Monday, November 14, 2011

Losing the Expat Gamble

As of this writing, we don't know exactly what's going to happen, but from my discussions with people, it looks like the government is reconsidering what I describe below. We still don't know what's going to happen.

When you decide to become an expat, you gamble. Some of us gamble and lose. In this case, the Dutch government is considering new tax rule regarding expats. The short version: many of us earning under €73,000 a year will be losing the 30% ruling if these rules go through. I'll explain a bit more about the 30% ruling to give you an idea of what's going on here. What's worse, they government has considered making the new rules retroactively apply to every expat who has arrived in the past five years.

Dutch Parliament in Den Haag (The Hague)
Photo from the Wikimedia Commons
The 30% ruling is a law which allows companies to (sort of) reduce our salaries by 30%, but then we get that 30% back tax free. For most immigrants who qualify, it means that your taxes are around 25% to 30% of your income. Given that the top marginal rate in the Netherlands is 52%, that's a huge tax savings. If you're a well-paid professional, the Netherlands is not be attractive for you if you don't get the 30% ruling.

Why does the Dutch government offer such a useful deal? The Netherlands has very high taxes and when the Dutch government is struggling to attract highly skilled labor, companies simply can't afford to pay that labor an equivalent amount as a country with lower tax rates. For example, the top marginal tax rate in the UK is 50%, but you don't don't pay that until you hit £150,000. Your top marginal rate is probably 20% or 40%, much less than the Dutch 52% which kicks in at €54,367. Plus, since you you have pay at least €90 a month per person for medical insurance in the Netherlands (it's included in the cost of your taxes in the UK), the Netherlands winds up being far too expensive for a typical expat to move to.

For example, using an arbitrarily chosen salary of 60K (comparing pounds stirling to Euro, so it's not entirely fair), you'll pay £16,520 in taxes in the UK compared to €24,198 in the Netherlands. Add in the costs of medical insurance for a couple and you're paying well over €26K a year! With the 30% ruling, you'd be paying a tax rate roughly what you'd pay in the UK, with the exception of the extra costs for medical insurance.

One of the reasons I was motivated to leave the UK was that they kept changing the laws regarding expats and people I knew who moved to the UK under their old laws were being told they had to leave. Now, because the Dutch government is considering applying these rules apply to all expats who've arrived in the past five years, you have people who have given up their lives to emigrate to the Netherlands, only to find out that the government has decided to effectively give them a huge pay cut.

So how can the government just take this away? Easy. Everyone likes to beat up the immigrants. We have no political power and populist politicians find us easy targets for people's anger. Now, while the Dutch government, like many, is struggling financially, they've found another source of revenue. If the Dutch government had simply said "this change effects new workers," people and businesses would have time to adjust. But by threatening to apply this to all skilled expats who've arrived in the past five years, they've created a mess, but probably appeased a bunch of locals who don't care about the financial hardship they're causing. What's worse, this is a short term fix which causes long term problems. Had the 30% ruling not been in effect, it's very unlikely I would have moved to the Netherlands. I've heard many other expats say the same thing.

So if you're thinking about moving to another country (and if you read this blog, there's a good chance you are), keep this in mind. It's a wonderful gamble, but it's still a gamble. You will probably have no political voice in your country and are at the mercy of politicians.