIL Applications of MIA and Vamil Information Energy Investment Allowance (EIA) Description Contribution Conditions The energy list The criteria Application procedure Information The 30% Tax-free Allowance Part of the income to which the allowance applies Method of calculation Ruling and pension Extra-territorial costs International school fees Relocation expenses/moving allowance Period of validity of the 30% tax-free allowance Conditions for qualifying Changes as of 1 January 2012 Specific expertise Recruited from abroad Wage tax-withholding agent Application procedure Resident or (deemed) non-resident taxpayer status

4 Innovation Box As of 1 January 2010, companies can benefit from an effective tax rate of only 5% for income from intangible assets created by the Dutch taxpayer (per that date the already existing Patent Box regime introduced in 2007 was reformed into the Innovation Box). Patented intangible assets as well as intangible assets that have been created by the taxpayer and for which the R&D tax credit ("WBSO") was received may qualify for the innovation box. In practice this means that technological innovations qualify. The innovation box however does not apply to marketing intangibles such as trademarks and logos. The lower tax rate of 5% is claimed in the corporate income tax return filed by the taxpayer. The low tax rate is actually an exemption of 80% of the profits that can be allocated to the innovation box. By applying the general Dutch corporate income tax rate of 25% this gives an effective rate of approximately 5%. Costs made with the development of the intangible assets and losses on the exploitation of the intangible assets can still be deducted against the general tax rate of 25%. The effective rate applies to profits exceeding the development costs and losses incurred. There is no cap on the amount of profits that can be allocated to the innovation box, however, a taxpayer should be able to substantiate that the profit is related to the qualifying intangible assets. It is generally advised to agree upon the method used with the Dutch tax authorities in advance. The Dutch tax authorities are accustomed to do so upon request. The innovation box does not apply to intangible assets in respect of which a patent was obtained if the asset was already in existence before 1 January Furthermore, the innovation box does not apply to intangible assets in respect of which an R&D statement was obtained if the asset was already in existence before 1 January Situations whereby the, period between an application for a patent and the granting of the patent is unusually long are also covered. Subject to certain conditions, profits that are attributable to the relevant patented asset may, during the period from the year in which the patent was applied for up to the year preceding the year in which the patent was granted, also be brought within the scope of the innovation box. As of 1 January 2013, a new (flat-rate) regime is introduced, which tries to simplify the procedure for the application of the innovation box. The (flat-rate) regime implies that a taxpayer can apply for a flat-rate regime of which 25% of the profits are qualified as benefits from intangible assets and as such taxed in the innovation box. As such, no threshold should have to be taken into account. However, the amount which can be included in the innovation box is maximized on EUR 25,000. Therefore, this measure is attractive for so-called small and middle-sized companies ("SME"). The company may on an annual basis need to decide whether or not it will apply the (flat-rate) regime. This decision right is not unlimited. If a company wants to apply the (flat-rate) regime, it should meet the condition that the intangible asset which qualifies for the innovation box is developed in the representative year or in the two previous years. This implies that if a company has developed a qualifying intangible asset in 2013, and afterwards has not developed such an asset, can apply for the (flat-rate) regime in 2013 and/or in 2014 and In that case, it will not be possible to apply the (flat-rate) regime in Innovation Box Page 1 of 14

5 R&D Deduction (RDA) Abbreviation: Name in full: Duration: Budget 2015: Type of contribution: RDA Research & Development Aftrek 2012-no final date EUR 238 million Tax incentive As of 1 January 2012, an R&D deduction ("RDA") can be applied by companies which derive income from qualifying R&D activities. The RDA is complementary to existing incentives to stimulate research & development activities. The RDA covers the missing part of the R&D expenditures, i.e. the remaining R&D expenses (not wage costs) and the R&D investments. The implementation of the RDA is in the hand of Netherlands Enterprise Agency, which determines the so-called R&D declaration. In the R&D declaration the amount of the R&D activities shall be included. A percentage of this amount is additionally deductible for tax purposes. The RDA is applicable to costs and/or expenses in respect of R&D activities that are performed after 31 December Netherlands Enterprise Agency determines the basis of the directly attributable R&D costs and fixed investments, and multiplies it by a certain percentage. The outcome is recorded in a so-called RDA declaration. For 2015 the rate is 60%. That means that 60% of the determined base can be set off against the taxable profit. The net benefit is thus the product of the amount available on the RDA declaration and the marginal rate of the corporate income tax (e.g. effective net benefit is 15% (25% of 60% )). The exact basis and the applicable percentage are specified in a Decree, called the RDA Decree. Except for rules regarding the basis and the percentage, the RDA Decree also provide for rules concerning the application and the issuance of the RDA declaration, guidelines for keeping records, any penalty provisions and rules regarding objections and appeals. With respect to the RDA declaration, it is noted that the definition is the same as for the WBSO. The RDA declaration can be requested at the same moment as the WBSO declaration. Further information is available on the website of Netherlands Enterprise Agency: R&D Deduction ( RDA) Page 2 of 14

