What you need to know about trusts and Dutch income tax law

The Anglo-Saxon trust is a legal arrangement that is commonly used for asset protection, estate planning and potential tax deferral. A trust is not a legal entity, but rather an agreement between the settlor, who is the founder of the trust, and the trustees, who are the individuals or entities responsible for managing the trust. 

The individuals or organisations for whose benefit the trust is established are referred to as beneficiaries. In the context of family trusts, beneficiaries typically include spouses, children, grandchildren or other close relatives.

Afgezonderd Particulier Vermogen

Since January 1, 2010, Dutch tax law has included a specific regime in the Income Tax Act for secluded private assets, classified as Afgezonderd Particulier Vermogen (APV). An APV refers to a structure where assets are isolated and serve a private interest that is more than incidental.

Trusts are a typical example of an APV, although other structures such as the Antillean Stichting Particulier Fonds, a foundation, Anstalt, Stiftung or Genossenschaft can also fall within the APV scope. If a Dutch taxpayer or their fiscal partner or underage children have any legal or economic entitlement to an APV, this must be reported in their annual personal income tax return.

The Dutch Supreme Court has recently ruled that the APV regime under the Income Tax Act does not apply in situations where an individual can treat the assets held in a trust as their own. In such cases, that individual will be taxed directly on the trust's assets under income tax.

Fiscal transparency and taxation

An APV is considered fiscally transparent under Dutch tax law. This means that the rights to the underlying assets are attributed to individuals rather than the trust entity itself. The tax consequences depend on how these rights are exercised and on the roles of the settlor and the beneficiaries.

Taxation may occur from:

• Box 1: Income from work and home
• Box 2: Income from substantial interest
• Box 3: Income from savings and investments
• Dutch inheritance or gift tax laws

The default rule is that if the settlor is alive, the assets are attributed to them for Dutch income tax purposes. Only upon the settlor’s death are the assets attributed to the beneficiaries, potentially triggering inheritance tax. Until that point, the beneficiaries are not taxed on the assets unless specific rights, such as entitlement to regular distributions or withdrawals, are granted.

Practical considerations and recent developments

Tax treatment ultimately depends on the trust deed, the legal and economic rights defined, and the facts and circumstances surrounding the structure. Dutch courts have ruled differently in cases involving annual withdrawal rights, in some cases qualifying them as a taxable annuity in Box 1. However, these rulings vary and are highly situation-specific.

Additionally, the OECD’s push for transparency, the Common Reporting Standard, and the Mandatory Disclosure Rules (DAC6) in the EU have increased scrutiny of opaque structures such as trusts and similar APVs. As a result, structures involving APVs are more likely to be flagged and reviewed by Dutch tax authorities, particularly when cross-border elements are involved.

Trusts can still serve useful estate and asset protection purposes. However, careful planning, tailored documentation, and timely disclosure are essential to ensure compliance and avoid unintended tax consequences.

Tax treaties between the Netherlands and other jurisdictions may influence how certain elements of the trust are treated, particularly in determining residence, taxation rights, and relief from double taxation. These should always be carefully reviewed.