Wait, don’t run away screaming because the posts title states “Taxation”. This one is interesting (for the Dutch at least)! As you might be aware, we currently have all our Real Estate being taxed in Box 3, to benefit from the most favorable taxation option. However, if you would to purely FIRE on Real Estate in the Netherlands,  which taxation options is best? Our post today will try to shed some light on this. We present to you Dutch Real Estate: Taxation Options.

Disclaimer: we are not tax professionals and this is only our interpretation of the tax code. Consult a specialist if you want to make sure the tax approach is best your situation!

Dutch Real Estate: Taxation Options Introduction

As noted before, the Dutch tax system is quite complicated, but also gives you various options to manage the taxation of your Real Estate. It all depends on what you want to achieve and how actively you want to participate in your Real Estate. For today we will look at 3 taxation options:

  • Taxation of Real Estate income in Box 1:
  • Taxation on Real Estate when incorporated, with Box 2; and,
  • Taxation of your wealth in Real Estate in Box 3.

Let’s have a more detailed look at that the different options would entail. Note that the general deduction (Algemene heffingskortingen) should be the same for Box 2 and 3 options. It is subject to your income for Box 1 and therefore varies.

Real Estate with a pool

Real Estate with a pool

Box 1 Real Estate Income Option

First off, in principle the government almost always sees your Real Estate as wealth under Box 3. However, and this is where the tax law gets a bit fuzzy, when your Real Estate ventures (buying, sell, renting out) start to resemble “an active business”, the income is taxed as if you “work”. In this case your Real Estate income would be considered under Box 1. For the Dutch among you, this is a good post with some clarifications.

However, for this assessment we assume you actively manage your properties (assumed as long-term rentals) and that taxation is similar to the short-term rentals (think a B&B, AirB&B and similar situations). The taxation in this case is based on the net income you make from the property. You will have to report 70% of this net income, over which you will pay income taxes and social insurance premiums.

2018-08-18 Update: for actively managed (including AirBnB/etc.) rentals of an investment property, you might actually be required to add the total net income to your Box 1 taxes (not just 70% calculated as in this example, which applies to short term rentals of you own home only!).

Box 2 Real Estate Dividend Option

Another option to deal with your Real Estate is to incorporate into a business. In this case you can manage the properties anyway you please. You can also use the depreciation of the buildings and pretty much all other costs to limit your profit (and thus taxes). On this profit you will have to pay 20% tax (flat rate). Whatever is left, you can pay to yourself as dividend, which is taxed at another 25% (flat rate). In short, your net profits are effectively taxed with 40%.

We have actually incorporated before when we were still living abroad, because at that time it was an interesting option to limit our overall tax burden. However, you have to be very careful with this option. Here is why. There is a “ter beschikking stellen” clause in the dutch tax code. This means that if you loan money to your own business, you have to report income on this loan under income taxes (Box 1). If you already have paid employment, this taxation could be as high as 52%!

The interest rate your company pays on your loan also has to be conforming to market rates. You are not permitted to charge excessively high interest rates or no interest at all. In the later case the tax man will assume an interest rate for you and will tax you on it…..so be warned. Considering market conforming rates are currently in the order of 3-6% (-isch), you would only net 1.5-3% on this loaned money after taxes. Not very appealing!

Box 3 Real Estate Wealth Option

As noted in the introduction, and as also explained here and here, Box 3 taxation is based on your wealth. For Real Estate purposes this wealth is calculated as the government assess property value (WOZ) times a factor that is based on the rental income. If you have a profitable property, this percentage is usually 85%. Next, you deduct all your mortgagee and loans, which leaves you with your net “wealth” for tax purposes.

Depending on your wealth, various taxation percentages apply. Note that, in order to be qualified for Box 3 taxation, you will need a property manager that takes care of the rental property for you, as this investment has to be “passive” (read: no “work” required).

Real Estate

Real Estate at Sea

Assessment Assumptions

Now, let’s compare the 3 taxation options to see which one is best to FIRE purely on Real Estate in the Netherlands.

We have assumed the following for a single person:

  • Property market value (4 units) €500.000
  • Properties WOZ value (4 units) €450.000
  • Yearly rental income (gross) €50.000
  • Insurances: €1.500
  • Maintenance (3% market value): €15.000 (assumed primarily done by external parties; equal amount spend each year)
  • Property Taxes, sewage, garbage, etc.: €2.500
  • Property Management (tenant selection): €1.600
  • Property Management (monthly fees): €3.000
  • Marketing Costs (€50/month): €600
  • Yearly business expenses (year end statement, accountant, etc.) €1.000
  • Building Depreciation (2% per year, building value €300.000): €6.000

For this example no mortgages are taken into consideration. If you want to see how this work for you, include the interest as an expense for the Box 1 and Box 2 options. For Box 3, correct for the mortgage value. Simple as that.