6 Incentive for Research and Development Costs in the Netherlands (WBSO) Abbreviation: Name in full: Duration: Budget 2015: Type of contribution: WBSO Wet vermindering afdracht loonbelasting en premie voor de volksverzekeringen - Speur & Ontwikkelingsactiviteiten no final date EUR 794 million Tax incentive Description The purpose of the incentive is to promote corporate R&D work through a tax deduction for R&D wage costs. Contribution The R&D allowance takes the form of deductions of wage tax and social-insurance contributions. As a rule, the R&D allowance amounts to 35% (for starters: 50% ) of the first EUR 250,000 of the wage bill for R&D per calendar year, and 14% of the remaining R&D wage bill. The maximum allowance per calendar year is EUR 14 million for each company (or corporate entity). With effect as of 1 January 2013, in calculating the average R& D wage the amounts will no longer be rounded up to a multiple of EUR 5 but instead to an amount in whole EURO's The above-mentioned amounts are valid for 2014 and 2015 only. Self-employed entrepreneurs spending at least 500 hours on R&D within one calendar year, are eligible for an income tax deduction as well: Conditions Tax deduction for self-employed persons amounts to EUR 12,421 For a self-employed techno starter, the tax reduction is EUR 18,578 R&D work is defined as systematically organized activities, performed within the EU, related directly and exclusively to: technical scientific research the development of: physical products parts of physical products physical production processes parts of physical production processes software software components The R&D work definition excludes: feasibility studies software upgrading; modifying software for different hardware or software platforms development of services routine activities market research organizational or administrative work policy and strategy studies adaptation or deployment of purchased goods quality control and assurance adaptation or implementation of existing technology pilot plants on production scale with commercial value Who is the target group? Incentive for Research and Development Costs in the Netherlands ( WBSO) Page 3 of 14

7 Businesses with employees who perform R&D. Self-employed persons operating a company who are entitled to an income tax deduction for selfemployment, provided they carry out research and development activities themselves for at least 500 hours per year. As of 1 January 2015 clinical company projects contracted with non commercial organizations (like hospitals) don't qualify for WBSO anymore. Inf ormation and application The facility can be requested only via an application form available from Netherlands Enterprise Agency. Applications can be submitted three times a year. The activities for which an application is submitted must be carried out in the period to which the application relates. Further information is available on the website of Netherlands Enterprise Agency: Incentive for Research and Development Costs in the Netherlands ( WBSO) Page 4 of 14

8 Wage Cost Subsidies The Dutch government has set up special programs in an effort to increase job opportunities and work participation by offering financial benefits to employers. Subsidieregeling Praktijkleren Abbreviation: Full Name: Subsidieregeling Praktijkleren Budget 2015: EUR 205 million Duration: Type of contribution: Tax Incentive Description The Subsidieregeling Praktijkleren replaced the Wet vermindering afdracht loonbelasting en premie voor de volksverzekeringen (WVA). The overall aim is to increase job opportunities and work participation by offering financial benefits to employers who create practical training places/on the job training facilities (i.e. qualify as a training company). Contribution In the Netherlands, employers withhold taxes on wages for all their employees. Every month, the total withhold amount is to be transferred to the Tax Department. reductions allow the employer to transfer less money to the government. The total sum of the reductions is subtracted from the total sum of withheld taxes. The maximum deduction amount under the Subsidieregeling Praktijkleren amounts to EUR 2,700 per realized practical training place and depends on the budget available per education category. When do you qualify? A company qualifties as a training company if it provides mentorship to: students in lower vocational professional education (VMBO), following a combined training and work programme; students in intermediate vocational education (MBO), participating in block or day release classes (BBL); technology students in higher vocational education (HBO) (including agriculture and natural environment), where the programme consists of learning and working; promovendi and technical designers in training (TOIO's). The facility can be requested only via an application form available from Netherlands Enterprise Agency: A training company can apply from 1 April to, and including, 1 May A recognized training company you can apply from 2 June to, and including, 15 September The application runs per study year. Wage Cost Subsidies Page 5 of 14

