The 30% scheme: Tax allowance for foreign expats

Report | 18-05-2016

Conclusions

It is uncertain whether the 30% scheme is having its intended effect of (a) attracting ex pats who have specific expertise that is currently scarce in the Netherlands, and (b) improving the business climate in the Netherlands. The amount of the tax-free allowance (30% of gross salary) and the associated salary requirement have never been substantively explained by the State Secretary for Finance. It is also uncertain whether the measures the State Secretary took in 2012 to reduce the scheme’s cost have worked. The provision of information to the House of Representatives on the annual cost of the 30% scheme is also open to improvement. We drew these conclusions from the following audit findings.

Effectiveness of 30% scheme poorly examined

The State Secretary for Finance has never investigated whether the 30% scheme attracts employees with scarce expertise to the Netherlands or contributes to the business climate. He has also never investigated whether there are any negative effects, such as the crowding out of Dutch employees. The State Secretary has not studied whether other strategies could attract scarce expertise (at the same cost) or whether the business climate could have been improved in another way.

Scheme poorly substantiated on two key points

Only ex pats who are seconded to a job in the Netherlands with a salary of at least €36,889 (salary requirement in 2016) qualify for the tax-free allowance. The Ministry, however, has not determined how many employees actually earn more than this limit (roughly the modal income) or have specific expertise. The amount of the tax-free allowance (30% of gross salary) is also poorly substantiated. The allowance is intended as compensation for the additional costs foreign employees incur when living and working abroad. But the actual additional costs have never been calculated.

Uncertain whether intended saving has been realised

The State Secretary for Finance amended the 30% scheme in 2012. The changes were designed to produce a saving of €38 million in 2014 and a structural saving of €78 million per annum as from 2020. It is uncertain whether these targets have been achieved. In 2014, the scheme cost over €100 million more than in 2011. The intended saving therefore does not seem to have been realised but this is not certain.

House of Representatives does not receive frequent information on the budget for the 30% scheme

The House of Representatives received information on the budget for the 30% scheme in 2004, 2011 and 2016. It is not informed every year by means of the Budget Memorandum, the budget or the ministerial annual reports.

Recommendations

Periodically audit the impact and efficiency of the 30% scheme

We recommend that the State Secretary for Finance, in consultation with the Ministers and States Secretaries for Economic Affairs, and Social Affairs and Employment, periodically investigate the extent to which 30% scheme:

• attracts people with scare expertise to the Netherlands;
• contributes to the business climate in the Netherlands;
• rowds out Dutch workers.

The audit should also consider the level of the salary requirement and of the tax-free allowance. The State Secretary should periodically determine whether the same budget could be applied differently to attract people with scarce expertise or improve the business climate.

Inform the House of Representatives every year about the budget for the 30% scheme

We recommend that the State Secretary for Finance inform the House of Representatives every year about the budget reserved for the 30% scheme.

Response of the State Secretary for Finance

The State Secretary for Finance wrote that our comment on the lack of insight into the impact of the 30% scheme was related to its simplification in 2012. We pointed out in our afterword that there had also been inadequate insight into the scheme’s effectiveness before 2012.

Regarding the substantiation of the 30% scheme, the State Secretary noted that in most cases the level of the salary requirement was a good indication of scarcity and specific expertise. As a result, teachers at international schools and knowledge workers in sectors where salaries were slightly lower could also benefit from the scheme.

The State Secretary undertook to consider the 30% scheme as one of the policies that would be reviewed and evaluated under the Periodic Evaluation Regulations. He would also consider publishing the budgetary importance of the scheme in an annexe to the Budget Memorandum in future. In our afterword we expressed our appreciation of these intentions We assume that the evaluations will specifically consider the aspects we named in our recommendations.