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The qualifying foreign taxpayer obligation (“90% rule”): A preliminary ex-post impact assessment
Prof. dr. Maarten Vink
Johan van der Valk
Sem Duijndam
The qualifying foreign taxpayer obligation (hereinafter QFTO), which came into force on 1 January 2015, provides that non-resident taxpayers in the Netherlands can only benefit from the same deductions and tax credits as resident taxpayers if they earn at least 90 per cent of their world income in the Netherlands. Under this new system, if these non-resident workers neither earn 90 per cent of their world income in the Netherlands nor have sufficient taxable income in their country of residence, they are at risk of losing tax benefits (e.g. mortgage interest deduction for an owner-occupied home). Moreover, the rule may particularly affect cross-border workers and have adverse economic consequences if such non-resident workers forgo employment in the Netherlands and prefer to work in another country. In such a scenario, employers in border regions should be concerned as the majority of non-resident workers are employed in areas along the Dutch border. In this survey of the potential impact of the QFTO, we focus on the group of people working in the Netherlands but living outside the Netherlands, as they are likely to be the largest group affected by the rule. The purpose of this preliminary ex-post analysis is to examine trends over the years 2013 to 2016 in the number of non-resident workers to see if there have been notable changes in the number and composition of non-resident workers in the Netherlands after the 90% rule took effect.
Table 1 shows the number of non-resident workers in the Netherlands for the years 2013-2016, as well as the nationalities and countries of residence of the non-resident workers. The number of non-resident workers increased significantly during this period. Whereas the number of non-resident workers was just over 130,000 in 2013, it rose to over 185,000 in 2016. However, this increase is mainly due to the large influx of Polish non-resident workers during this period. The number of non-resident workers living in Belgium or Germany increased only slightly. Looking at Dutch non-residents, we see that they mostly live in Belgium or Germany, and their numbers have increased slightly since 2013.
Looking at the employment sector, most non-resident workers are employed in commercial services. These non-resident workers are mainly of Polish nationality. Not surprisingly , the number of non-residents working in the commercial sector has increased sharply since 2013 (from 85 800 in 2013 to 133 300 in 2016), corresponding to the large increase in the number of Polish non-residents over the same period. The number of non-residents employed in the industrial sector or public and social services remains fairly constant around 20,000 for the years 2013-2016. Both sectors mainly employ Dutch nationals, although a significant number of Belgians and Germans also work there. Few non-residents work in agriculture, forestry and fisheries and no significant changes are visible either.
More than half of non-resident workers work in border regions. Most of these non-resident workers live in Belgium or Germany. This is also clearly shown in Figure 1, which shows the number of non-resident workers living in Belgium or Germany as a percentage of the total labour force for the year 2016 (only this year is shown, as there is not much change over time). Unsurprisingly, most non-resident workers in border regions on the German border are German, while those on the Belgian border are Belgian. Some border regions border both Belgium and Germany (Central Limburg and South Limburg). In central Limburg, 3.6% of the working-age population lived in Belgium or Germany in 2016, compared with 5.6% in southern Limburg. For most (border) regions, shares remained almost constant in the 2013-2016 period and no overall trend is visible. The share of non-resident workers living in Belgium or Germany relative to the total labour force remains constant at 1% in the 2013-2016 period.
Overall, the preliminary ex-post analysis does not seem to show convincing effects of the QFTO on the number and composition of non-resident workers in the Netherlands and Dutch border regions. Looking at the total number of non-resident workers, we see a rising trend, which persists over time and does not seem to have changed since the introduction of the QFTO. For the nationality and employment sector of non-residents, we also see a solid trend over the entire 2013-2016 period; the number of Polish and “other” residents is increasing, as is the number of non-resident workers working in commercial services. No significant changes are visiblefor the border regions either. However, this analysis does not allow us to focus on the individuals most likely to be affected by the QFTO (those who do not earn 90% of their world income in the Netherlands). Moreover, the potential delayed effects of the rule cannot yet be assessed as data are only available until 2016.
For future work, income data from the Dutch Tax Administration will become available, making it possible to assess which non-resident workers do not earn 90% of their world income in the Netherlands, and thus which non-resident workers are most likely to be affected by the QFTO. For future research, individuals can also be tracked over time to investigate their precise labour and housing mobility. Regression and/or timeseries techniques can be used to show whether the QFTO has a significant effect on the residential and labour mobility of non-resident workers.