Tax rates and social insurance premiums for 2017 are used for the calculations. Utilities are assumed to be paid by the tenants. We have kept costs for insurances, property taxes and maintenance the same for all options.

Box 1 Tax Results

For this assessment we have assumed we need about €600 per year in marketing costs for the various units when they become available on the market.

Based on the assumptions above, the Net Income is about €18.937. This could be improved a bit if you do some of your own maintenance. Do realize that for every euro reduction in expenses, you only earn about €0,5 back in net income due to taxes and social insurance premiums.

Also note that if you start to earn more, the tax burden also increases as income tax is progressive (from 36.55%, all the way up to 52%).

Dutch Real Estate: Taxation Options - Box 1 Income

Dutch Real Estate: Taxation Options – Box 1 Income

Box 2 Tax Results

We have had several people question why we don’t incorporate. This is why! The net income you can withdraw from a company (in the form of dividends), after paying profit and Box 2 dividend taxes, is lower then if you manage the property yourself (at least for this scenario). The total net income comes to only €16.294. But you will have another €6.000 in the company to use for investments.

The main reason is the depreciation of the building, this money will be available within the company as cash, but cannot be withdrawn! It’s considered a reserve, not profit, so you cannot pay it to yourself as dividend. The money will be available for future investments though.

There are some other reasons to incorporate obviously, of which a big one is the ability to limit personal liability. Incorporation might still be appealing for certain people and situations, but you really need to do your homework here.

Note: you still have to perform work at the company as you actively manage the properties. If you work for the company you also need to pay yourself income (which comes in Box 1 for tax purposes). However, for simplicity reasons, this has not been taken into consideration. If you would, the profit, and thus the available dividend, becomes smaller. You would get some of this lost income back via Box 1 income. We are also assuming you don’t pay yourself the minimum Major Shareholder amount (which is €45.000 per year), obviously.

Dutch Real Estate: Taxation Options - Box 2 Income

Dutch Real Estate: Taxation Options – Box 2 Income

Box 3 Tax Results

This leads us to Box 3 Real Estate investments, which clearly is the winner with the lowest taxation and thus the highest net income at €23.178. Even with the additional costs for a property manager (in terms of both selection fees and monthly fees), you are still better of from a net income perspective. This is a double bonus, as you don’t do any of the work and still get more at the end compared to Box 1 and Box 2 investing. How good is that?

Dutch Real Estate: Taxation Options - Box 3 Income

Dutch Real Estate: Taxation Options – Box 3 Income

Discussion and Notes

We did some more calculations for higher incomes too. We made the same calculations for a €1M Real Estate portfolio for a single person. This showed exactly the same results; with Box 3 investments outperforming both Box 1 and 2 by a healthy margin. If you are a couple and you have a €1M Real Estate portfolio, you can even benefit more as you can split the income or wealth and limit your taxes that way.

Now, the above is simplified obviously, as it is rather difficult to compare the three options due to all the requirements and options/limitations. Have a look at your personal situation to find out what works best for you!


Based on the above assessments and assumptions, you are best off getting a property manager and maintain all your Real Estate investments in Box 3 for tax purposes. We are planning to do the same. Best of luck!


Does this provide new insight to you? Have I missed anything critical? Did I make an error somewhere, please do share!

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FIRE In the Netherlands....

(If you have read this post before, it is important to note that updates were made on October 10, 2016 as a result of various comments on this post. The main updates include the assumption that the heffingskorting will only apply once. Not twice, as the least earning of the couple will not longer get heffingskorting as of 2024. In short, we have assumed €2242 heffingskorting for all scenarios)

How Much Do You Need To Become Financially Independent in the Netherlands

In the previous two posts on the topic “How Much Do You Need To Become Financially Independent in the Netherlands”, we looked at three scenarios (the “poverty” option, “base case” option and the “luxury” option) and taxation for these scenarios.

In light of recent discoveries and online discussions with various other bloggers (Financieel Vrij en Mr. FOB, both in Dutch), an update of the last post is required, and for a good and very positive reason: lower taxes! Albeit not incorrect as a ballpark calculation, the previously mentioned net worth requirements can be considered as too conservative.coin5

We therefore recalculated the total asset value required to provide your household (in this case defined as two adults and one/two children) with a net “base case” income of €25,000 per year (in 2016 Euros). The assumption remains that you make an average return on your investment (ROI) of 4% after correction for inflation/escalation, but before taxes (unless noted otherwise).

