The Dutch parliament approves increasing taxes for expats

By Moustafa Daly

Starting January 2024, highly skilled foreign workers in the Netherlands may start paying more taxes.

Approved by the Dutch House of Representatives, new legislation proposes to limit a preferential tax regime that gives skilled foreigners tax breaks on 30% of their income for a total of five years. It is known in the country as the “30% scheme.”

The bill now needs the Senate’s approval, set for vote in late December, before it’s adopted.

“This was an initiative from the parliament,” Jeroen Maas, lawyer and partner at Delissen Martens, tells Uglobal.

With this bill, the Dutch legislators aim to increase tax revenue to pursue important national goals. “The parliament decided to decode the limit to 30% for expats in order to create more resources for other goals such as lowering the interest rate on student loans,” Maas says.

What are the changes to the 30% tax scheme in the Netherlands? 

The new legislation aims to maintain the 30% tax-free income for foreign workers for the first 20 months of starting employment or work in the country. Afterwards, the percentage of tax-free income would be lowered to 20% for the following 20 months, and then lowered once again to 10% for the remaining 20 months.

The 30% scheme is applicable to foreigners earning at least €56,000 a year, while expats under 30 years old with a master’s degree could apply if they earn €43,000 or more.

The changes include a transitional period for those already on the scheme. However, it’s yet to be fully finalized. It also introduces an upper salary limit of €223,000 per year.

Also, applicants must be able to demonstrate expertise in a scarce field for more than 16 months prior to starting work in the Netherlands.

Amidst a growing skills shortage across advanced world economies, the bill could have a negative impact on the Netherlands’ ability to attract skilled migrants when enacted.

“The decision could definitely backfire if it causes expat to not move to the Netherlands or companies leaving the Netherlands,” cautions Maas.

Why is the Netherlands lowering tax incentive for foreigners? 

Restrictions on the scheme started in 2019, when the 30% scheme was made less appealing by reducing the period of partial tax-free income for foreigners from eight to five years.

Launched after World War II, the scheme initially focused on attracting U.S. companies and skilled labor, especially in specializations that are in shortage. Locals came to perceive the scheme as ineffective as it only measures an expat’s contribution to the economy by their income package, not always an accurate indicator.

On the other hand, it gave expats more disposable income, which they channeled into other investments including real estate.

“The tax scheme has become unpopular for Dutch citizens due to the effect on the housing market,” reveals Maas.

Is taxing expats the trend du jour in Europe?

Netherlands is only the latest country in Europe to consider increasing taxes for foreigners.

In the past few weeks, Portugal announced its intention to move towards scrapping its NHR tax regime, which is considered a major attraction for digital nomads and entrepreneurs. The government announced it will propose amending it in 2024, citing it is unjust for locals to have to pay normal rates while foreigners get preferential treatment.

Just last week, the Italian government followed suit by proposing to amend the ‘Lavoratori Impatriati,’ which gives expats and returning Italians tax breaks for periods up to 10 years. The government there is proposing limiting the tax reduction to 50% of the income instead of the current 70% to 90%.

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