Changes affecting Box 3 tax matters expected in the Netherlands

Fictional rate of income in the Netherlands

A subject that has been increasingly controversial – and which ended in a high court ruling late last year – is the “fictional rate of income” levied on savings. Instead of taxing savings on the income they generate, the Dutch tax office calculates a fictional return, and taxes this amount (at 31 percent this year).

Although there is a tax-free allowance, the highest Dutch court has now ruled that this tax – which vastly overestimates the amount people actually make if their money is held in a bank with the current interest rates – is a breach of European human rights treaties.

The case that sparked the court battle dates back to 2017, and there is now a question of whether all “overpaid” asset tax will be refunded, and what will happen in regards to 2021 and 2022.

The plan was that, with Box 3, your assets from 2025 are going to be taxed against the actual yield on the assets instead of a fictional yield. A high court decision says that people do not make a fictional yield of around 4 percent and that the Dutch government should adjust the law. The government has said it is going to change, but it will take some time.

What are the consequences?

Due to the court ruling at the end of last year, the Dutch tax office is postponing almost all the final decisions regarding Box 3 for the tax years of 2019 and 2020. Decisions for previous years can also possibly be postponed but, if a limitation of claim is at risk, people can still be sent a final decision, which could possibly be corrected afterwards. The Dutch tax office does this because they want to implement the court ruling into their working process, and create some time while doing so. This implies that we will see a faster implementation of taxation based on the actual yield, instead of the fictional yield.

The Dutch parliament now also has to worry that all civilians with a savings and asset value above the Box 3 threshold for the 2017 and 2018 tax years should be financially compensated for the taxes paid in Box 3 during that period. The new Secretary of State of Finance is hoping to give more clarity on the matter somewhere in February. In the Netherlands, when there is an adjustment, the Dutch tax office will do this for everybody, and it will be retrospective.

People who have the 30 percent ruling will not be affected, as their assets do not need to be declared in the Netherlands; they are considered partial non-resident taxpayers.

Other changes

There are a few other changes to Box 3 looming. In the short term, the threshold for taxing assets is going to rise from just over 50.000 euros to 80.000 euros, meaning this first amount will not be taxed – something that will benefit savers.

Another adjustment, however, will affect people who invest in property to rent out. At the moment, it is possible to reduce the official valuation of the property (known as the WOZ-value), to reflect the actual rental yield. However, this is due to change, so the WOZ value will remain the same as for an unrented property – which might negatively affect the tax situation around private rental for landlords.