#expattax

How to obtain a 100% ruling?

Definitely heard of a 30% ruling, but have you heard of a 100% ruling?

Below we share the two success stories of a 100% income tax exemption pre-approved by the Dutch tax authority for our two clients who moved to the Netherlands from Russia.

Read until the end to see the check-list on obtaining a 100% ruling.

Case 1

  • Situation:
    A programmer (let's call him Kirill) worked for an American corporation (Inc.) as a freelancer from Russia for several years. Inc. awarded Kirill options on its publicly traded shares. After a few years, the company transferred the specialist to the Netherlands to work for its local subsidiary (BV). At the time of the move, 80% of the issued options had vested, meaning that Kirill could already exercise the option.
  • Problem:
    The option could only be exercised simultaneously with the sale of shares through a special online platform to which Inc. and the client were connected. When selling shares, payroll tax was automatically withheld (at a rate of up to 49,5% in 2023). Inc. and BV offered to withhold the tax so that the client would request a tax refund from the tax authority later on.
  • Solution:
    The client did not immediately exercise the option. Instead, we contacted the tax authority and confirmed our position based on the 2002 Decision of the Secretary of State for Finance: only 20% of the options were related to the employment contract in the Netherlands, so BV should not withhold tax when selling the client's shares derived from the remaining 80% of options.
  • Result:
    We explained our position to the client's employer as evidenced by the ruling we received, as a result of which Inc. and BV agreed not to withhold Dutch payroll tax when paying the sale price of shares to the client. The client saved over € 100 000.
Case 1: fragment of a ruling indicating the income tax exemption obtained by our client

Case 2

  • Situation:
    A businessman (let's call him Vitaly) ran a business as an individual entrepreneur (IE) in Russia. The business included renting out two commercial buildings owned by the client. In 2022, the client moved to the Netherlands based on a highly skilled migrant visa of his spouse. After changing his residency, the client planned to continue receiving rental income, as well as income from the sale of the real estate.
  • Problem:
    Generally, business income of a Dutch tax resident falls into Box 1 of the income tax declaration and is taxed at the rates of up to 49,5% (2023). In addition, declaring business income of a foreign IE as business income in the Netherlands would require a lot of administrative effort and reconciliation.
  • Solution:
    The client did not declare the income as business income. Instead, we contacted the tax authority and confirmed:

    1) with reference to case law (see e.g. HR 17 augustus 1994, BNB 1994/319), that we can attribute rental income, the real estate, and potential income from their sale, to assets / income in Box 3 (savings and investments), because the activity of the IE does not exceed the standard of passive investment management (normal vermogensbeheer);

    2) that the client's spouse, as the holder of a 30% ruling, can select the status of a partial tax non-resident when filling out the income tax declaration for the duration of the ruling and, as a fiscal partner, she can allocate the real estate and the underlying income of the client to her share of the assets / income in the declaration.
  • Result:
    We received a ruling that allowed the client's rental income, as well as income from the sale of the real estate, to be exempt from income tax in the Netherlands for the next 5 years.
Case 2: fragment of a ruling indicating the income tax exemption obtained by our client

Checklist: How to get a ruling?

  • Preparing a ruling project.
    • The request can be submitted in English or Dutch. However, the official template is only available in Dutch. Use it (after translating it to English if necessary));

    • Review the tax authority's Handbook (in Dutch) on the processing of tax ruling requests. The main message of the guidance is that the request should be about specific situations for which there is no obvious answer and for which you have taken a position supported by law and case law.
    01
  • Selecting the correct office to which to submit the request.
    If the ruling concerns personal income tax, submit the request to the tax authority office in your municipality. If the request concerns payroll taxes or corporate income tax, it is important to submit the request to the tax authority office in the municipality where the company is registered.
    02
  • Filing a complaint if you do not receive a response.
    • By law, the tax authority has no deadline for reviewing a request. The official deadline of 8 weeks is only a guideline, which is rarely met in our practice. Therefore, we recommend that you call the tax authority after 8 weeks and (if you have not been contacted within 10 working days regarding the substance of the request) file a complaint about the delay in the review.

    • You can call and speak in Dutch (0800-0543) or English (special phone number +31 555 385 385). However, if possible, it is better to contact the Dutch number - so you will get a response to the substance faster.
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