Evaluation of the 30% facility

At the request of the Ministry of Finance, the SEO Amsterdam Economics research institute undertook an evaluation of the extra-territorial costs scheme, the 30% facility and the partial foreign tax liability. Its findings are set out in the report "Kunde, kosten en keuzes" (which also includes an English summary).

Effectiveness of the schemes

The study showed that the 30% facility is effective because the scheme has a positive impact in terms of attracting highly skilled migrants and thus contributes to the Netherlands business climate for companies. The scheme is also effective in budgetary terms. On the one hand, the scheme reduces tax revenue because some of those using the 30% facility would have come to the Netherlands anyway without the 30% facility and would possibly have paid more tax. On the other hand, the scheme generates tax revenue in that some 30% facility users pay tax in the Netherlands because they came to the Netherlands due to the availability of the 30% facility. The tax revenue generated during the period of the evaluation was greater than the costs, with a nett contribution of around €128.5 million a year. This figure does not include indirect effects, such as increased spending which leads to more in turnover tax (VAT), more employment and higher salaries for other employees. 

About a quarter of 30% facility users also make use of the partial foreign tax liability. According to the study, the partial foreign tax liability does not appear to be effective in attracting high net worth knowledge migrants because most 30% facility users are not put off by a possible tax levy in Box 2 or Box 3. For most of them the tax benefit of the 30% facility is greater than the sum of the actually incurred extra-territorial costs and additional capital gains tax in the Netherlands. 

The effect of the extra-territorial costs scheme (hereafter ETK scheme) was also investigated. This scheme is mainly used in the temporary employment (temping agency) and agriculture sectors. The tax benefit of the ETK scheme is limited as an incentive because employment conditions in the Netherlands are considered attractive enough by migrant workers, even without the ETK scheme. The ETK scheme is not always used because of the high administrative burden which means that the scheme is only partly effective in covering actual expenses. 

Background to the schemes

The 30% facility enables employers to pay up to 30% of an employee’s taxable salary in the Netherlands tax free for five years. This fixed cost allowance is intended to cover the additional costs of living somewhere other than the country of origin (ET costs) without the necessity to substantiate the actual costs. 

The partial foreign tax liability offers employees the choice of partially or fully applying the rules for foreign taxpayers to their income subject to tax in Box 2 or Box 3. 

The extra-territorial costs scheme (ETK scheme) enables employers to reimburse tax free the actual extra-territorial expenses incurred due to a temporary stay outside the country of origin. Like the 30% facility, this scheme is intended to prevent business expenses being taxed as salary and to create a level playing field in terms of tax.

Expected effects of 30% facility curtailment 

The 30% facility has been changed since 2024 into a 30-20-10% scheme with a step-by-step reduction in the maximum untaxed allowance of 10 percentage points every 20 months. Alongside this, the partial foreign tax liability will be abolished from 2025. Under certain conditions there are transition arrangements available. 

It is expected that the inflow of knowledge migrants will drop by about 10-15% due to the curtailment of the 30% facility to make it a 30-20-10% scheme, and by about 40% when the 30% facility is abolished completely. In this context it is conceivable that the positions held by 30% facility users cannot all be filled from the domestic labour supply. The cutback in the scheme is expected to have an adverse effect on the level of investment by internationally operating companies in the Netherlands. The 30% facility also reduces the administrative burden for users and the Tax and Customs Administration, while the recent changes actually increase that burden. It is expected that users will switch to the ETK scheme when the percentages are reduced, especially at the step from 20% to 10%, leading to an increase in the administrative burden.

The study also indicated that the many changes to the 30% facility will have a negative effect on the business climate. The lack of predictability and stability constitutes a commercial risk for companies and therefore has an adverse effect on investment decisions.

The abolition of the partial foreign tax liability will have little effect on the arrival of highly skilled migrants, except for a small group of high-net-worth individuals. For the majority of employees (high net worth or otherwise) the tax benefit of the 30% facility is still attractive enough to come to the Netherlands, even after the abolition of the partial foreign tax liability.

A salary standard was introduced in 2012 as part of the expertise requirement. The study showed that this had a positive effect on the employment of knowledge migrants by providing certainty. Employers are also positive about the level of the salary standard.

All in all, an interesting study. It is now up to the Ministry of Finance to flesh out the Geerdink-Moonen motion (adopted by parliament). This motion calls for an alternative to the curtailment of the 30% facility to be included in the 2025 Tax Plan. The Tax Plan is presented on Budget Day so, if approved, measures can be introduced from 1 January of the following year.