3 tax traps catching international investors out in the Netherlands

It’s important for expats around the world to make sure that they’re investing as tax efficiently as possible. While the Netherlands doesn’t offer many viable ways to reduce taxes on investments, there are unfortunately a few ways that you can accidentally increase your taxes. The following are the three biggest tax traps to watch out for.

1. Low-risk bonds and money market accounts

Currently, the Netherlands uses a fictitious return system to calculate Box 3 tax on wealth growth. Assets are measured on January 1 and then depending on the asset type are attributed an assumed rate of return. In 2026, investments are assumed to return 6 percent. 

If you return less than the assumed rate of return you can apply to be taxed on your actual rate of return instead. If you do decide to be taxed on your actual return, it applies to all of your portfolio; you cannot choose to have some assets taxed on assumed growth and some on actual.

So, if you have a portfolio that performs well and returns more than 6 percent this is great, you will be taxed less than if you had been taxed on actual return. Conversely if you have a portfolio that grows poorly and returns less than 6 percent you can apply to be taxed on actual growth, so you aren’t taxed too highly.

Where’s the tax trap?

Well, typically you are unlikely to only be investing in one asset and in multi-asset portfolios, low-risk (low-growth) bonds and money market accounts can cost more than they return.

The Euro Short-Term Rate (€STR) is the primary benchmark for euro-denominated money market yields, currently standing at 2,18 percent. Dutch government bonds annually return between 2,3 percent (three-month) to 3,05 percent (10-year). 

Let’s assume you invest in a collection of money market funds and Dutch bonds but also that enough of your portfolio performs strongly enough to surpass the assumed return that you’re only going to be taxed on the fictitious return rather than actual return. This means that even though you’re making less than 3 percent yield on these assets, you’re being taxed as though you were making 6 percent.

A high net worth investor holding a money market account yielding 2,18 percent will have an assumed growth rate 6 percent taxed 36 percent meaning that of the 2,18 percent return they receive, 2,16 percent goes to the government and 0,02 percent is left to the investor. In other words, the investor’s profits from money market funds are taxed above a 99 percent tax rate.

Do you need financial advice? Contact Staden Financial Management

2. Upcoming Box 3 policy shifts for long-term expats

Historically, expats benefiting from the 30 percent ruling could opt for "partial non-resident taxpayer" status. This essentially exempted their worldwide savings and investments from Box 3 taxation. 

Many expats still believe their worldwide investment portfolios, overseas real estate, and crypto holdings are completely hidden or tax-free. However, this partial non-residency exemption was abolished starting January 1, 2025.  

For those who moved to the Netherlands in 2025 onwards, they will likely be aware of the fact that their investments aren’t tax-free. What many don’t realise is that expats who joined prior to 2025 will lose their Box 3 exemption starting on January 1, 2027. 

This means if you’re currently making use of the 30 percent ruling, it’s important to prepare yourself for the complexities of the Box 3 system starting January 1 next year.

3. Picking the wrong country to purchase funds in

Many people like to invest part of their portfolio in US companies. The most common way to do so is by purchasing an ETF (exchange-traded fund).

Across the EU, Luxembourg and Ireland are the two most common locations for funds to be domiciled. Let’s suppose we compare two ETFs which have the same ongoing cost, and invest in the same US companies, the only difference is that one is domiciled in Ireland and the other Luxembourg. You would probably expect that there should be little difference in performance but in reality the Irish-domiciled fund will outperform that of the Luxembourg-domiciled fund. This is because of US tax laws.

US tax law mandates a flat 30 percent withholding tax on all US-source passive income (like dividends) paid to foreign investors. The reason the Irish-domiciled fund will outperform the Luxembourg fund is down to each country's tax treaty with the US.

While both countries have treaties with the US, the US-Luxembourg treaty does not allow investment funds to claim the reduced rate, forcing them to pay the full 30 percent. Ireland's treaty successfully secures a 15 percent rate for its funds.