On September 17, 2024, the government of the Netherlands published its budget proposal for 2025. The proposals aim to enhance the nation’s business climate and make it more appealing for multinational firms by improving the investment climate. However, the Dutch parliament still needs to review and discuss these plans, and they could undergo changes before they are implemented.
The first budget proposal by the new Dutch government aims to position the Netherlands among the top 5 most competitive countries for business in the world, a position that the country had held in the past. The plans highlight that predictable, stable and transparent tax policies reflect the stability and predictability the current government stands for and are crucial for businesses. The plans intend to achieve such stability through an attractive financial plan for knowledge workers, standardised corporate tax rates, R&D incentives based on the Wet Bevordering Speur- en Ontwikkelingswerk (WBSO), and the Dutch Innovation Box.
Here’s a look at the changes proposed by the Dutch government that affect contractors.
Tax-Free Allowance for Expats Revised
The Dutch government introduced the “30% Ruling” many years ago to attract specialised foreign workers to the Netherlands. This facility made a portion of the employee’s salary exempt from taxes as compensation for the expenses incurred by expat employees while working outside their home country. As of 2023, this facility was available for a maximum of 5 years. However, in 2024, a bill was introduced to gradually phase out this tax-free allowance from 30% to 20% and finally to 10%.
Under the revised rule, up to 30% of a foreign employee’s income can fall under the tax-free allowance category for the first 20 months of their employment in the Netherlands. In the next 20 months, the limit would come down to 20%, while only 10% of the salary will be tax-free for the final 20 months.
The 2025 Budget Plan reverses this reduction in the tax-free allowance. It proposes reducing the maximum of 30% to 27% for the entire period of 5 years. This revision will come into effect on January 1, 2027. So, expat workers can benefit from the 30% rate for 2025 and 2026.
Pseudo Self-Employment Under the Scanner
The government will enforce the Employment Relationships Deregulation Act (DBA Act) from January 1, 2025. Under this Act, the enforcement moratorium on pseudo-self-employment will end, and the Belastingdienst(Dutch tax authority) will begin imposing corrective obligations. The regulatory body will also conduct additional tax evaluations and levy fines where indicated.
According to the Chamber of Commerce (KvK), the number of freelancers in the Netherlands has grown 85% over the past ten years, with 1.7 million self-employed individuals registered in the country. To protect these workers against exploitation, the DBA Act was introduced in 2016 but is not actively enforced unless the authorities find a case of deliberate rule-breaking.
Starting January 1, 2025, the Dutch tax office will check the employment relationships between ZZP’ers (self-employed individuals) and their clients to ascertain whether they are “falsely self-employed.” A ZZP’er could be considered “falsely self-employed” if they are working for a single client and can instead be employed directly by that company.
Therefore, to be considered self-employed, an individual must have more than one client and not enter into long-term contracts with any client. Additionally, they should be seen as taking financial risks, owning their equipment, having specific expertise required by the clients and being identified as freelancers by the client. However, a one-year transitional period is provided during which the employers or clients will not be penalised if they can prove they have a policy to take steps against false self-employment.
It is important to note here that the Model Agreements currently used to indicate that an employee-employer relationship does not exist will no longer be valid. Once the DBA Act is enforced, the authorities will not approve new Model Agreements.
In Conclusion
The Budget Proposal for 2025 introduces several tax changes that affect contractors and those who engage them. These changes align the Netherlands’ fiscal policy with the EU’s directives and tax standards worldwide while ensuring employee security and increasing the tax take. Companies operating in the Netherlands must monitor the changes finally ratified and enforced to adapt their business and tax strategies to ensure compliance.
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