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Dutch Tax Exemption Rule Change Hits Expats

Opposition to the imminent changes to the Dutch 30% tax reimbursement scheme (see the Blacktower news feed) is growing. Now, VCP, the Dutch white collar workers' union, has joined the dissenters by calling for, at the very least, a transition period for expat workers who will suffer unwanted changes to their Netherlands wealth management plans as a result of the amendments.

It is easy to see why so many people find the timetable for the ruling so unjust; those affected could see their incomes reduced by around 20% once the ruling comes into force in under six months.

It could also result in unwanted damage to the Dutch economy, with real fears that it could deter expat workers from coming to the Netherlands in the first place.

"This measure will scare of expats who might come to the Netherlands in the future, which is bad for the exchange of expertise and bad for Dutch employment," said VCP leader Nic van Holstein.

"It also damages trust in the Dutch government," he added, referencing the fact that the Dutch prime minister had earlier appeared to discount any possibility of a rule change when he made the now infamous "A deal is a deal" pledge.

This follows the recent publication of an International Community Advisory Panel research paper which showed that the about-turn will damage the Netherlands' international standing while also leaving thousands of expats short of their wealth management goals.

An ICAP survey found that 56% of expats had suffered loss of trust in the Dutch government with a further 32% saying they will reduce their time living and working in the Netherlands as a direct result.

There has also been speculation that the rule change will result in numerous legal challenges against the government. "You can assume that there will be legal action," asserted one tax specialist.

Widespread opposition

As well as facing widespread opposition from business leaders, unions and of course expats, the changes to the 30% ruling have proved unpopular elsewhere.

The Netherlands' universities association VSNU has called for the proposals to be reconsidered, telling Dutch news outlets that the current system has been advantageous to Dutch education and Dutch universities. It warned that the best academics will be unlikely to extend their contracts beyond five-year periods.

Furthermore, a recent survey on change.org has called on the government to honour its tax commitments to expats. It is very close to securing the necessary 35,000 signatures.

Who will the tax change affect?

Unfortunately, and counter to many predictions, the reduced term of the 30% tax exemption will not only impact new expats; it will also be applied retroactively to those already resident and working in the Netherlands.

This means that if, on the 1 January 2019, you have already lived and worked in the Netherlands for five years, you will no longer be entitled to claim the 30% tax exemption. This is true whether you were receiving the eight-year exemption or the 10-year exemption. Everyone else who is receiving the benefit of the 30% tax ruling, will cease to receive benefit as soon as they reach their fifth year of entitlement.

Similarly, if you are about to begin work with a company in the Netherlands you will only receive the benefit for five years, while if you are switching jobs, your five-year period can run on into your new job but will expire five years from the date you began to receive it in your original Dutch job.

An opportunity to review your wealth management

If your Netherlands wealth management plans were reliant on the 10-year or eight-year ruling, you may now have to reconsider them. As such, it is likely to be in your best interests to contact your financial adviser so you can discuss how you should best optimise your long-term finances while also accounting for the new five-year limit to the 30% tax exemption.

The reality is that many expats will have based their tax planning, their education fee planning, their pension savings, their mortgage spending, and more based on receiving either 10 years or eight years exemption.

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