At the request of the Ministry of Finance, research agency Dialogic researched the pros and cons of the 30-percent regulation for foreign employees in the Netherlands. The evaluation of this regulation shows that it has a net positive effect on the competitiveness of the Netherlands regarding its ranking as a desirable business location.
Foreign employers can write off their extra-territorial costs, expenses they make connected to their residence in the Netherlands, as tax annually. The aim of the 30-percent regulation is to facilitate employees so they can write off a set percentage of 30-percent, instead of claiming costs separately.
In the run-up to the parliamentary elections, the CPB, the official expert institute for fiscal and economic policy in the Netherlands, made the analysis of the economic effects of the election plans of Dutch political parties. This analysis showed that the confessional parties CDA and CU planned to cut back costs by dissolving the 30-percent regulation. The CPB estimated that the cutback would annually generate 200 million euros. Behavioural changes would stimulate less claims and reduce the number of foreign employees. President of VSNU Karl Dittrich, the Association of research universities in the Netherlands, expressed his dissatisfaction with this proposition.
Read more on the 30-percent regulation and the reactions on the proposed cutback.
The results of the evaluation of Dialogic further shows that the employees of Dutch universities are a vast part of the users of the 30-percent regulation. Early estimations of VSNU set the amount of PhD’s, post docs and other researchers that use the 30-percent regulation at 6000 – 7000 beneficiaries. This estimation approaches the numbers of the evaluation of Dialogic. In total, 56.000 people use the regulation in the Netherlands. Of the beneficiaries 7.5 percent is an employee at a Dutch university and 2.1 percent is an employee at an academic hospital, resulting in 5400 academic employees in total.
Highly educated, but no rare specific expertise
The users of the regulation mostly take residence in big university cities like Leiden, Amsterdam and Eindhoven. It is remarkable that a lot of them are young employees. In 2015, almost half of the users were less than 35 years old. Around 98 percent of the users returns home annually, and some even make multiple visits home. The users of the regulation are highly educated: 90 percent holds a bachelor’s degree and 20 percent has been promoted.
So far, there are no indications of Dutch potentials being pushed aside at the labour market due to the benefits for foreigner candidates. The researchers estimate that the regulation attracts around 1.765-5.575 (additional) foreign employees with a rare specific expertise. These numbers do not appear to include university employees.
To indicate the shortage of these employees, a comparison was made between the hourly earnings of the people using the 30-percent regulation and the average Dutch hourly earnings. Researchers assumed that employers value the rare specific experts (in this case international) more than the normal employers. The results confirmed the assumption: earnings of the international employers, in almost every sector that was researched, are higher than the Dutch average, sometimes even three times higher. This is not the case for academic employees.
Foreign academic personnel, who benefit from the 30-percent regulation, earn on average 14 percent less than their Dutch colleagues (€28.60 vs. €33.10 per hour), even when the tax benefit is considered. The universities and academic hospital employees are the lowest valued professional group researched in this analysis (€33,473 and €44,864 annually respectively). Age and position of academic personnel could be explanatory factors for the difference in payment validation, but these factors were not part of the Dialogic analysis.
Costs and benefits
The researchers have also estimated the costs and benefits of the 30-percent regulation. The increasing amount of foreign employees who use the regulation resulted in a positive effect on both tax income as tax benefit. The regulation is time and cost efficient for both tax authority and employers/ employees.
If we take everything into account it is difficult to make an exact estimation of costs in euros, but the researchers estimate the total annual cost of the regulation between 20 and 30 million euros. These cost are accompanied by monetary revenue between 55 and 140 million euros. In addition, researchers have found numerous effects which cannot be expressed in monetary terms, for example productivity gain or use of public services.
So it is difficult to conclude whether the adjustment or suspension of this tax regulation may or not be beneficial. The quantitative research, completed with surveys and interviews, shows that the regulation is beneficiary for foreign employers with an income lower than 50,000 euros. Remarkably, this group does not value the maintenance of the regulation as much as foreign employees at higher salary levels do.
The Parliamentary Committee on Finance, of the Lower House of the Dutch parliament, wrote to the labour unions, employers’ associations, specifically the universities, to ask for their input in this debate. However, universities have already pressed their concerns on adjusting the 30-percent regulation. Though we can now ask the question: Is it still viable for universities to use the argument of attracting scarcely available talent?