vrijdag 18 november 2011

Changes 30% ruling adjusted by Lower House

#30% ruling less adjusted, lower salary requirement.

On November 17 the Lower House voted about the proposed changes in the 30% ruling. As stated in previous postings I expressed my concerns about these changes. Good news is now that the biggest change, the salary requirement, is revised as such that much less expats will lose or will be excluded from the ruling.

What were the original proposed changes?
  • A minimum salary requirement of € 50,000 per year (excluding the 30% allowance) will be introduced. This means that the gross salary would be € 72,000. This requirement should replace the education and work experience check.
  • Incoming employees must have stayed outside the Netherlands in a period of 25 years before arrival in the Netherlands. This was 10 years.
  • Incoming employees must have lived more than 150 km from Dutch border before the work in the Netherlands commences.
In close contact with politics, together with expat centers and international businesses and through media exposure Expatax has repeatedly expressed our concerns about the consequences the changes could have for the Dutch economy. Especially the required minimum salary, in practice higher than the required salary for the knowledge migrant ruling, would exclude thousands of expats from the ruling,  possibly leading to the consequence that international companies would leave the Netherlands. This could cause more economical damage than what would be saved with reducing the claim on the ruling.


Politicians were not deaf for our pleads. Amendments were proposed and some of them have been accepted. Lower House has voted and the following changes are approved.

Which changes have been approved by the Lower House?

The minimum salary will be adjusted in line with the knowledge migrant ruling. This means that the salary required will be reduced to € 35,000. Including the 30% allowance the gross salary should than be € 50,000. Scientists and researchers working at universities and knowledge organizations will be exempted from the salary requirement. For young masters below the age of 30 the salary requirement will be € 26,000.

To be able to financially support this adjustment the maximum term of the 30% ruling will be reduced from 10 to 8 years. This adjustment will only affect the new applications. Knowing that the 30% ruling was introduced to cover the extra territorial costs related to a temporary stay in the Netherlands this adjustment seems fair. Countries around us use an average maximum term of 6 years, so the Netherlands are still more generous.

The proposed changes concerning the 150 km distance from Dutch border and the increase in length of the stay outside the Netherlands from 10 to 25 years have been approved. Additional regulations are created to prevent abuse. I still have doubts about the distance requirement which could work out very unfair in specific situations, but that is something which must be worked out in the jurisdiction.

Additional comments have been made:
  • The text of the ruling will be adjusted as such that in case of change of employer it is relevant that an employment contract is signed within 3 months after the employee left the previous employer. Currently the ruling states that the work activities must be started within 3 months. The Supreme Court already ruled in the past that the idea behind the ruling is that a new job must be found within 3 months even though the work starts later than 3 months. So with this adjustment the text will be more in line with this decision from the Supreme Court. 
  • The ruling should stop when the work activities end. Currently the ruling is also applicable on for example options which are paid out within the maximum term of 10 years but at a time when the employee already left the company. The Supreme Court is currently dealing with a similar case, we are waiting for the outcome. 
  • Currently the ruling is guaranteed for the first 5 years of the employment contract. This will no longer be applicable from January 1, 2012 for new applications. From that date the ruling will be ended from the moment that the requirements are not met anymore. 
Transitional regulation

As mentioned in previous blogs the changes will not immediately affect the current granted rulings. The security of the first 5 years period will remain applicable for rulings which are granted with a start date before January 1, 2012. So if an employee has the ruling already for more than 5 years on January 1, 2012 he will fall under the old rules as long as he doesn't change employer. If the period ends after January 1, 2012 the salary requirement becomes applicable and also the distance requirement. The changed requirement concerning the period of previous stay will only affect new applications.

Conclusion

So determine whether the current salary is high enough, whether the transitional regulation is applicable and what needs to be done with regards to employees who lived within 150 km of the Dutch border when the work in the Netherlands started less than 5 years ago.

