Today a new installment of the Dutch Tax Series, and one that is important for those who want to reach FIRE. Wealth tax! Dutch Taxes – Part 4: Box 3
Dutch Taxes – Part 4: Box 3
In the Netherland you do not have to declare income on rental properties, capital gains on shares/home sales, income from dividend or interest earned on savings. Instead the government wants to know your wealth. Your wealth consist of your assets minus debts.
Your wealth can thus include (among others):
• Rental property/second home (minus mortgage/loan)
• Loans to a private person or a business
• Any other debts that are not covered under Box 1 or Box 2
Return on Investment
The government will assume you have earned a certain Return on Investment (ROI) and will tax that assumed ROI.
For 2015 the government assumes you made a 4% return and charges a 30% tax on that return. However, you have a certain amount exempt from taxation (“heffingskorting vermogen”), which is € 21.139 for a single person and € 42.278 for a couple. The effective tax rate is therefore a fixed 1.2% on your wealth above the exception amount.
As of January 1, 2017 this will likely change and the following taxation is considered for a single person (you double the range for a couple):
|Wealth Bracket||Range||Assumed Rate of Return||Effective Taxation|
|1||Up to € 25.000||N/A||nil|
|2||From € 25.000 to € 100.000||2.9%||0.87%|
|3||From € 100.000 to € 1,000,000||4.7%||1.41%|
|4||€ 1,000,000 and up||5.5%||1.65%|
There is also a double tax break for “environmentally friendly” investments (“Heffingskorting voor groene beleggingen”). The government has selected a few investments options that promote environmentally responsible developments/investments. Compared to normal investments, your wealth amount that is excluded (“vrijstelling”) from taxation is larger to the amount of € 56.928 for a single person and € 113.856 for a couple.
Additionally, an increased tax break (“Extra Heffingskorting”) of 0.7% is also applicable of the amount that is excluded from taxation. In short, a pretty good tax reduction. However, we are unsure whether this make financial sense (e.g. if the benefit out way any lower (?) ROI for these funds, perhaps a future post!).