Residence for tax purposes ('Tax residence') Establishing a person's tax residence appears in practice to be a regular subject of discussion. The place where a person is tax resident determines, for example, what type of tax return they have to submit, where they are taxed on their world income, and what tax credits are applicable. Tax residence is also relevant when determining whether a person is eligible for the 30% ruling. This is because the ruling only applies to employees who are recruited from abroad. However, it is not unusual for someone who has already spent a considerable time in The Netherlands prior to entering into service, to nevertheless be eligible for the ruling. At the end of last year this was once more confirmed by the Court of Appeal in Amsterdam.
Residence in The Netherlands
In order to be eligible for the 30% ruling, the employee in question must have 'entered' the country. This means that the employee is recruited from another country by a person liable to deduct and account for payroll tax, or that the employee is seconded to such a person. So, the 30% ruling does not apply to employees who are already resident in The Netherlands at the time of concluding the employment contract. In this context, tax residence is important. A person may have already stayed in The Netherlands for a considerable time, without having become tax resident in The Netherlands. In accordance with section 4 of the State Taxes Act (AWR), a person's tax residence is determined on the basis of the circumstances. In doing so, all relevant facts and circumstances of the case must be taken into account. In practice this means that a person becomes tax resident in The Netherlands if they have an enduring tie of a personal nature with The Netherlands. This 'enduring tie' does not need to be stronger than their ties with another country. In practice this regularly leads to discussions with the Tax authority, for example in the case of foreign students who find a job in The Netherlands at the end of their studies, and who nevertheless wish to be eligible for the 30% ruling.
Amsterdam Court of Appeal
The Amsterdam Court of Appeal decided in such a case on 29 October 2019 (ECLI:NL:GHAMS:2019:4616) that there was nevertheless a situation of recruitment from abroad. This case concerned a woman from Jordan who had come to The Netherlands to follow a course of study. After completing her course she made use of an orientation year to find a job in The Netherlands. In total, she stayed for approximately a year and a half in The Netherlands, before she entered into service with a Dutch employer on the basis of an employment contract for an indefinite period of time. During this time she was already registered in the Dutch Key Register, she had a Dutch bank account and she had Dutch healthcare insurance. According to the Court of Appeal, at the time of entering into the employment contract she did not have an enduring tie of a personal nature with The Netherlands. Her stay in The Netherlands was temporary, given the limited duration of validity of her first and second residency permits. The registration in the Key Register and taking out health insurance were legal requirements. According to the Court of Appeal, the woman was therefore recruited from abroad and was eligible for the 30% ruling.
In practice
The Court of Appeal's interpretation of the concept of residency corresponds to the interpretation given to it by the Supreme Court in previous rulings. However, it is noteworthy that this woman never returned to Jordan during her studies or her orientation year. Together with the registration, the Dutch bank account, the Dutch healthcare insurance and her place of residence in The Netherlands there are considerable ties with The Netherlands. The expiring right of residency apparently outweighed the deal-breakers referred to above in this case.
Advice
For practical purposes, the most important lesson to be learned is that you must never be too quick to jump to conclusions in a case involving tax residency. All the facts and circumstances must be clear, and for each case it is necessary to reach a separate judgement on whether there exists an enduring tie of a personal nature with The Netherlands at the time of entering into the employment contract
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In order to determine whether the 30% ruling can be applied, it is first necessary to determine whether at the time of concluding the employment contract there exists an enduring tie of a personal nature with The Netherlands.