9 Tax Incentive for Shipping Companies The Netherlands has an excellent infrastructure for shipping activities. With Rotterdam as the largest port in Europe, many shipping companies have a presence in the Netherlands. The Dutch tax regime therefore contains specific tax incentives for qualifying shipping companies. 1. The levy of Dutch income tax or corporate income tax on the basis of the net tonnage of the vessels (tonnage tax regime) rather than on the basis of the profits actually made; 2. Accelerated tax depreciation for tax purposes (if the tonnage taxation regime is not applied); 3. Labor cost subsidy in the form of a reduction of wage taxes. There is an overlap in the legislation, in the sense that there are cross references made and that certain conditions are imposed for both facilities. T onnage tax regime The basic requirement to qualify for the tonnage tax regime is that the shipping company's profits must be derived from the operation of sea going vessels, which are active in international sea traffic (specifically defined in the legislation). Since 2010 the regime also applies to cable and pipe laying vessels, research vessels and crane vessels A shipping company is considered to "operate a vessel" if the shipping company conducts the management and control in the Netherlands of a vessel which it owns or co-owns, with the exception of ships chartered out on a bareboat charter basis or holds under a bareboat charter. Management and control in principle includes strategic, commercial and technical-nautical and crew management. If the shipping company conducts the commercial management of a ship owned by another company or if it operates a ship in time or voyage charter it may still qualify for the tonnage taxation regime, provided the shipping company also owns a certain volume of net tonnage itself through ownership or co-ownership of the vessels. It is not required to register the ships in the Netherlands (Dutch flag), however the regulation has been adjusted per 2005 in the sense that ships should in principle be registered in one of the EU Member States (exceptions are available for ships under "third flag" that will join an existing fleet). If a shipping company elects to be taxed on the basis of the net tonnage of the qualifying vessels (rather than on the basis of the taxable profits actually made) the taxable profit generated by each individual vessel is calculated for a book year according to the following sliding scale. Net tonnage of ship Fixed profit per 1000 net ton per day (EUR) 0-1,000 net tons 9.08 For the excess up to 10,000 net tons 6.81 For the excess up to 25,000 net tons 4.54 For the excess up to 50,000 net tons ,000 net tons or more 0.5 The taxable profits calculated on the basis of this schedule are subject to the normal Dutch corporate income tax rate. Application of the tonnage tax regime will amongst other imply that qualifying shipping activities can basically never result in tax losses, tax depreciation of the vessels is not allowed and a capital gain or loss incurred with the vessels is tax neutral. It should be noted however that ceasing the Dutch shipping activities within the first tenyears might have adverse tax consequences. For applying the tonnage tax regime a request must be filed with the Dutch tax authorities. If granted, the tonnage tax regime will in principle apply for a period of ten years. Newly established shipping companies, or existing foreign shipping companies moving the effective place of management to the Netherlands should file the request during the first year in the Netherlands. It is however possible, and in many cases recommendable, to obtain an advance ruling on the basis of the intention to start up shipping activities in the Netherlands, thus before the shipping activities are actually conducted in the Netherlands. Every ten year a shipping company may decide to opt for or to continue the application of the tonnage tax regime. Alternatively, they may decide to return to the normal tax regime. If during the ten-year period the requirements mentioned above are no longer satisfied, the tonnage tax regime will cease to apply. Tax Incentive for Shipping Companies Page 6 of 14