The Upper House also has to vote about the changes, but I don't expect that anything further will change. 

Still a lot to think about. Expatax can of course assist you. Expatax has extensive experience with the 30% ruling and assists many international companies with their payroll administration in the Netherlands. If you have any questions please check our Knowledge Base on www.expatax.nl/faq through which you can also contact me. 

donderdag 10 november 2011

Should the 30% ruling only remain for foreign CEO's?

@FransWeekers: "I do not want a salary ceiling for the #30% ruling because that would drive the head offices of multinationals out of the Netherlands".

Now I have lost it...

Let's go back to what he previously said.

"I do not want that a person who is living within 150 km's of the Dutch border will get the 30% ruling because this person will not have extra territorial expenses. The reimbursement of extra territorial expenses is the reason why the 30% ruling was created".

Well, he has a point there. No extra territorial expenses, means no reimbursement, fair enough. The changes he proposed are not the right changes though in my opinion but I have already made my point about this in earlier blogs.

So he said, the 30% ruling is granted so that the extra territorial expenses can be reimbursed. We do require a minimum salary, but not a maximum salary. But if the reason behind the 30% ruling is to cover the extra territorial expenses, why would that reason not be applicable in the case of a CEO? Of course a CEO has extra territorial expenses too. But let's say that the CEO receives a salary of
€ 2.000.000. He would then receive a tax free allowance of € 600.000. As if a CEO would have twenty times higher extra territorial costs than an expat with a salary of € 100.000. Will a CEO visit his family more often than a manager? Will this CEO need to live in a property with a monthly rent of
€ 40.000? I doubt it.

With the 150 km requirement the State Secretary said that it has a certain roughness in it, which means that it can exclude people from the 30% ruling which would otherwise have gotten it. What is the difference between 150 and 148 km, especially if the person living 148 km from the border is working 350 km away from home? Why not look at the distance between home and work instead of the distance from the Dutch border? Too bad, that is just the roughness in the figure of 150. The same roughness sees on the percentage of the ruling. It used to be 35% but in 2001 it was reduced to 30% due to the reduction of the tax rates in 2001. 30% is also a rough figure. If it is not enough the employer is allowed to reimburse the real expenses instead. But if it is too high nothing is done. That is the roughness, which must be there to prevent that everybody still has to proof their real expenses. But that doesn't mean it will always be fair. Reasonable costs do not increase with salary.

Money needs to be saved now due to the economic crisis. That is fair enough. Everybody has to help fighting the crisis. But it looks now as if the knowledge migrant with a salary of € 60,000 per year has too pay because he will lose the 30% ruling, but the CEO with a salary of € 2.000.0000 won't notice anything.

The State Secretary uses the same argument which was used to defend the bonus culture within multinationals. In the mean time measurements have been taken to prevent high bonuses. By using the same argument again with respect to the 30% ruling the idea is given that nothing has been learnt.

One other comment. One of the reasons the discussion started was due to the fact that two board members of Philips with the Dutch nationality have the 30% ruling. The previous CEO of Philips had the Dutch nationality. Weekers does not want to create problems for a multinational when they want to hire a CEO from abroad. Unless of course the CEO is Dutch and has been living outside the Netherlands only for 17 years. So he makes it more difficult for Philips to attract a Dutch CEO from abroad than a foreign CEO. Makes no sense to me.

The salary requirement should be lowered, it will now affect too many knowledge migrants in the Netherlands, while on the other hand a group is not affected at all.

Expatax is fighting against this salary requirement and wants it reduced and has combined forces with the municipalities of Amsterdam, Rotterdam, The Hague, Brainport Eindhoven, Expatcenters and international companies.

donderdag 3 november 2011

Will expats lose their job at ING?

Are #expats at #ING facing possible #redundancy?

Today ING has indicated that they are going to reduce their workforce with 2,700 people. 2,000 of them will be full time jobs within the company, the other 700 will be external employees who are posted at ING.

