The budget of the Dutch government for 2012 includes a bill introducing important changes to the 30% tax benefit ruling of the Dutch Finance Department. The changes represent important restrictions for budgetary reasons. The good news is for young foreign PhD students graduating in the Netherlands.

Dutch wage tax law has a general provision exempting actual extraterritorial expenses of temporary employment from abroad. However, to further stimulate highly skilled labour migration to the Netherlands, the Dutch Tax Service also applies a favourable tax regime to the Dutch payroll salaries of highly skilled employees with specific knowledge and experience who have been hired from abroad. Since 2001, Dutch employers of employees who have a 30% tax ruling granted can reimburse 30% of the taxable base of the employee's wages as a tax free reimbursement of deemed extraterritorial expenses. Until 1 January 2012, a 30% tax ruling is granted for a maximum of 10 years.

Thus far, this tax benefit has been an important incentive for expats to come and work in the Netherlands.

From recent communications between the State Secretary of Finance and the Dutch parliament, the following restrictions can be expected to rule applications for appliance of the 30% tax benefit filed from 1 January 2012 onwards.

• The bill introduces the minimum salary threshold for highly skilled migrants of 30 and over (in 2012: € 51.239 gross per annum) to principally replace the 'specific knowledge' requirement.

• So far, periods of living and working in the Netherlands in the last 10 years were deducted from the maximum grant of 10 years. From 2012 onwards, work and stay in the Netherlands for the last 25 years will be taken into account.

• As of 2012, a 30% tax ruling is granted for a maximum of 8 years.

• Anyone living within a 150 km zone from the Dutch (land) border will cease to qualify as 'having being hired from abroad'. By consequence, employees who lived in Belgium, western Germany, parts of Northern France and Luxemburg will be excluded from the benefit.

PhD students

On the other hand, the 30% ruling will be opened up for PhD students below thirty: if they have found an employer within one year from taking their PhD in the Netherlands, they will be deemed as having been hired from abroad.

MA graduates

Also, for master students who have taken their degree abroad and are hired in the Netherlands, the minimum salary threshold is set significantly lower: at € 26.931 gross per annum in 2012. This amount refers to the taxable salary, which means you have to add the tax free reimbursement to reach the actual salary level for a successful application (= € 38.472).

What will happen after 1 January 2012 to the rulings that have been granted in former years?

The question arises, because the Dutch Tax Service has and uses a full discretion to reassess a ruling after 5 years of appliance;

• Rulings granted over 5 years ago, will be respected for the remaining term.

• Rulings reaching 5 years of appliance after 1 January 2012 will be assessed again on the basis of the new criteria. Changing employers in the meantime will not change this.

• The 25 years deduction rule will only be applied to rulings for employment from 1 January 2012 onwards.