Netherlands: Update on the 30% ruling and change in the share option tax regime

Update on the 30% ruling

The 30% ruling is a specific tax regime for foreign employees who meet certain criteria and who are temporarily assigned to, or hired from abroad by an employer in the Netherlands. When meeting certain requirements, 30% of the employee’s salary can be paid out as a tax-free allowance to cover extraterritorial costs. The 30% tax-free amount is considered to cover extra-territorial expenses, regardless of the actual costs incurred. In addition, the employee may, at their request, benefit from a tax treatment as a non-resident taxpayer regarding income from a substantial interest and income from savings and investments.

It is expected that the 30% ruling will be capped over a three-year period at the so-called Balkenende-norm. The Balkenende-norm is the maximum remuneration for executives in the public and semi-public sector. The Balkenende-norm is currently set at EUR 216,000 (2022). As a result, the 30% ruling cannot be applied to amounts exceeding this salary. Further details are yet to be published.

Change in the share option tax regime

Employee stock options in the Netherlands are currently taxed on the “spread”, which is the difference between the fair market value of the shares at exercise and the exercise price. In some cases, stock options are not marketable (i.e., not sellable) at the moment of exercise is particularly the case for start-ups. This may lead to taxation at a time when no cash is at hand, which is considered undesirable. Therefore, a change in the law is proposed with respect to the moment of taxation of share options for employees.

In this proposal, employees may opt to move the taxation date for employee stock options to the moment stock options are marketable. This would solve the issue of employees having no cash at the moment of taxation. As an overly long tax deferral needs to be avoided, stock option benefit is taxed no later than five years after the acquisition of the shares (of listed companies), or five years after the IPO (for initially unlisted companies).

If the Dutch Senate agrees to the proposal, it will enter into force on 1 January 2023.

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