10 Accelerated depreciation If it is decided not to opt for the tonnage taxation regime, a qualifying shipping company may be allowed to apply a method of accelerated depreciation. The conditions for applying this facility are basically the same as the ones described above which apply for the tonnage tax regime. This facility allows an annual depreciation of a maximum of 20% of the cost price of the vessel, less estimated residual value. Accelerated depreciation replaces the normal rules. The tax depreciation can however only be effectuated to the extent that the depreciation charges for that year are covered by profits from operating the vessels. If the profit for a year is not sufficient to absorb the full 20% depreciation, the part not utilized can be carried forward to the subsequent year. It is hereby noted that as the temporary measure for accelerated depreciation for investments that are made in 2011 (part of the measures taken to stimulate the economy during the economic crisis) also applies to sea going vessels. As a consequence, an investment in 2011 in a sea going vessel can be depreciated in two years, with a maximum of 50% per year. Condition is however that only after 10 years after the accelerated depreciation has been applied for one can opt for the tonnage tax regime again. If a shipping company no longer complies with the requirements of the accelerated depreciation method within a period of 10 years after the year in which the investment in the vessel was made, the book value of the vessel will be set at a value which would have been reached in case the shipping company had not applied the accelerated depreciation method but had applied the normal depreciation rules. Labor cost subsidy: reduction of wage tax In addition to the abovementioned tax incentives a labor cost subsidy is available. This facility reduces the labor costs for an employer engaged in the shipping business. Under this regime the employer is allowed to retain part of the wage taxes withheld from the salaries paid to qualified maritime staff ("seafarers"). A "seafarer" is defined as captain, ship's officer and ship's mate. The part of the wage tax that may be retained by the employer amounts to: 40% of salary (for wage tax purposes) for employees who are living in The Netherlands, a EU-Member State or another State party to the European Economic Space Agreement; 10% of salary (for wage tax purposes) for employees not living in The Netherlands, an EU-Member State or another State party to the European Economic Space Agreement, but who are subject to Dutch wage tax; 10% of salary (for wage tax purposes) for employees who are only subject to Dutch social security; This reduction may be applied in combination with partial tax exemptions for which the employee may be eligible in view of his working days outside the Dutch territory. The employer is eligible for the reduction if the seafarers are employed on a see going vessel registered in the Netherlands (flying the Dutch flag). Dredging companies operating at sea may also benefit from this labor cost subsidy. The labor cost subsidy however does not apply to a vessel used for pilotage services or for sailing. Tax Incentive for Shipping Companies Page 7 of 14

11 MIA and Vamil MIA en Vamil are subsidies for environmentally friendly equipment for entrepreneurs. MIA stands for environment investment deduction in Dutch, which is a fiscal deduction regulation for entrepreneurs who invest in environmentally friendly equipment. Up to 36% of the annual investment costs (purchase costs and production costs) are deductible from the profit over the calendar year in which the equipment was procured. Vamil stands for arbitrary debit of environmental investments in Dutch. The Vamil regulation offers entrepreneurs a liquidity and interest advantage. Machinery that is listed on the combined MIA / Vamil list can be depreciated more quickly (for 75% of the investment costs accelerated depreciation can be applied, the remaining 25% follows the regular depreciation regime). The investing company can write off the investment at an earlier stage, which results in the reduction of operating profit and tax payments. The combined MIA and Vamil list determines which types of machinery qualify for the two programs. The programs include the costs of obtaining advice, provided that the advice results in an investment in the environment. Free Depreciation (MIA/VAMIL) Abbreviation: Name in full: Budget 2015: Duration: Type of contribution: MIA/VAMIL Milieu-investeringsaftrek and Vrije afschrijving milieuinvesteringen MIA : EUR 93 mln VAMIL: EUR 38 mln MIA: indefinite VAMIL: September indefinite Tax incentive Contribution MIA The cost of a capital good must amount to at least EUR 450 The amount invested in capital goods must exceed EUR 2,500 per annum Via MIA respectively 13.5%, 27% or 36% of the investment in certain assets are tax deductible. Per investment no more than EUR 25,000,000 can be accounted for. VAMIL The contribution takes the form of depreciation (75% accelerated and 25% regularly). Applications of MIA and Vamil IIf a company opts for MIA or Vamil, the procedure is as follows: The company should check whether the business asset is mentioned on the so-called environment list (Milieulijst). If it is planned to invest in a specific business asset, it may be advisable to contact Netherlands Enterprise Agency ( upfront. The application should be filed electronically at Netherlands Enterprise Agency ( via e-loket). To be able to log in to e-loket a so-called e-recognition (e-herkenning) is required. E-recognition is a system for the government to verify the identity. An e-recognition can be requested via Inf ormation Further information is available on the website of Netherlands Enterprise Agency: MIA and Vamil Page 8 of 14