For this analysis we assumed 4 (updated) scenario’s (see link below for details):

1)      All your income falls under Box 1

2)      All your income falls under Box 2

3)      All your income falls under Box 3

4)      Your net income has a 40 – 60 percentage split between income in Box 1 and Box 3

For the original post with further details on when the scenarios would apply and how this would work in the real world, see here.

The major difference with the previously performed analyses is that we now also correctly incorporate the heffingskorting (aka “a general tax refund”) for scenarios 2, 3 and 4. Furthermore, we now also assume the new 2017 tax rates on wealth in Box 3. Finally, a few more minor calculation errors were corrected and assumptions changed to better reflect reality.

Scenario Assumptions

We have assumed the following for each scenario (including updates from the previous assessment):

Scenario 1:

  • Taxation is based on 2016 rates
  • It assumes income is from labour (Box 1, but only assumes you get the “heffingskorting” (no other benefits for sake of simplicity).
  • No income from other benefits or government/private pension
  • You are younger than 67 years
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.), just to keep it simple.

Scenario 2:

  • Taxation is based on 2016 rates
  • There is only income in Box 2 from special interests in a company (paid in dividends)
  • Inclusion of “heffingskorting” for two adults (i.e. €4484 2242 in general tax reductions)

Scenario 3:euro-note3

  • Taxation is based on 2017 rates
  • Inclusion of “heffingskorting” for two adults (i.e. €4484 in general tax reductions)
  • Assumed net ROI of 2%, 4% and 7% (to show taxation effects).

Scenario 4:

  • Taxation is based on 2016 rates (Box 1) and 2017 (Box 3)
  • Total yearly net income of €10.000 from labour (or other Box 1 income forms)
  • Inclusion of “heffingskorting” for two adults (i.e. €4484 2242 in general tax reductions)
  • No income from benefits or pension
  • You are younger than 67 years (calculation uses a person of 35 years)
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.)
  • Assumed net ROI’s of 4% and 7%.

The Results

For details on the taxation amounts, please see Box 1, Box 2 and Box 3 (and check the website of the Belastingdienst for the latest and greatest). Please keep in mind that taxation between box 1, 2 and 3 is not interchangeable (i.e. taxation credits cannot be switch between boxes)!

Based on our assessments, you get the following taxation amounts and effective tax rates based on the above noted assumptions. The required amount of assets are based on the noted returns on investments.

FIRE Scenario Results

FIRE Scenario Results

New Observations and Conclusions

Based on the updated calculations (with hopefully the correct tax interpretations) there are a couple of interesting developments compared to the previous analyses (as shown here):

  • Scenario 1: pretty much the same with no major changes.
  • Scenario 2: you need considerably less gross income to the make the €25k net income thanks to the heffingskorting. However, it remains unknown how many assets you need. As this scenario covers dividend payments by your own company or company in which you have a majority share of at least 5%.
  • Scenario 3a: Significant change of €55k, as with the heffingskorting you now need fewer assets and can actually end up paying very little taxes. However, this means you do actually make more than 7% net ROI, every year (possible, but not very likely if you are invested in the stock market). The sobering thought is that you still need more than 7% ROI to become FI in the Netherlands without having to pay taxes.
  • Scenario 3b: Double whammy here due to the heffingskorting, you need fewer assets to get a net €25k income, however fewer assets is less wealth tax. End result, a drop of about €119.000 in required assets. Hmmm.. we were a bit too conservative on the last assessment (What we had actually calculated, without realizing it, was almost the “Luxury” income scenario).
  • Scenario 3C: now this one is interesting. Due to the new progressive tax regime for Box 3 wealth, it has now become impossible to get €25k net income if you only have a ROI of 2%. In short, you will always need to sell assets in this year (or years) to cover expenses (irrespective of the total amount of assets, even if you have €2.000.000 or more!), assuming you have no emergency cash, obviously.
  • Scenario 4a/4B: as expected you need fewer assets due to the heffingskorting to be able to partially become financially independent. If you like to work part of the time (say 1-2 days per week), you need anywhere between €202k and €435k to live comfortably with your family (subject to your actual ROI).


A general comment is that whichever option you choose to financially retire (assuming passive income in box 2 or 3), effective taxation is (much) lower than that on income (see Scenario 1 – Box 1) when you return on investment is above the 4%. If your ROI is around the 4%, taxation on wealth or income is about the same in percentage (due to all kinds of tax benefits received from performing work).

As you can imagine we also recalculated our new own target for our FIRE required Net Worth. We won’t make this number public, but it should be obvious that our target dropped considerably. We are therefore much further ahead on the Cheesy Index than previously calculated. Keep an eye out for the next Cheesy Index update!

How about you, have you determined your number? Did you calculate it right the first time around? Are we still missing anything? Let us know!

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The Cheesy Index made a remarkable recovery in August. This was primarily due to the amazing Savings Rate that we were able to obtain, for details see here. But also due to a very happy Mr. Market.

