The cabinet is cautiously cutting the tax benefit for expats. This is happening much less drastically than previously feared by the business community. What makes knowledge workers so important? A look at the Eindhoven Meerhoven district, where half of the inhabitants are expats.
There is hardly a more Dutch place imaginable than ‘Sillicon Valley on the Dommel’. In the new Meerhoven district, close to Eindhoven Airport, a watery autumn sun casts shadows on the same red brick flats as those in every Vinex district. Greylag geese and wild ducks graze in the park. In short, nothing betrays that this is the international high-tech epicenter of the Netherlands.
Until the dull blow of a ball against a cricket bat sounds across the lawn. Followed by cheers: “Nice shot, batting boys!”
Cricket is played here on Saturday afternoons. Or actually: confessed. Because cricket is not a sport for the knowledge workers present from India, ‘but the only religion that we do share in Southeast Asia’. The fact that their place of worship was built this spring in the new Eindhoven neighborhood has everything to do with the companies that are just a stone’s throw away: ASML, Philips, NXP, Signify. It is the employers of software engineers such as Dean, who, in his own words, exchanged Kochi in India for the Netherlands for two reasons: ‘The work-life balance and money.’
It would have been close to losing that second argument. In the search for billions to support purchasing power, it was leaked this spring that the cabinet wanted to cut the tax advantage for knowledge workers: the expat scheme. This stipulates that expats do not have to pay tax on 30 percent of their income for five years. The douceurtje costs the treasury one billion a year, money that the cabinet can use well for the energy surcharge, for example.
But even before there was a proposal, employers’ organizations were already on their back legs. Twenty tech companies, including Booking and Adyen, sent an open letter in which they ‘urgently’ asked that the scheme be left untouched. It would be ‘an essential instrument’ to attract international talent to the Netherlands. According to employer chairman Ingrid Thijssen, it was even ‘the only thing that makes the Netherlands somewhat attractive to foreign talent’. The universities also mentioned a ‘precondition’ in an open letter.
Handsome heads and golden hands
It did not fall on deaf ears: although the bill of millions does state a austerity of the scheme, this remains very limited. Only expats who earn more than the beam endowment norm (216 thousand euros) can no longer claim the tax benefit. Last year this applied to 6.5 percent of the 64 thousand users of the scheme. It saves $88 million. A relief for business. But how important are knowledge workers for the economy?
The expat scheme dates from the years after the Second World War. Knowledge from abroad was urgently needed for the reconstruction of the Netherlands. The tax benefit, which was still 40 percent at the time, was mainly intended to entice Americans and American companies to cross the Atlantic. The expat scheme is still intended to strengthen the business climate in the Netherlands and to attract employees with scarce expertise. In order to assess whether this expertise exists, the Tax and Customs Administration applies an income requirement of at least 39,467 euros gross per year. For example, the tax authorities distinguish the better paid expat from the poorly paid labor migrant.
The largest group of knowledge workers is now formed by ICT specialists from India, followed by Chinese and Turks. They are the ‘smart heads’ and ‘golden hands’ that can be found on Saturdays at the cricket field in Meerhoven, where expats now make up half of the population. Men like Rajesh, who makes solar panels. And engineer Randhir, who studies photolithography at ASML.
Where the Americans were desperately needed to pull our post-war economy out of the doldrums, the current knowledge workers are indispensable for the economy of the future, according to the Eindhoven brainport and economics alderman Stijn Steenbakkers (CDA). ‘The five square kilometers of Brainport are working on solutions for tomorrow’s problems,’ he says. ‘There is demand from all over the world for what we make here. VDL is essential for the electrification of transport, Philips for the medical world and without ASML there would be no chips.’
And so personnel from all over the world have to go to Eindhoven. Because there are about 15,000 vacancies in the Brainport region alone. Positions that, according to Steenbakkers, cannot only be filled with the scarce technical talent in the Netherlands. ‘We have seen this before in Eindhoven’, he says. ‘When Philips arrived at the end of the 19th century, the economic boost was also so great that we couldn’t cope with our own people alone, and the Drents Dorp district was built. The ‘internationals’ then came from Drenthe, now they come from Spain, South America and India, among others.’
home run
On the cricket pitch, ASML engineer Randhir (33) is puffing from the home run that just gave the Cricket Warriors the win. Of course there were many reasons to settle in the Netherlands, he says. He liked the job, the education system is good and the people are warm – or at least more cordial than in Germany, where he worked before. ‘By the way, the weather had no part in the choice,’ he smiles, pointing to the threatening sky. And certainly, financial considerations also played a part. “Money is important in life,” he says.
So when he read on Facebook this spring that the expat arrangement was under discussion, he had to swallow. He needs the tax break because of the extra costs he incurs. “I have to fly home once a year,” he says. ‘And unlike with Dutch couples, my wife doesn’t work yet.’