12 Energy Investment Allowance (EIA) Abbreviation: Full Name: Budget 2015: Duration: Type of contribution: EIA Energie-investeringsaftrek EUR 106 mln undetermined Tax incentive Description The Energy Investment Allowance (EIA) is a tax-relief program. Companies that invest in energy-saving installations, or that make use of sustainable energy, may deduct a certain percentage of the invested sum from their taxable profits from the year in which the goods are purchased. Contribution Conditions 41.5% of the relevant expenditures is deductible from the taxable earnings in the year in which the equipment is purchased. The minimum amount of energy-saving investment is EUR 2,500 a year. This amount can consist of several individual investments, but each individual investment must exceed EUR 450. No investment allowance is granted for investments exceeding EUR 118,000,000 in a tax year. EIA is applicable under conductions, such as: The company must have an environmental permit or a building permit. The energy list (see description below) states which types of equipment qualify for the program. The energy advice connected with the purchase can be included in the deduction, as well as additional costs needed to make an asset operational. Any investment grant that was received for the relevant asset must be deducted from the acquisition or production costs. Operating subsidies need not be deducted, however. Non-deductible costs are 1) costs of assets already used by another party, 2) the costs of the following assets: land, residential properties, passenger cars that are not intended for commercial road transport, vessels used for marketing purposes, securities, receivables, goodwill, permits and any other public law consents. T he energy list The energy list (in Dutch) shows the assets that qualify for the EIA. The energy list is updated annually. For 2015, the energy list contains more than 160 different assets. New assets can be added to the list each year and others withdrawn. The criteria The Ministry of Economic Affairs, the Ministry of Housing, Physical Planning & Environment and the Ministry of Finance are involved in drawing up the energy list. The criteria that play a role in the selection of the different assets include the following: Clear, unambiguous definition of the appliance or technology. Substantial contribution to energy conservation or the use of renewable energy. Reasonable cost-effectiveness. Assets in which companies would invest even without the EIA are generally not included. Only those parts of a technology that are technically necessary for the saving of energy are included. The asset must be applicable to a wide range of situations or businesses. Examples of assets of the energy list are: Heat pumps Cogeneration plants Energy-efficient lighting systems Effective insulation systems. Energy Investment Allowance ( EIA) Page 9 of 14

13 Within three months of entering into obligations to purchase, an applying company must reported atnetherlands Enterprise Agency. Application procedure The application should be filed electronically at Netherlands Enterprise Agency (via e-loket): To be able to log in to e-loket a so-called e-recognition (e-herkenning) is required. E-recognition is a system for the government to verify the identity. An e-recognition can be requested via For the application for the EIA an e-recognition 1 is sufficient enough. Inf ormation Further information is available on the website of Netherlands Enterprise Agency Energy Investment Allowance ( EIA) Page 10 of 14