However, we discovered two things this week and both have a major impact on the Cheesy Index. The main reason is as follows, thanks to a post by Financieel Vrij, (sorry in Dutch only) we discovered that we overestimated the amount of taxes that we have to pay during FI. This to the amount of up to €4500 per year, as we were of the impression that the general tax break did not apply to Box 3 income (details to follows in a later post). Apparently, it does and will provide us with a massive tax savings. The result is that our previously calculated target net worth, can be significantly lowered (by as much as €100.000 or more!).

Furthermore, we are in the process of a property swap from our company to us personally. The lawyer (aka the “Notaris”) actually pointed us in the direction of a tax law that also applies to real estate which is held personally and declared in Box 3 . The good thing here is that the value of the property, when used as a rental, is assigned a lower value for taxation. How much lower actually depends on the assessment value (or “WOZ” value as determined by the local municipality) and the yearly rental income. We found that for us it can be lower by as much as 15 to 38%. Why is this a good thing? Because our wealth tax in Box 3 is based on this corrected property value (and not the actual market value), which will result in lower overall taxes.

In short, we have over estimated our taxes now and during FI. We therefore have to redo some calculations, update our new target net worth and associated Cheesy Index. Expect a higher Cheesy Index next month!

The Cheesy Index up to August 2016 is as follows (still a solid, albeit significantly under estimated, 48.1% complete):


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We have previously covered the basics with regards to Dutch taxes, which you can find here. Real estate investing is, however, going to complicate things a bit further, but also provides some opportunities to lower you tax burden if you understand the (current) rules.

The following is critical to realize (considering the same property and about the same cash flow).

Actively Investing in Real Estate

If you actively manage your own investment portfolio (e.g. DIY maintenance, cash collection, tenant screening and selection, etc.) the income from your real estate is considered income in Box 1. You will be taxed on 70% of the net profits (i.e. income minus expenses). Considering the lowest tax bracket within Box 1 is 36% at this time, you will effectively be paying a minimum of about 25% taxes (70% * 36%) on your net profits. If you earn a decent income, and you are in the 52% tax bracket, you pay even more at about 36% (70% * 52%). Ouch….

If you plan to rent our a room or your whole house/apartment via AirBnB (or equivalent), you are considered by the governmant as “actively working” to get income. In short, you have to file income you make from AirBnB as income in Box 1. You may deduct expenses such as cleaning cost, washing, electricity, etc. from the rental income. But you will be required to add 70% of your net income to your income taxes under Box 1.

However, it may still be worthwhile to rent out your house/apartment to cover parts of your housing costs. Also, if you are FI, and receive little to no income from other sources that would be taxed in Box 1, these income streams may still be very interesting as various deductions on low incomes will drop the effective tax rate below the above noted 25%.

Passively Investing in Real Estate

If you have an property management company look after the property/properties for you (and yes, you pay a fair amount of money for this, but besides some tax advantages it also provides risk management and peace of mind). Your real estate ventures, with regards to taxation, are considered in Box 3. The good thing here is that you are taxed on net wealth (i.e. market/assessment value minus mortgage/loans). Initially, when your mortgage or loan is generally high (say 70%), the remaining (say 30%) of the value of the property is added to your wealth and taxed at an effective rate of 1.2% (for 2015 and 2016, in 2017 this may increase). If you make about 4% on the property value after costs (this includes the cost for property management, mortgage, maintenance, etc.). Your effective tax rate of only 9%, that is a lot more reasonable (4 times actually) than 36% as noted above!

For example (optimistic view, granted):

  • Your property is worth €200.000
  • Your mortgage is €140.000
  • Your wealth for taxation is considered at €60.000
  • Yearly taxation (assuming your net wealth in Box 3 is between €25.000 and €1.000.000, the tax man assumed 4% return and 30% taxation on that assumed return) is €720
  • Based on the assumed 4% ROI (net, so after all costs including those for management) on property value, your yearly income will be: €8.000 (based on your actual investment the ROI is actually 13%, which is on the high end of what is possible in the Dutch market)
  • Effective taxation in Box 3:  9%

RE 05

Contrary to “actively real estate investing” in Box 1, in Box 3 you are not able to deduct any expenses (e.g. maintenance, property management fees, etc.), because the taxation is done only on an assumed rate of return on your net wealth, and these expenses are not take into consideration.

Now, before you start calling the property management firm, you have to do your own calculation to see if the additional costs of the property management is still allowing you to generate sufficient cash flow to be able to pay the mortgage, property taxes, insurance and allow excess cash for maintenance and mishaps.