Reasons for this decision are:

- changing economic and financial environment
- reduced demand for mortgages
- stricter rules for the banking sector which require cost reductions

The sector itself also made it more difficult to get a mortgage. They have tightened the rules too. So it is not strange that the demand for mortgages has reduced. Therefore the reduced amount of work is a consequence of their own policy too.

It is easy to look at the changing economic and financial environment. But why not look at the possibilities? Act as an entrepreneur. Create business. Even the current rules give room for flexibility. Money should be flowing again and the economy grow. If banks sit on their money, the crisis can't be overwon. Instead of saving costs, the focus should be on making a profit. Profits which can be made by lending out money, as a mortgage or as a loan to companies. Otherwise it will become a negative spiral.

Many of the external employees posted at ING may be expats. We should keep these expats in the Netherlands. This is the wrong signal.

The reorganisation should be finalized at the end of 2013. Hopefully the reorganisation will not have to be finalized but can be stopped in the mean time. But if you do become redundant look at the options you have. For more info see www.expatax.nl/redundancy.

woensdag 2 november 2011

Expats face lower net income due to higher income related contribution Health Care Insurance Act 2012

In 2012 the ceiling for the income-related contribution Health Care Insurance Act (ZVW) will increase.

Employers are hardly prepared for the increase of the contribution.

Employees who earn more than around € 36,500 per year will be faced with considerably higher health care costs next year, which can increase with € 500 per year. Also employers can be confronted with much higher costs. Particularly at companies where remunerations are high. They must take into account an additional claim for health care contributions of up to 35% compared to 2011.

Income-related contribution

Employees pay a flat-rate nominal premium every month. Besides that also an income-related contribution is owed, however this amount is reimbursed by the employer. Since the employer pays it for the employee it is treated as a taxable benefit and therefore wage tax is calculated on this contribution. The wage tax is taken from the gross salary the employee earns. The income-related contribution is based on what the employee earns, whereby an income ceiling applies of
€ 33,427. The cabinet has decided that this ceiling will be increased to € 50,056. Since 2006 the maximum income-related contribution per person has increased by 33% (the increase for next year included).

Companies where most of the employees earn more than € 33,427, can see the health care costs increase enormously. The higher ceiling has an irrevocable impact on the purchasing power of the employee and therefore also on the salary negotiations. Many companies have not yet considered this. Currently the contribution is 7.75% of the income. That percentage goes down next year to 7.10%, but due to the higher ceiling many employees will nevertheless feel this change in their pockets.

Example of the consequences for an employee

For an employee who earns € 70,000, the income-related contribution currently is 7.75% of € 33,427 which is € 2,590 on an annual basis. Based on a tax rate of 52% it will cost the employee
€ 1,347. Next year the contribution will become 7.1% of € 50,056 euro which is € 3,554 euro on an annual basis. Based on a tax rate of 52% this will cost the employee € 1.848. Although the percentage goes down, the net income of the employee will therefore be reduced with € 501. Only if the income is below € 36,500 the employee will benefit. However most expats will be earning more than this amount. 

Example of the consequences for an employer

For the employer the costs of an employee with a salary of € 70,000 will increase with almost € 1,000 per year. When a lot of employees earn more than € 50,056 this can lead to high additional costs. Especially if the involved employees want to see the reduction of their net salary covered by the employer. However if most of the employees earn less than € 36,500 the employer may benefit of the lower percentage.

Conclusion

Both employer and employee should be aware of the possible higher health care contribution in 2012.

dinsdag 1 november 2011

Answers to questions about the proposed changes to the 30% ruling

The State Secretary of Finance has answered questions from political parties about the proposed changes to the 30% ruling. For me the answers are very unsatisfactory. His answers indicate that he will not adjust the proposed changes. Below I will discuss the questions and the anwers from the State Secretary. My comments will be between the answers. I hope it is clear which part the State Secretary said and which part is  my opinion. But to confirm, I basically disagree with the State Secretary and believe that all proprosed changes should not be accepterd.

