Infuriated Expats Cry Foul as Dutch Seek to Shrink Tax Benefit

(Bloomberg) -- Almost five years ago, Antonios Cheras, a Greek national, moved with his family to the Netherlands even though he spoke no Dutch and had many more job offers in the U.K. The draw: an unbeatable tax break.

The so-called “30-percent rule,” which exempts 30 percent of an expat’s salary from income tax for eight years, has been a major factor in attracting people like Cheras. Now, Prime Minister Mark Rutte’s government, looking to deliver on a coalition deal, is seeking to limit it to five years -- retroactively.

For Cheras, who last year bought a 400,000-euro ($465,000) house that will be ready to move into in December, the pull-back hits both his pocketbook and his idea of Dutch fairness and stability. He now fears he might not be able to keep the house since he was counting on the tax break over three more years to service his mortgage.

Infuriated Expats Cry Foul as Dutch Seek to Shrink Tax Benefit

“The Netherlands had a really good reputation -- that the environment is stable here to develop, as a company, or as a person, but now I feel that’s not true,” Cheras said in an interview in The Hague, about 10 kilometers from his new home in Nootdorp. The 47-year-old software engineer was scouted to move to the Netherlands for telecom firm Royal KPN NV before switching to his current employer, a big Dutch financial institution.

The government’s plan has also drawn the ire of companies and academic institutions that rely on foreign talent. The chief executives of payments processor Adyen NV and digital map maker TomTom NV were among the signatories of a letter to deputy finance minister Menno Snel in June, highlighting the need for some transitional regulation.

Retroactive Application

On April 20, Snel told Dutch Parliament the time-reduction plan would affect both new and existing beneficiaries. The proposal, which is expected to be adopted by parliament at the end of this year, is part of a wider plan that includes scrapping the dividend tax, lowering corporate taxes and raising the lower VAT, and is set to save at least 284 million euros per year through 2021, according to government estimates.

The savings are “assuming that we expats will all stay and pay more,” said Mike Weeks, a 36-year old Cincinnati native, who is a co-founder of United Expats of the Netherlands (UENL), which opposes the proposal. “But we can’t, so we won’t. We will have to leave.”

Not Used

According to 2016 data from the Dutch finance ministry, there are about 65,000 recipients of the tax benefit. An employee making 60,000 euros a year would face a cut of 8,844 euros, government calculations show -- or 737 euros net per month. At 100,000 euros, take-home pay would be slashed by 16,665 euros.

Snel brushes away the criticism, citing a report from research and consulting firm Dialogic commissioned by his predecessor that shows about 80 percent of the recipients don’t use the benefit beyond five years.

“Why would you have a rule much longer than it’s effective,” Snel told Bloomberg News in The Hague in June.

German demographer Thomas Leopold, one of the affected expats and an associate professor at the University of Amsterdam, has challenged Dialogic’s findings, saying the data used is incomplete. The Dutch finance ministry confirmed that the data in the report doesn’t paint a complete picture and said it’s updating the estimates, which will require additional information. Overall, however, it stands by the findings, and Snel is holding strong.

‘A deal’s a deal’

“I don’t consider transitional legislation legally necessary,” he said in a letter to parliament, adding that the legality in individual cases belongs to the courts.

Infuriated Expats Cry Foul as Dutch Seek to Shrink Tax Benefit

UENL has launched a media campaign, reached out to members of parliament, staged a rally in The Hague and submitted a petition with approximately 30,000 signatures to the lower house’s finance committee at the end of May, asking for transitional regulation. Its war cry -- “a deal is a deal,” or “afspraak is afspraak” -- copies what Rutte has said on other topics.

If the government doesn’t budge, several expats may need to make major life changes. Some may default on loans or be forced to sell their homes at a loss, while others are contemplating cutting back on daycare, pulling kids out of international schools, or even leaving the Netherlands altogether.

UENL’s Weeks and his wife Cristina say they would be forced to sell the home they bought only a year ago at the market’s peak, investing their life savings.

“Our financial future will be destroyed by this,” Weeks said at their terraced home in a small town just south of Amsterdam, where they live with their toddler Parker and two Labrador retrievers, Aspen and Dutch. “We are an easy target. We don’t get to vote.”

©2018 Bloomberg L.P.