Our real estate investments are actually managed by an investment company to assure our taxation is considered in Box 3, as this is financially the most interesting option for us. That being said, our effective tax rate is not as low as 9% as noted in the above example, but more in the order of 20%. That is still a lot of taxation, but still warrants management by a firm rather than by ourselves.


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The Dutch Government has several benefits programs to help those with low incomes to pay for various expenses like healthcare, housing, children and childcare. However, there are restrictions on when you can apply for certain benefits.

Once financially independent, most people will generally have a “lower” income to sustain their daily expense. However, these same folks will generally have a relatively high wealth in order to do so (e.g. comprised of stocks, bonds, rental properties, etc.). So, how does this affect their ability (or inability) to qualify for the various benefits?

money-bag3A quick overview below (as per 2016):

Healthcare Benefits (Zorgtoeslag)

Low income families can apply for aid to pay for healthcare cost. However, there are both caps on income and/or wealth to be able to qualify for these benefits. For income this cap is € 26.316 (single) and € 32.655 (couples). For wealth this cap is € 21.330 per person, so € 42.660 for a couple.

In short, folks striving for financial independence will most likely not be able to apply for this benefit as many will have more than the maximum allowable income and/or wealth.

Rental support (Huurtoeslag)

Low income families can also apply for aid to pay for rent for their primary residence. Again, there are both caps on income and wealth to be able to qualify for these benefits. The income cap (for a couple) is € 29.800.

For wealth this cap is the same as for healthcare benefits, so € 21.330 (single) or € 42.660 (couple). The base rent also need to be within a certain range: min € 229,64 and max € 710,68 per month (excluding service fees).

Similar to Healthcare benefits, folks for financial independence will most likely not be able to apply for this benefit as many will have more than the maximum allowable income and/or wealth

Special Child Benefits (Kindgebonden budget)

This benefit is in addition to “normal” child benefits (http://www.svb.nl/int/en/kinderbijslag/index.jsp; more on this in a later post) and is to aid in raising children under the age of 18.

However, similar to healthcare and rental support benefits, this optional benefit is subject to wealth (same limits as for healthcare and rental support). Again, not a benefit that the average folks going for Financial Independence could obtain (see a pattern here?).

Childcare benefits are limited to 230 hours per month and depend on how many hours you work (i.e. a full time job at a 40 hour work week will qualify you for the maximum number of benefit hours). There are also a maximum hourly rates associated with the benefits. Rates vary between about € 5.48 and € 6.80 depending on the childcare type (i.e. dayhome vs. daycare). If you pay a rate that is higher than the maximum, the difference will not be covered by the benefits. coins

Folks aiming for Financial Independence will not be able to apply as they would not have a job and thus no need for this benefit. It may, however, still benefit most folks that are on their way to Financial Independence and have children in daycare.

How to calculate your potential benefits? The Tax Man has a website where you can do your own calculations: http://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/themaoverstijgend/rekenhulpen/rekenhulpen_particulier ) to see if you would be eligible for the various benefits (in Dutch only).

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In the previous post on the topic “How Much Do You Need To Become Financially Independent in the Netherlands”, we looked at three scenarios (the “poverty” option, base case option and the “luxury” option). One of the main things we concluded is that taxation significantly increases the amount of required assets before you can call yourself financially independent. We assumed an average tax burden of approximately 30%. However, was this calculated correctly?  Financial-IndependanceXSmall

In this post we will evaluate the impact of Box 1, Box 2 and Box 3 taxation on the total amount of assets required to provide you with a net “base case” income of €25,000 per year (in 2016 Euros). The assumptions remain that that 4% rule applies, that you make an average rate of return on your investment (ROI) of 7% and that we encounter an average 3% inflation. Obviously, swings in the ROI and inflation affect the total amount of assets required.

For this analysis we assume 4 scenario’s (see scenario assumptions below for further details):

  • All your income falls under Box 1
  • All your income falls under Box 2
  • All your income falls under Box 3
  • Your income has a 20 – 80 percentage split between income in Box 1 and Box 3

Real Life Examples

What do these scenario’s mean in real life? Here are some examples for the four scenarios, (please do keep in mind that there are many other examples out there!):

If all your income sits in Box 1, it most likely means that you are still employed as you have income from labour, or you are unemployed and are receiving benefits or you are retired and are receiving a (government/private) pension (and/or a combination of the aforementioned). You have no special interests in (your own) companie(s) (i.e. you don’t hold any shares or are a major shareholder in a corporation, which is taxed in Box 2) and you have limited to no assets and/or receive little to no dividends (as they are taxed in Box 3).

If all your income sits in Box 2, you are not (directly) employed, receiving benefits or a pension (all box 1), you are getting all your income from dividends paid by the company you own or in which you have a substantial amount of shares (see here for details). But you have limited to no other assets (box 3).