14 The 30% Tax-free Allowance The Netherlands has a special tax regime for expatriates, the so-called 30% ruling, which provides a substantial income-tax exemption (up to 30% ) for a period of up to 96 months. This is viewed as a reimbursement of the extra costs involved in living abroad. In addition, the employer may reimburse certain costs tax free. This includes international school fees, relocation expenses and a moving allowance up to a certain limit. Part of the income to which the allowance applies According to the rules, the employer may grant the employee a tax-free allowance up to a maximum of 30% of his taxable remuneration package. The State Secretary of Finance clarified the term remuneration as 'wage from current employment.' This means that incidental and flexible forms of income such as bonus payments and stock options are also included. Termination and pension payments, however, are excluded. Method of calculation Under the regulation, a split between the taxable and the non-taxable parts has to be made in the employment contract itself. In other words, the 30% tax-free allowance must be granted separately from the employee's salary. For example, if the gross annual salary is EUR 100,000, it is no longer allowed to pay out EUR 30,000 tax-free and subject the remainder to tax. The employment contract must state a salary of EUR 70,000, with an additional taxfree allowance of EUR 30,000. In most cases a standard wording is used to state this in either the employment contract or a separate appendix to the contract. For employees with net salary contracts and irregular payments, it is difficult to determine exactly the non-taxable part of 30% on a monthly basis. It is therefore allowed to determine and pay the exact tax-free reimbursement on a calendar basis. Ruling and pension It is not possible for an employee to build up pension rights under a qualifying plan in the Netherlands (and social security benefits) regarding the tax-free allowance. This has an effect on employees who had a pensionable base equal to their full gross salary. Employees who have been granted the 30% ruling may only build up pension rights on the taxable part of their salary. In case this is unwanted, there is way to avoid this, although some legal formalities and special documents are required to be set-up by the employer. Extra-territorial costs The 30% -ruling is a practical solution for the employer to tax-free reimburse all individual costs linked to the employee's additional higher costs for working in the Netherlands compared to their home country, the so-called extra-territorial costs (instead of keeping all receipts of the actual costs claimed by the employee). In a special Decree by the Dutch State Secretary, a further explanation of which costs, allowances and benefits in kind typically reimbursed or provided to expatriates, qualify as extraterritorial costs and which costs do not qualify. In case an employee who was hired or assigned from abroad to work in the Netherlands and the 30% -ruling was not obtained, it is possible to tax-free reimburse the actual extra-territorial costs to this employee. In case the 30% -ruling was granted to an employee, all extra-territorial costs, reimbursed in addition to the maximum tax-free 30% -allowance, will be taxable and the 30% -ruling can be applied on these costs,. Effectively, only 70% of additionally reimbursed costs are taxable. International school fees Under the 30% ruling, the employee may receive an additional tax-free reimbursement of the fees paid for children to attend an international school. A school is regarded as an international school when: The education is based on a foreign school system, and The school in principle only accepts children of foreign employees. On the other hand, school fees paid personally by the employee are not deductible in the Dutch personal income tax computation. Therefore, from an employee point of view, it is advisable to have the employer reimburse the employee for school fees paid. In case the employer wishes to do this on a cost neutral basis,the salary of the employee can be reduced with the amount of the reimbursement by amending the described remuneration package in the employment contract (e.g. with an appendix to the employment contract). The 30% Tax-free Allowance Page 11 of 14

15 Relocation expenses/moving allowance The costs of moving as well as the costs related to the transport of the household effects as part of the acceptance of the employment or a secondment within the current employment are not considered extraterritorial costs as a result whereof these costs can - to a certain extent - be reimbursed tax free. The actual removal costs itself can be reimbursed, increased with a maximum amount of EUR 7,750. Period of validity of the 30% tax-f ree allowance The exemption is available for a period of 8 years (96 months). The new rules stipulate that continuously the tax authorities can request the employer to demonstrate that the employee still meets the conditions. In case the employee does not meet the conditions anymore, the 30% -ruling can no longer be used. This will be corrected retro-actively in time (if required). In case the employment in the Netherlands has stopped, the 30% -ruling will stop automatically at the same moment. As such, on any payments made after that moment the 30% -ruling cannot be applied anymore. The duration of any previous stay or previous period of employment in the Netherlands reduces the maximum grant period of 8 years. However, such a reduction of the maximum period will not take place if the expatriate has not (or only very limited periods) stayed or worked in the Netherlands during a 25 years preceding his most recent arrival date in the Netherlands. Conditions f or qualif ying In order to qualify for the 30% ruling, the following conditions must be met: The employer must make a reasonable case that the employee possesses specific expertise that is not available or scarce on the Dutch labour market; The employee (board members and supervisory board members also qualify for the 30% ruling) must be recruited from abroad; The employer must be a Dutch wage tax-withholding agent. If the employee has a Dutch resident employer (Dutch corporation or branch of a foreign corporation) this condition is usually met. If the employee has a foreign based employer which has no taxable presence in the Netherlands, it will be required that the employer has one or more employees working in the Netherlands, carries out payroll administration in the Netherlands, and has registered as a withholding tax agent with the tax inspector. In addition, the employer and employee have added specific wording in the employment contract, under which the 30% ruling, once granted, can actually be implemented (this also implicates that the employee is aware that the 30% ruling reduces his gross salary). Changes as of 1 January 2012 As of 1 January 2012 the qualifying rules for 30% -ruling have changed. The following amendments have taken place regarding this: The maximum grant period of the 30% -ruling is reduced to 8 years (used to be 10 years); Instead of based on one's personal specific expertise (combination of education, experience and specialised skills), the requirement to evidence that an employee has specific expertise will be based on a minimum taxable employment income (salary); Employees living within a 150 kilometres radius form the Dutch border, can no longer apply for the 30% - ruling; University doctorates living in the Netherlands and starting their employment activities in the Netherlands within 1 year after obtaining their PhD are exempt from the general requirement to be assigned/hired from abroad to obtain the 30% -ruling; In case an employee does not fulfill the conditions at a certain moment during the grant period, the 30% -ruling will be no longer available as of that moment. The Dutch tax authorities may find out in a later stage that this was the case and will then retroactively collect the payable wage withholding tax by issuing an additional wage tax assessment. Transitional rules apply to employees with employments started in the Netherlands before 1 January 2012 and who already obtained the 30% -ruling. Specific expertise To evidence that an employee has specific expertise is based on a minimum taxable employment income level. This The 30% Tax-free Allowance Page 12 of 14

