Cabinet could burn expats and scrap 30% income tax break to plug budget hole

The complete elimination of the 30 percent ruling is among several proposals the Cabinet is considering for its upcoming update on the budget as the political leaders look for ways to plug a 10 to 15 billion euro shortfall. Known as the Spring Memorandum, the document provides an update on government spending and revenue. It must be submitted to the Tweede Kamer by June 1, with debate usually held by early July.

Soaring levels of inflation and increased defense spending, spurred on by the war in Ukraine, have dented the Cabinet’s ambitious plans to press ahead with more tax relief measures. The Cabinet has also offered some relief to the public to compensate for high inflation, including cuts to taxes on petrol, diesel, and natural gas.

The Dutch treasury will also have to repay billions of euros to citizens after the courts ruled the government inappropriately taxed people for their assets. Additionally, the members of both Houses of Parliament want the Cabinet to continue to link increases in state pension payouts to minimum wage increases. Though Rutte said last week that the economy is doing well in many ways, the shortfall in tax revenue means other plans will be delayed or disappeared, according to broadcaster NOS.

On the chopping block is the 30 percent ruling. This allows people earning at least 39,476 euros, who were recruited abroad, to keep 30 percent of that income without paying tax on it to compensate for the relatively high cost of living in the Netherlands. Those under the age of thirty with a master’s degree have to meet a lower annual wage standard of 30,001 euros, while the amount of income is not relevant for some scientific researchers and trainers.

This tax benefit used to be granted to qualified workers for a period of eight years. That duration was cut to five years back in 2019.

Businesses may end up paying a higher corporate income tax. For this year, companies were supposed to pay 25.8 percent on all profits from 395,000 euros, and 15 percent on all profits below that threshold. Last year, the 15 percent rate only applied to the first 245,000. According to NOS, that 15 percent rate could continue with the lower limit.

Significant shareholders in limited companies may also have to take a taxable salary in line with market rates, NOS reported. This would effectively increase their direct taxable income, and potentially cut their ability to keep money in their business. They could also wind up paying more tax on indirect earnings.

The fourth Cabinet of Prime Minister Mark Rutte is a coalition of his VVD, Finance Minister Sigrid Kaag’s D66, Foreign Minister Wopke Hoekstra’s CDA, and ChristenUnie, led by MP Gert-Jan Segers.