What are the consequences for the knowledge migrants with specific expertise who don't reach the required salary level? What is the unwanted use of the ruling for which the salary requirement is introduced? What will be the consequence for the number of knowledge migrants who will come to the Netherland? Can you measure specific knowledge based on salary?

During time usage of the 30% ruling has grown. In 2002 32,000 employees got the 30% ruling, in 2009 this had grown to 40,000 employees. Seems good to me, The Netherlands seems to attract more knowledge workers. No says the State Secretary, the number has grown due to the infestation of the term "specific expertise" in practice, also due to court cases about this. There is no information given about the court cases. Why is the practice not changed? Something seems to go wrong, but instead of changing practice the State Secretary just decides to change the rules. He states that the ruling is granted to employees who don't have an higher education but an "average" education. The ruling is granted to employees who don't have the specific and scarce knowledge and experience which the ruling aims to reach. Ah, so either the requirements are not right or the requirements are not checked properly. But it seems to difficult to change the requirements so just an income requirement is introduced. As if somebody with a high salary immediately has specific and scarce expertise. Why not adjust the education requirement? In the past the requirements were created as such that there was room for discussion. The Supreme Court confirmed this and stated that the rules leave room for interpretation which meant that not all requirements had to be met but that one had to look at the "overall picture". So a shortage in education could be compensated with a long relevant work experience. Same with football players. Many of them focused entirely on football and not on education. Now it is assumed that the many years of strict training can be seen as education on higher level. So for football players exemptions are made. Exemptions like this make the system fall apart. Be strict about the requirements and it will all work fine. Change the rules as such that all requirements must be met. But this seems to be too difficult. A salary requirement will make it all simple... Frightening that our government doesn't understand its own rules anymore.

The effects of the salary requirement will be small according to the State Secretary. Instead of using the 30% ruling an employer can also reimburse the real extra territorial expenses. As if an employer can just push a button so that the calculations are made immediately, are the same for each incoming employee and also cost neutral for the employer. The 30% ruling is now part of the total package offered to the employee, if the real expenses are reimbursed then this reimbursement will be paid on top of the agreed salary. So it will cost the employer more. Or the reimbursement will be part of a so called "cafetaria system". But an employer nor an employee will know upfront what the extra territorial expenses will be. These costs can show up suddenly. How should an employer deal with this? Especially since any reimbursement must be based on a receipt showing the payment or based on publicly available information. At the moment the agreed salary is reduced to 70% in the employment contract with a top up with the 30% tax free allowance. Once the tax free allowance is removed the employee will not accept the 70% salary anymore since he will never know in advance what the real extra territorial expenses will be. Also a company pension is linked to the taxable salary. So if the taxable salary goes up due to this, also the pension base will be higher leading to higher pension premiums. Another cost for the employer. So more costs and more work for the employer, higher salary demands from the employee and the State Secretary just says that there will be no effect. But isn't that the standard reply from the Dutch government: there is no problem, don't worry nothing will change.

What is the unwanted usage of the 30% ruling?

The State Secretary doesn't want that persons who left the Netherlands just more than 10 years ago can come back to the Netherlands and claim the 30% ruling (again). Although it would be discrimination to exclude Dutch nationalities from the ruling he confirms that the unwanted use sees on people who were born in the Netherlands. Once born in the Netherlands, the Netherlands is your home country and coming back to your home country will not lead to extra territorial expenses. As if somebody could not have changed his live in such way that another country has become the new home country. What if a Dutch person is married in the US, has worked there for 15 years, got children there and is transferred by his US employer to the Netherlands to work here for 3 years? The State Secretary now states that the Netherlands are still his home country, he will not have extra territorial expenses and therefore should not get the 30% ruling. Irrelevant is that he will have a property in the US, family in the US etc. Proposed change to reach this is to change the period of stay outside the Netherlands from 10 to 25 years. Just a way to convince Dutch employees working abroad not to come back to the Netherlands.

