A few months ago Portugal repealed tax privileges for digital nomads and other foreign residents, who paid less tax on their assets than any Portuguese citizen.
The government of the Netherlands is going to follow Portugal’s example by eliminating the tax advantages enjoyed by foreign workers in its territory.
The Netherlands restricts foreign taxation. The legislation in force until now in the Netherlands allowed foreign workers a 30% tax exemption as compensation for having to travel to work in the Netherlands. This in itself was already a big difference with respect to the Portuguese tax regulations, which extended the measure to any resident foreigner, regardless of their employment status.
In that sense, the worker who wants to benefit from the 30% of his salary exempt from taxes had to reside in his country of origin and be hired to work in the Netherlands by a local company. This left out self-employed digital nomads. However, those who did benefit from that tax advantage reduced the marginal tax rate to 34.65%, while the rest bear 49.5%.
A paradise called Portugal. The Portuguese government had rolled out a red carpet for foreign digital nomads and retirees by allowing them to be taxed at a maximum of 20% on their wealth for more than a decade. This prompted many foreigners to move to the Portuguese country to benefit from very favorable tax conditions, but discriminatory for the Portuguese.
The increased presence of foreign capital with a low tax burden caused the price of housing and the standard of living in Portugal’s main cities to grow beyond the means of the Portuguese themselves, generating a serious housing problem. The Portuguese solution has been to abolish this privilege for foreigners residing in Portugal and put them on an equal footing with the rest of the citizenship as of January 1, 2024.
Privileges are cut, but not eliminated. The objectives of the Dutch government are very different from those of Portugal. In this case, the plan was to roll out a red carpet so that highly qualified foreign talent would see the Netherlands as an attractive destination to work in, while making the country more competitive.
With the reform that will come into effect in 2024, that vision is further reinforced and new requirements are imposed on foreign professionals, if those positions can be filled by locals. Scientists and doctors are guaranteed the application of this measure, which in all cases is reduced to five years, compared to the eight years allowed by the previous regulations.
As of January 1, the 30% tax rule establishes a maximum tax allowance limiting it to the “Balkenende rule” which establishes a maximum tax-free allowance of 223,000 euros, which means an annual tax saving of 66,900 euros for those foreign employees with that maximum salary base who take advantage of the 30% rule.
The shortage of talent in the Netherlands prevents it from being eliminated. Pieter Omtzigt, a Dutch parliamentarian, member of the Parliamentary Assembly of the Council of Europe and one of the promoters of a more restrictive regulation on foreign workers, recognizes in his X profile that, although the measure is unfair for local workers who are paid less than their foreign counterparts doing the same work, it is necessary due to the lack of specialized technical profiles in the country.
The reality of the country clashes with the evidence that the measure cannot be completely eliminated or risk losing incentives to attract highly skilled foreign talent that cannot always be filled by local technicians, as technology entrepreneur René Janssen points out in an intervention on a Dutch TV program: “For every IT vacancy we open, we don’t find any Dutch people.”