If all your income sits in Box 3, you are not employed, are receiving benefits or a pension (all box 1), or you are receiving very little and end up not paying any taxes due to various credits. You either do not own a company or are own a substantial amount of shares in a corporation (Box 2), or when you do, the company does not pay dividends (hence no income and taxation). However, you have managed to collect a (large?) amount of assets in the form or shares, bonds, real estate, loans, etc. This scenario is most likely when you become financially independent prior to age 67 and fully live off dividends, real estate income and/or capital gains from shares/index funds.

The fourth scenario is a combination of option 1 and 3; which you could describe as you having a large amount of assets (box 3) and are also receiving income from employment and/or pensions and/or benefits. The majority of us in the Netherlands will end up in this category at one point during our lives, albeit the ratio between incomes in Box 1 and Box 3 may vary significantly depending on your personal situation.

Final_FinancialIndependenceScenario Assumptions

As there are way too many variables to consider everything, we therefore need to make certain assumptions for our 4 scenarios. We assume the following for each scenario:

Scenario 1 (this scenario is primarily used to evaluate taxation from a “normal” job compared to taxation during “financial independence”):

  • Taxation is based on 2016 rates
  • It assumes income is from labour and you receive the associated credits/benefits (i.e. “heffingskorting” and “arbeitskorting”)
  • No income from other credits/benefits or government/private pension
  • You are younger than 67 years (calculation uses a person of 35 years)
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.), just to keep it simple.

Scenario 2 (this scenario represents living from dividend income of your own company without performing any work; it is supposed to be representing “retirement”!)

  • Taxation is based on 2016 rates
  • There is only income in Box 2 from special interests in a company (paid in dividends)

Scenario 3 (this scenario reflect financial independence by living purely on your hard earned assets)

  • Taxation is based on 2016 rates
  • No dividend income assumed (more to follow in a future post regarding dividend tax and Box 3 calculations)
  • Assumed ROI of 2%, 4% and 7% (to show taxation effects), note that the taxman assumes you get around 4% (subject to the amount of assets you have) and we assume you get 7% for our base case.

Scenario 4 (this final scenario reflects financial independence, but you still like to do some work on the side for fun, say 1 or 2 days a week, and get paid for it)

  • Taxation is based on 2016 rates
  • No dividend income assumed
  • Income is from labour and you receive the associated credits/benefits (i.e. “heffingskorting” and “arbeitskorting”)
  • No income from benefits or pension
  • You are younger than 67 years (calculation uses a person of 35 years)
  • No special tax arrangements or benefits (e.g. no company car, you rent a house, no special life insurance or other policies, etc.)
  • Assumed ROI’s of 4% and 7%.

The Results

For details on the taxation amounts, please see Box 1, Box 2 and Box 3 (and check the website of the Belastingdienst for the latest and greatest). Please keep in mind that taxation between box 1, 2 and 3 is not interchangeable (i.e. taxation credits cannot be switch between boxes)!

Based on our assessments, you get the following taxation amounts and effective taxation rates based on the above noted assumptions. The required amount of assets are based on the noted returns on investments (hint, you need to make sure your ROI is as high as you can!).

2016-01 HMDYN P2

Observations and Considerations

Scenarios 1 and 2 are pretty straight forward, but there is a significant impact for scenario’s 3 and 4 subject to your effective ROI and associated taxes (box 3). The explanation on the results is as follows, the lower your ROI the higher your assets needs to be, simple right? However, the higher your assets, the higher the effective taxation, which makes is increasingly more difficult to obtain the required income of €25,000 net of taxes. We therefore see these ridiculous asset amounts to become financially independent.boracay-island

So how does this work then in reality? You will have years that do better than average and years that do not. During the years you are doing better than average, your taxation is “relatively” limited (but about the same in absolute terms) and you should have some extra that year to reinvest  into (or leave in) your portfolio. During the less than average years, you may have to dip into your principle to pay for the owed taxes (or work to get some extra income). On the upside, during a large stock market/housing crash, you tax burden also gets some relieve as your assets would be worth less!

We never realized these impacts on our cash flow (and required amount of assets) and now realize that we need considerably more assets to “securely” live during our years of financial independence. Or we just need to do some work on the side for some extra income during less than average years to cover the taxes.

Another realization is that most people on their way to financial independence in the Netherlands (and blog about it) do not assess this taxation topic and are more closely looking at the wealth building stage (how and how much). However, if you don’t know the level of your taxation, how can you define your wealth goal? So we have now taken an slightly conservative approach and included assets to cover taxation during financial independence. Our final calculated number is what is used in our Cheesy Index.