What may happen? Employees are transferred to a company within the group which is based in for example Belgium instead of the Netherlands. These employees will also work for the entity based in the Netherlands but will not be on a Dutch payroll. So these employees will stay out of the Dutch system, will pay tax and premiums social security in Belgium and use the expat benefits there. In this situation the Netherlands will not get anything anymore, even less if the Belgium entity invoices the Dutch entity for the income. Ok, this may not be according to the rules, but one knows that employers can be (and are) inventive and it is clear that the tax authorities will not be able to check everything especially since their workforce will be reduced. It is not that I support these actions, totally not, but in an international environment companies may be willing to take the risk.

Other unwanted usage is the use of the 30% ruling by employees living just across the border. If these employees will not relocate they will not have extra territorial expenses and therefore they should not get the 30% ruling. That is a point, however it is not common for every employee to go working in another country, not even if it is not far away. Looking at the Dutch law which will become applicable, the high tax rates etc. employees on a higher level may not be very convinced to come to the Netherlands. But as said, the State Secretary has a point here. However the change can work out unfair. The proposed distance from the Dutch border is 150 km. This means that the entire UK is safe, there is only a very very small part of the UK less than 150 km away from a point in Zeeland. Was it done on purpose? On the other hand entire Belgium will be affected. All places in Belgium are less than 150 km away from Dutch border. What if an employee is living in Brussels, but works in Groningen? Distance is over 300 km. So this person will have to arrange a place of living in the Netherlands and be confronted with double costs, but he won't get the 30% ruling. Brussels-Amsterdam is also more than 150 km. Looking at traffic, employees may decide to stay in Amsterdam or use a plane to travel to Amsterdam. Extra costs just because of moving between the two capitals. Still no 30% ruling. Consequence: Philips or ASML in Eindhoven, the brainport of the Netherlands, may not be able to attract Belgium employees or DSM may not be able to attract German employees from the Ruhr region anymore.

I have placed more comments later in this blog.

What is the usage of the ruling?

Number of 30% applications granted

2002: 8,000
2007: 10,407
2008: 13,124
2009: 10,967
2010: 11,233
2011: 8,093 (Q1+Q2+Q3)

2002 seems an estimate to me, I wonder whether it is accurate. If you compare figures this should not be done if a figure is not certain.

Main groups who got the 30% ruling in 2011

Job rotation: 1,143
Topmanager: 129
Scientist: 619
Know-how: 2,818
Productspecialist: 379
Teacher international school/employee international organisation: 17
Diverse (sporters, artists, pilots): 37
Others: 2,951

Total: in 2011: 8,093

It is not known how this will look like once the changes take effect. This is or can't be investigated.

Also the budget effects are provided but I will not discuss this here. Question is whether the savings will be reached. Negative budget effects are not given. So only positive news is given, not the bad news.

Why was the 30% ruling created?

The main reason for creating the 30% ruling is the positive effect it has to the Dutch establishment climate. It has been proved that the 30% ruling is highly appreciated by organisations and companies which want to establish itself in the Netherlands. Research of The Ministry of Finance proved that the 30% ruling is one of the most imporant elements of the Dutch establishment climate. The fact that the 30% ruling is of influence for the choice in which country a company is established is that other countries have introduced a similar ruling for expats in the mean time.

Research has shown that Belgium, France, UK, Denmark, Sweden, Finland, Portugal, and Austria have special tax rulings for expats. Of course they all differ. But they have benefits. All for a certain period, mostly shorter than the Netherlands though.

If the 30% ruling is so important and other countries have similar arrangements what would be the benefit of changing it to a less interesting ruling? The government agrees that it is very beneficial, so wants to make it worse. I don't understand. Only the expected saving is given, not the loss of income due to companies who will not come to the Netherlands anymore. This is very strange. Is this the "average" mentality in the Netherlands? Average is good enough. When something goes well we should adjust the rules so that it goes average?

