HR 4.0

What salary should be included on the employer's statement for the 30% rule?

October 28, 2021 - 3 minutes reading time
Article by Marcel De Dood & Reintjan Weeber

This payroll case study examines the 30% rule and how it should be applied.

Deepak has been working as an IT expert for an American multinational for years. He is the hero of his close-knit family in Mumbai, as Deepak has been to Paris, New York, London and Berlin. Places his parents only know from TV. A different world, which has suddenly become close. Especially since the beginning of 2019, when Deepak started working as an expat in Amsterdam for an extended period of time. Actually, this would be for six months, but Deepak has been living in a rental apartment in the Bijlmer for two years now. His wife Nayna has come over and their first child will be born in April. What is clear is that this will happen in the Netherlands. In the search for a new home, Nayna heard good stories about Amstelveen, where a large community of expats from India lives. Houses with gardens and a good international school nearby. Deepak and Nayna also decided to buy a house there.

To complete the mortgage, Deepak requires an employer's statement. The employer's statement of the employee, in addition to the salary slip and/or annual statement, serves as a tool for the mortgage lender to determine the long-term affordability of the mortgage loan.

Payroll administrator Tim creates the employer's statement for Deepak. Okay, how did it work again? Deepak, like many expats, is taking advantage of the 30% rule, a tax break to cover the extra costs for expats. From a tax perspective, there are two ways to apply the 30% rule:

  • The employer may pay up to 30/70 of the salary, excluding the allowance as a tax-free allowance
  • The employer may provide 30% of the employee's salary, including the allowance, tax-free. In other words, 30% of the salary including allowance (100%) is calculated; this 30% is paid as a tax-free allowance.

For the affordability of the mortgage loan, it is important in which way the 30% rule is applied. In the first case, there is actually a compensation on top of the employee's salary. The second application of the 30%-ruling is the so-called cafeteria model: the employee gives up to 30% of his gross salary and receives a tax-free allowance instead. This means that the employee actually finances his own expenses and only receives a tax benefit..

If Deepak receives an additional allowance in addition to his salary, then the mortgage lender, in addition to the amount of the allowance on the employer's statement, can use the decision of the Tax Authorities, to find out how long Deepak will continue to receive this allowance. After all, the 30% ruling may only be applied for a limited time. The 30% allowance will then appear on a separate line on the employer's statement.

Because Deepak finances his 30% allowance himself by converting part of his gross salary into a net allowance, the income does not change in the longer term. Thus, it is sufficient for Tim to include the employment-related gross salary on the employer's statement.

Thanks in part to Tim's swift action, the purchase of the house is soon completed, just in time for the arrival of little Poonam .

Lesson learned

There are two ways to apply the 30% rule. If there is an allowance on top of the salary, that part must be put on a separate line on the employer's statement. The employee must also provide the tax authority's decision to the mortgage lender.

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