Based on the assessment above we conclude the following:carnival-of-financial-independence

  • The Dutch tax system is complex and has a large impact on everyone trying to become financially independent. It does not matter much if you are a dividend investor (all Box 3), real estate investor (also Box 3) or investor in Index Funds or stocks (yup, Box 3 again).
  • From a taxation perspective the most “stable” and easiest to calculate would be income from Box 2.
  • Taxation in Box 3 can work in your favour, but can also hurt you in financially less successful years. The key is to maintain a ROI of more than the assumed 4% by the government (plus 2-3% inflation, so ideally an ROI of 7% and up), and you should be coming out ahead.
  • It may actually pay off to do a little bit of work on the side (say postal delivery, cleaning services, consulting, etc.) for one or two days a week to keep your overall taxation down (the Dutch government stimulates labour and low incomes with significant tax breaks/credits). But it is then debatable if you truly are financially independent, you certainly would have way more time on your hands.


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On occasion you find a fascinating article that makes you think or shakes up your personal views. In this case it makes you think about taxes and the associated benefits of living in a relatively social country like the Netherlands.

Paying taxes is still annoying (especially if you see about 30-35% of your hard earned cash Below Sea Leveldisappear), but there are some benefits including a good logistical infrastructure, dykes to protect you from the ever rising water, good police/fire fighting/medical systems and some (financial) security if life decides to throw you a curve ball (i.e. it is very hard to become severely impoverished in the Netherlands).

We hope you enjoy the following article as much as we did (freely translated by yours truly, for the original Dutch version, see below):


What is Prosperity?

My father has a tree nursery. A noble profession, high CO2 compensation levels and the world looks greener.

There is some good money to be made in this business, so he opted to make his business a legal private company. One day my father sold a particular plant, making him (net of expenses) €100.

My father, righteous as he is, paid the government a 20 percent corporate profit tax. Besides being righteous, my father is also is a very kind man; so he decides to buy a gift for my mother. He pays himself the remaining 80 euros into his private account.

The taxman thinks this is an excellent idea and wants 25 per cent (“special interest” tax in Box 2). My father, a wise man as he is avoids his car and walk righteous, but slightly disappointed, with 60 euros to the store.

Now my mother is fond of brandy, so he decides to buy a bottle of it. The tax is also fond of cognac because it gets about 15 euros in VAT and various alcohol related duties.


The 45 euro “left over”, my father adds to a donation to his niece. The taxman appreciates the generous gift with a donation tax of 30 percent, or 13.50 euros. The niece, much like her uncle, is thankful and deposits the gift including the remaining 31.50 euros into the bank; where she gets an interest rate of 1.2 percent per year.

The taxman believes that 1.2 percent return on investment is not enough and pretends she gets 4 percent (see here) and after a few years, this 31.50 dwindled to 20 euros. By the time her son inherits this 20 euros, only 18 euros is left over due to 10 percent inheritance tax. By this time her son will be able to just afford to pay the duties on a pack cigarettes, and we can therefore conclude that the entire 100 euros has come into the hands of the state.

The fact that a single euro can be taxed several times in this way, sounds serious. But in reality the situation is even grimmer. We have not even talked about gaming tax, social security, income tax, dividend tax and more.

To show how grim the situation is, we make the following calculation. If you take the Gross National Product (often incorrectly used as an indicator of prosperity) of the Netherlands, and divide this by the total revenue (taxes) of the government, you come to a factor of about 2.4. That means that every euro earned in Netherlands will end up within the state treasury in about two and a half years.

This actually applies to most European countries – except Norway and Sweden, of course, where this is done within a period of only two years. Poland is an exception. In Poland the income flows to government coffers within only 6 to 7 years. Just as in the United States and Canada.

The social welfare in these countries is hard to find, which proves that the ratio of GDP / Income is a more accurate welfare indicator than GDP alone. So if we still have some complain about the tax rate, please know that we really have nothing to complain.


Source: https://www.accountant.nl/opinie/2014/6/wat-is-welvaart/


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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. NL1205

Your wealth can thus include (among others):
• Cash
• Stocks/Bonds
• 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

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 BracketRangeAssumed Rate of ReturnEffective Taxation
1Up to € 25.000N/Anil
2From € 25.000 to € 100.0002.9%0.87%
3From € 100.000 to € 1,000,0004.7%1.41%
4€ 1,000,000 and up5.5%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!).

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Taxation in Box 2 is only applicable when you have a “sizeable interest” (“aanmerkelijk belang”) in a foremedia_xll_1953592ign or domestic corporation (“vennootschap”). The first questions that pops up is, what is considered a “sizeable interest”?