What will happen with exisiting declarations?

Exisiting declarations will remain granted. But not all. An employee who reaches the first period of 5 years after 1 January 2012 will be confronted with the new requirements. At that moment, so the day the first 5 years passed, he must meet the requirements (except the 25 years period outside the Netherlands). Of course this needs to be checked by the tax authorities, but I assume the tax authorities will be instructed to perform these checks automatically. If the 5 years period passed before 1 January 2012 he will be safe, even if he changes employer after that. So if an employer has an employee who was hired on 5 January 2007 who currently has a salary of € 60,000, this employee will lose the 30% ruling on 5 January 2012 unless the salary is raised. Or if the employee was hired from Belgium. Short term action is then required.

How is the salary calculated looking at the salary requirement?

Salary will be the normal wage, plus depending payments like a bonus, profit share or commission. These depending payments are not known in advance, so question is how this will be calculated. Will someone lose the 30% ruling if it turns out at the end of the year that the required salary was not reached? Will the salary requirement be reduced pro rata if the employee doesn't work in the Netherlands the whole year? What if he works on different days, which change every week, while on the other days he works for the company in another country? His total salary will then be above the salary level, but the part in the Netherlands below the level. So by working in two countries a benefit is missed?

What will be the consequences for universities?

In general teachers, researchers and professors at universities earn less than what they could earn as an employee of a commercial company. Expected is that 85% of the employees of universities who currently have the 30% ruling will not get it anymore or lose it. This is somehow accepted. Only a lower salary requirement of € 26,605 is created for promovendi younger than 30. The period of promotion in the Netherlands will also not taken into consideration to determine whether he is recruited from abroad.

So a lower salary for young employees is introduced for universities but unlike the Knowledge Migrant Scheme this lower salary is not applicable for other employees as well, working for commercial companies or non-profit organisations/ Is this fair?

Is the 150 km requirement according to EU law?

The 30% ruling sees on employees. So relevant is whether the changes will not affect the free movement of employees within the European Union. Stated is that the 150 km requirement is not a direct discrimination based on nationality. With regards to indirect discrimination  based on nationality it is noted that the relevant article in the EU treaty was meant to prevent that foreign employees or treated less favourable than resident employees who had the nationality of that state. The changes will affect Belgian and German employees earlier than for example Italian employees. However the question should be asked whether the situation is equal which should be treated equally. The State Secretary has the opinion that the situations are not equal, saying that Belgian employees for example live so close to the Netherlands that they will not have extra territorial expenses. This is questionable. See my earlier comment. And what if an Italian employee is transferred to Belgium to work there for 6 months and then transferred to the Netherlands? He was staying in Belgium when he was transferred to the Netherlands so he will not meet the new requirements unlike he would have been transferred directly from Italy to the Netherlands. So it does affect the freedom of movement of employees within the EU.

On the other hand the State Secretary says that the 30% ruling is just an extra benefit which may be used if an employee comes to the Netherlands. So it favours the free movement of employees. Yes sure, but then the requirements should be the same for each person in the EU.

Is the 150 km requirement fair?

Well, 150 km is just a choice. It may not always be fair, but that's just what it is, according to the State Secretary. Yes, he is right, but he should provide better arguments.

Conclusion

The State Secretary has answered questions from political parties. My conclusion is that the answers were vague, not very specific and not really argumented. He admitted that the 30% ruling is very important for companies to decide whether they want to establish a branch in the Netherlands. Reducing the benefit will definitely hurt the establishment climate and affect the Dutch economy, long term. It is against the goal of the Ministry of Economy to make the Netherlands a real knowledge economy. Negative consequence are not calculated, only the possible savings. This is not a proposal our parliament should accept!

Expatax will keep fighting against these proposed changes.