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Netherlands: Belgian Employees May Lose Tax Deferral

(Dec. 30, 2011) The second chamber of the Dutch legislature recently approved changes to the conditions that apply to the “30% rule,” whereby employees of foreign companies operating in the Netherlands are allowed to defer 30% of their salary from payment of Dutch taxes. Employees of Belgian companies who work in both Belgium and the Netherlands, as well as employees of those companies stationed in the Netherlands, are among those who have benefitted from the tax exemption. The rationale for the rule is the assumption that the costs for the foreign employees of working in the Netherlands amount to that percentage of their income.

Under the amended rule, the duration of the tax exemption has been reduced from ten years to eight, and the salary threshold has been cut to €50,000 (about US$65,000) from €72,000 (about US$94,000). Furthermore, each time a worker stays or is employed in the Netherlands within a 25-year period will count to reduce the duration of the exemption. (The Dutch 30 % -Rule: Change for Belgium, THE LEGAL 500 (Dec. 2011).)

In addition, there will be a new “kilometers test.” If the employee does not demonstrate that he or she has lived for at least 16 of the 24 months before the employed period at least 150 kilometers from the Netherlands, the 30% rule cannot be invoked. This last change means that most Belgian workers in the Netherlands will not be able to benefit from the tax exemption. (Id.)

The changes become effective for all new applications for the exemption submitted beginning on January 1, 2012, but have implications for those currently benefitting. If an employee has less than five years of eligibility left, the tax authorities in the Netherlands will evaluate the situation in the fifth year and may apply the kilometers test at that time. (Id.; for more detailed information in English on personal income tax in the Netherlands, see René Offermanns, Netherlands – Individual Taxation, International Bureau of Fiscal Documentation online subscription database (Aug. 15, 2011) [the 30% rule is discussed in § 7.2.1].)