Another factor: he doesn’t know where best to go for basic needs. ‘For example, when I was just in the Netherlands, I always went to the Albert Heijn, now I know that the Jumbo is cheaper.’ However, he would not have just left the Netherlands if the tax benefit had actually been suspended. “I’m really here for my job.”
That applies to more knowledge workers. An external evaluation carried out by the Ministry of Finance into the expat scheme in 2017 shows that for only 3 to 10 percent of expats, the tax advantage is decisive in their choice for the Netherlands. This is especially true for well-earning knowledge workers; after all, they benefit more. In fact, according to the research, a high-earning upper class from affluent countries, such as engineers from the US and managers from Germany, would benefit excessively. The top 10 percent of incomes accounted for 40 percent of the lost tax revenue.
The research bureau therefore advised maximizing the scheme at an annual salary of EUR 100 thousand. In such a case, 30,000 euros would be credited tax-free: enough to cover moving costs and foreign family visits. In addition, bonuses and share packages should be completely excluded from the tax benefit, something that the cabinet is now omitting.
The researchers did not mention the abolition of the douceurtje as a solution. That would shoot the Netherlands in the foot; in 1994, according to the EU Tax Observatory, our country was still one of the five countries with such a scheme, but now every Western European country except Germany is trying to lure knowledge workers with a tax advantage. In Belgium, a regulation based on the Dutch model has been in force since this year.
Gap
In addition, expats also provide indirect benefits. After all, the bakers, bars and gyms there also notice that many international companies with their highly-skilled knowledge workers – their annual salary is on average twice as high – settle in cities such as Eindhoven and Amsterdam. In Brainport, the credo is that seven new jobs will be created for each knowledge worker. According to chief economist Otto Raspe of Rabobank, who conducted research into the Brainport region, there is indeed such an effect, but the rising tide does not lift all boats by any means.
‘You see that a broad group is benefiting from the economic growth in the Brainport region’, he says. ‘But there is also a large group that does not have a better job. They are having an extra hard time, because it will make the city more expensive and there is more competition (on the housing market, red.).’ It can lead to a growing gap between the highly educated knowledge worker on the one hand and the lower educated Eindhoven resident on the other. Something that Raspe also saw in his research into Amsterdam.
Steenbakkers, alderman for Economic Affairs, also believes that the economic growth of his region is not just a ‘hosanna story’. After all, it also puts pressure on the facilities. He sees it in the daily traffic jam in front of ASML’s gate. At the rents, which rose last year nowhere as fast as in Eindhoven. The beer that can no longer be ordered in Dutch on every terrace. Also at primary schools, where 6 percent of the children are international. ‘The challenge is: how do you keep it all together’, says the alderman, ‘how do you ensure that every resident of Eindhoven continues to feel at home and, as we say here, remains ‘cozy’?’
No new San Francisco
According to Steenbakkers, the answer is not less growth, but rather a ‘scale leap’. With the help of the government, he wants to invest 1.3 billion in a substantial expansion of the housing stock, facilities and infrastructure. In addition, he tries, how could it be otherwise, to seek the connection between newcomers and original inhabitants. That means: no expensive international schools outside the neighbourhood, but English and intercultural lessons for regular primary school teachers and technical education for ‘own talent’. Meanwhile, he tries to guide the women of expats to work so that they settle better and their potential is used.
Because there is one thing that Steenbakkers does not want and that is to become the new San Francisco on the Dommel. The city where the new money from tech workers drove out the old inhabitants, and now there is only room for the happy few.
The cricket pitch in Meerhoven is also such an attempt to build a bridge. Although, for the time being, this mainly happens between the knowledge workers themselves. For example, the TU alumni of ‘Cricket Eindhoven’ today get to know the South Indian knowledge workers of ‘Kombanz’ by sweeping the turf with them. Thanks to the cricket, software developer Dean now feels so at home in Eindhoven that he doesn’t want to go back. Not even now, after five years, his tax break is almost over. “My wife and I have considered going back to India,” he says. ‘But that’s just about working, while you can also enjoy a good life here in the Netherlands.’
Who is covered by the expat scheme?
The expat scheme is intended as compensation for the costs that expats incur because they reside in another country because of their work. To be eligible, a knowledge worker must have lived at least 150 kilometers from the border and earn 39,467 euros per year (or be under 30 with a master’s degree and an income of 30,001 euros). The number of users of the scheme has increased sharply in recent years from almost 38 thousand in 2009 to 67 thousand in 2021. After ICT specialists, this mainly concerns academics, employees from the financial sector and administrators. They can make use of the tax benefit for a maximum of five years (which was eight years).