16 level is set at EUR 35,000 (including the tax free 30% allowance this means a minimum gross employment income of EUR 50,000). For masters (MSc) and doctorates (PhD) younger than 30 years, a lower minimum salary level is required: EUR 26,605 (gross EUR 38,007). For scientists and researchers no minimum salary level requirement is applicable. For all employees the general rule remains applicable that their specific expertise is not available or scarce on the Dutch labour market. Recruited from abroad In principle, the employee must be recruited from abroad. An exception to this requirement is made if the employee changes from one domestic employer to another, provided that the employee still meets the other conditions of the ruling in his new employment and that the new employment is accepted within three months after the termination of the old employment. Wage tax-withholding agent In the following situations, there is a Dutch withholding agent for wage-tax purposes: The employee is employed by a Dutch company (e.g. on the payroll of a BV, NV or any other Dutch corporate entity); The employee is employed by a foreign company, that has a (deemed) permanent establishment in the Netherlands; The employee is employed by a foreign company that does not have a (deemed) permanent establishment in the Netherlands, but the Dutch tax inspector considers the foreign employer a wage tax-withholding agent upon notification by the foreign company. In order to make optimal use of the 30% ruling, it is necessary that all the employee's remuneration items taxable in the Netherlands (including items that are paid from abroad, such as bonuses) are taken into account in the Dutch payroll administration. Application procedure The application for the 30% exemption should be filed within four months of the date of the employee's arrival in the Netherlands or start of his Dutch employment activities. If the application is not filed within four months, the 30% ruling becomes effective as of the first day of the month subsequent to the month in which the application has been filed. The request, jointly made by the employee and the appropriate wage tax-withholding agent, must be filed with the tax authorities in Heerlen. Belastingdienst Limburg/kantoor Buitenland Unit A BKB3/30% Postbus 2865, 6401 DJ Heerlen Phone: +31 (0) The State Secretary of Finance allows the 30% tax-free allowance to be applied in the salary administration before the ruling has actually been granted. If the ruling is not granted, no taxation of the allowance will take place if the wage-withholding agent can prove that it still concerns a reimbursement of extraterritorial costs, or if the reimbursement is paid back immediately by the employee. Resident or (deemed) non-resident taxpayer status The Income Tax Act allows the Ministry of Finance to set rules to grant an employee, who is a resident taxpayer of the Netherlands, the right to choose to be treated as a "deemed non-resident" for the entire 8-year period of the ruling for Box 2 and Box 3 taxations. As a consequence, the employee is subject to Dutch tax on specific sources of income and wealth only (e.g. worldwide employment income, Dutch real estate). Under the 30% ruling, the choice to be treated as a deemed non-resident can be made from year to year (i.e. it is possible to elect to be treated as a deemed non-resident in the first year and in the subsequent year as a resident taxpayer). Also, the employee is entitled to personal deductions in Box 1 (such as for mortgage interest and alimony payments) even if the election for deemed non-residency has been made. The guidance on the 30% ruling states that the choice to be treated as a deemed non-resident can be made when filing the annual Dutch income tax return for the tax year in which the employee is requesting deemed nonresident status. The 30% Tax-free Allowance Page 13 of 14

17 NFIA worldwide NFIA Europe The Hague London NFIA North America Washington DC New York Boston Chicago Atlanta San Francisco NFIA China Shanghai Beijing Guangzhou Chongqing NFIA T aiwan NFIA Korea NFIA India New Delhi Mumbai NFIA Singapore NFIA Malaysia NFIA Middle East & T urkey Dubai Tel Aviv Istanbul NFIA Brazil