Not only is the Netherlands attractive in terms of their work / life balance, but the Dutch government offers enticing tax incentives for highly skilled migrants, especially in the financial, engineering and information technology (“IT”) fields.
According to Rob Ridout, from Job Search International, skilled South African professionals are in high demand.
“Highly skilled South African professionals are seen as assets to foreign employers. South Africans should not be hesitant to apply for international vacancies, especially in the Netherlands,” explains Ridout.
Covid-19 and its far-reaching effects has not deterred the economic growth of the Netherlands. According to the Central Bureau of Statistics (CBS), the economy growth rose to 4.8% for 2021. With the economy growing at such an exponential rate during a pandemic, the Netherlands has now been facing a different type of dilemma, job vacancies are now outnumbering the number of unemployed people. This means that there are roughly 123 vacancies to 100 unemployed people according to the CBS.
“One of the major success stories, that shows that the Netherlands is the global hub for tech, is that Dutch company ASML recently sold their advanced chipmaking tool to Intel for more than $340 million with even more orders being placed by other companies. This in turn will create many more job opportunities for highly skilled migrants in the financial, engineering and IT arenas”, says Rob Ridout.
It is not just the growing pool of vacancies that’s attractive for South Africans. The Dutch work / life balance is another contributing factor to why the Netherlands is seen as an emerging hub for skilled migrants. The Dutch put a lot of emphasis on “family / leisure time” and working hours are fewer than in most European countries. Most Dutch professionals work on average 35 hours per week where a few of those days can be used for remote working.
The Dutch government has invested a lot in providing enticing attractions with regards to research and development (R&D) tax incentives that is offered and boasts a strong digital infrastructure that is renowned for their openness to multidisciplinary thinking. The Netherlands is seen as the gateway to the European R & D arena with 10 unique campuses or “incubators” that each specializes in a host of applications that include agrifood, artificial intelligence and quantum technology.
Tax benefits of working in the Netherlands
There is also a 30% tax ruling that is another attractive incentive for expats. This ruling is aimed at highly skilled migrants that have expertise in areas that are not easily found in the Netherlands.
What the 30% ruling entails is that an employer may compensate you for “extraterritorial costs” equivalent to 30% of gross salary untaxed. But there are certain specifications that highly skilled migrants need to meet before they can qualify for this incentive.
According to the Dutch Tax Administration, employees must meet the following conditions:
- The employee is in paid employment.
- The employee has specific expertise that is not or hardly found in the Dutch labour market.
- The employee was recruited outside of the Netherlands.
- The employee is in possession of a valid decision from the government.
Exiting South Africa correctly
Once the highly skilled South African has found employment in the Netherlands, important steps need to be taken to ensure that they remain tax compliant with SARS.
“The first important question that needs to be asked is whether one is going to emigrate with the intention to permanently stay in the Netherlands, or if that person will come back to reside in South Africa. And the second vital factor is whether the person will be an employee or independent contractor. These are criteria that will determine what exemption or route you can take in terms of tax residency and foreign income”, says Victoria Lancefield, General Manager for Tax Residency & Financial Emigration at Tax Consulting SA.
All South African tax residents need to submit tax returns to SARS on an annual basis to declare their South African or foreign income, if foreign income was made then the taxpayer needs to claim an exemption on foreign earnings.
Foreign earnings will be taxed on the surplus of R1.25 million at the marginal income tax rate which could be as high as 45%. Even if the tax resident qualifies for an exemption, a tax return needs to be submitted.
Tax residents need to understand that even if they cease their South African citizenship, their tax residency will remain because citizenship falls under the jurisdiction of the Department of Home Affairs and tax residency falls under the jurisdiction of SARS, the two do not align.
What are your options?
Certain processes are needed to formally cease tax residency so that SARS does not come knocking on your door.
Victoria Lancefield states that, “there are two options available to South Africans thinking about emigrating. They can either undergo the financial emigration process if they are emigrating with the intention of not coming back to reside in South Africa, or they can apply the Double Tax Agreement (DTA) between two countries. The DTA route is undertaken when the professional has the intention of coming back to reside in South Africa in the future”.
It can be an arduous process to start the financial emigration or DTA process and that is why it is important for one to consult a professional and experienced tax practitioners and tax attorneys to help them alleviate the tax burden while they get ready to move overseas to further their careers.