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Netherlands

Report Warns that Cutting the 30% Ruling Could Harm Dutch Economy

Cutting the 30% ruling, a tax benefit for foreign workers with specialized skills not readily available in the Netherlands, is projected to reduce the influx of highly-skilled migrants by 15% to 20%, according to an analysis commissioned by the finance ministry.

Originally allowing eligible individuals to exempt up to one-third of their income from Dutch taxes for five years, the 30% ruling was found effective and efficient in a recent independent review by economic research bureau SEO. The report warns that the government’s decision last year to scale back this benefit will diminish the number of highly-skilled migrants and adversely affect the business environment.

The revised scheme now operates on a sliding scale over 60 months, with decreasing tax-free allowances (starting at 30%, then 20%, and finally 10%), which the report identifies as significantly more costly to administer than a flat rate. “A higher tax-free percentage attracts more highly skilled migrants, thereby enhancing the business climate and contributing positively to the economy,” the SEO report concluded.

While scrapping the benefit entirely would result in a 40% reduction in knowledge migrants, even the reduction will negatively impact various Dutch businesses, from startups to SMEs and large corporations. The report underscores that the positive impact of the scheme on attracting highly skilled migrants generates more in tax revenue than it costs, benefiting the economy overall.

Although the report did not quantify the indirect economic benefits of the tax break, it highlighted additional VAT revenue, job creation due to increased demand for services, and higher salaries resulting from knowledge spillovers. Furthermore, it emphasized the contribution of skilled labor to addressing societal challenges.

In 2022, approximately 110,000 individuals in the Netherlands (about 0.6% of the population) benefited from the 30% ruling, filling critical skill gaps and meeting other stringent criteria. These individuals are typically highly educated, under 35, childless, predominantly male, earn above-average incomes, and work full-time.

The report also dispels claims that the 30% ruling significantly inflates housing costs, particularly in cities like Amsterdam. It found that the impact on rental prices in Amsterdam in 2022 was minimal, contributing to a 0.9% increase in rents and a 1.8% increase in house prices, which is far less than the overall inflation rate of approximately 11% driven by other factors such as domestic tax policies and landlord practices.

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