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.


  1. These changes have a good chance of killing my ability to emigrate to the Netherlands. Of course I still have to get a job offer first. One thing at a time.

  2. I'd say that is a problem that can always affect anyone in a country, whether ex-pat or no.

    If a government raises taxes, or reduces some tax concessions for its citizens, then again that is similar to a "pay cut", as you put it.

    From the way you have described it, the 30% ruling sounds as though it gave an advantage to immigrants over citizens. This is something I cannot entirely understand. I can see why some countries (like Ireland used to do) offer foreign companies to set up with pretty much no corporate tax, as the idea is that at least the companies will provide work for many, thereby reducing the amount the government needs to pay out in welfare payments, and allowing the government to tax the earnings of the employees.

    However, taxing immigrants less than citizens would only make sense to me if one argued that a country is desperate for foreign workers to come and work in that particular country.

    So while I can see that it would be very annoying for anyone caught by this, I fail to see how it could be considered unfair- unless I'm missing something?

  3. @whiskeylover: the Netherlands is desperate to foreign workers to come and work in their country. In particular, they're trying to attract highly skilled workers since they don't have enough of a domestic supply to meet the demand. That's why the tax incentive is there. Many expats have told me they're going to try and leave if this passes because they simply can't afford to stay.

    And of course it's unfair: don't tell me to come and accept a lovely position and after I move to your country you decide to change the rules of the game so dramatically. It's called a bait and switch and in many cases, it's considered fraud. Note that when governments do this to their own citizens, there's a big difference: in theory, those citizens can vote and have a say in the political process. That tends to prevent politicians from making changes which are too drastic. For immigrants, we have no voice.

    I cut out some of the data from the above post on the theory that people's eyes would glaze over on tables, but I know people who will stand to lose €1,000 a month or more and have absolutely no say or influence in the decision. Why tell them to move to the Netherlands on the basis of paying a tax rate comparable to what they would find in other countries and then take away the enticement you offered?

    If it wasn't such a blatant bait-and-switch, if it didn't cost me such a huge amount of money, or if I could vote and actually had a say in the matter, I wouldn't be so mad about this. Right now, businesses and city councils are fighting hard to stop this because it stands to really hurt the country economically when businesses find out they're no longer competitive on the international marketplace when they're trying to hire people.

  4. Oh my God. That's a suicide move. As expat living in Norway, I can totally understand your points.

    It totally sucks that you have been doing a great job with this blog at promoting your company and the Netherlands and you get back this surprise...

    Good luck with that.

  5. I'm so glad I stuck it out for the job offer in Australia now! Amsterdam was expensive enough, but to have even the threat of losing the 30%... Wow.