For 2015, the taxman has defined this as owning a 5% interests or more of the following:

  • Shares (aandelen) in either a foreign or domestic corporation
  • “Profit statements” (“winstbewijzen”) in either a foreign or domestic corporation
  • (monetary)benefits (“genotsrechten”) resulting from shares or profit statements (as noted above)
  • Voting rights (“stemrechten”) in either a foreign or domestic corporation
  • Options in either a foreign or domestic corporation, which when executed would be above the noted 5% threshold

Once you know if you have a sizeable interest in the company, the next step is to determine if you enjoyed the following incomes as a result. You will be taxed on the income of the following:

  • Dividends
  • Profits made by selling shares

There are also deductions in Box 2, for examples interest on loans used to obtain the “sizeable interest”. Furthermore, applicable personal deductions (“persoonsgebonden aftrek”), that you cannot use in Box 1 or Box 3, may be used on Box 2 to reduce taxes.

On the difference between the income and the cost you pay tax. The tax rate is a straight 25%.

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In the next three instalments of the Dutch Tax Series, we will be looking at the three tax “boxes”. As previously noted in Part 1, “Box 1” incorporates income from work and property. The tax burden in this box can be reduced with various approved expenses (deductions) and tax breaks (“heffingskortingen”). WKR-21-1024x1014

Dutch Taxes – Part 2: Box 1

We have downsized the lists of applicable income/deductions to those most common, or to those that we found interesting to mention. The lists are therefore not complete and you should consult the Tax Services website and/or your tax consultant for more information when required.

Before reviewing the two lists, two topic deserves some special attention. This first is the concept of “Lijfrente”. Lijfrente is a type of insurance policy that provides payments to the insured upon retirement, for the remainder of their life on a periodical basis. It’s a sort of pension that one can arrange in addition to governmental benefits or one’s own pension plan. Due to our unfamiliarity with this product, we will not go into details, perhaps in a later post.

A second is the concept of “capital insurance” for your primary property. This insurance product works as follows: you pay an insurance company a yearly premium, which they invest or save and provide interest. At a predefined maturity date, the funds will be released to the insured to pay down the mortgage debt (if all goes well, your mortgage should be able to be paid off in full). It’s a system that helps with tax deferral/reduction. The funds can also be paid out sooner, for example in case the insured passes away. However, this type of capital insurance is no longer available to us due to changing mortgage rules and will therefore not be reviewed.

Box 1 Income

An overview of what is considered income in Box 1 (amongst others):

  • Profits from a company (winst uit onderneming);
  • Income from employment, benefit or pension (loon, uitkering of pensioen);
  • Tips and other income (fooien en andere inkomsten);
  • Foreign income (buitenlandse inkomsten) from work or pension;
  • Income from freelance work, running a dayhome, being an artist or professional athlete (inkomsten als freelancer, gastouder, artiest of beroepssporter);
  • Periodical benefit payments, this includes alimony payments and lijfrente payments (periodieke uitkeringen (zoals uitkeringen van een lijfrente of alimentatiebetalingen));
  • Returned excess (social) premiums (terugontvangen premies voor lijfrenten en dergelijke);
  • Fictitious income from primary property (eigenwoningforfait); and
  • Capital Insurance for primary property (kapitaalverzekeringen eigen woning).

Box 1 Deductions

An overview of what is considered a deduction in Box 1:

  • Public Transportation (Reiskosten openbaar vervoer);
  • Mortgage interest (Hypotheekrentaftrek);
  • Medical Cost (Zorgkosten);
  • Gifts/Donations (Giften);
  • Care for children under the age of 21 (Levensonderhoud kinderen jonger dan 21 jaar);
  • Certain high-risk investment losses (Durfkapitaal);
  • Education (Studiekosten en andere scholingsuitgaven);
  • Certain cost associated with your own property (aftrekbare kosten van de eigen woning);
  • Premiums for income insurance (e.g. Lijfrente premiums); and,
  • Personal deductions (e.g. alimony, donations, continued education cost, etc.) (“Persoonsgebonden aftrek”).

As you can tell by the summaries above (which are not even complete), there are many, many different items in the Dutch tax system that are seen as income and/or deductions.

Your taxable income is the defined as your gross income minus approved deductions. On this taxable income, you are required to pay taxes according to the following tax brackets (as applicable):

Tax Brackets

Taxable Income Range


Taxation Percentage


Taxable Income Range


Taxation Percentage


1Up to € 19.82236,5%Up to € 19.92236,5%
2From € 19.823 to € 33.58942%From € 19. 922to € 34.02740.5%
3From € 33.590 to € 57.58542%From € 34.027 to € 66.42142%
4From € 57.586 and up52%From € 66.421 and up52%


Think were done? Nope, there are a few additional tax breaks (“Heffingskortingen”) applicable to both taxes and social insurance premiums (mandatory premiums paid for unemployment benefits, government pension, etc.).Belastingdienst13feb.jpg.crop_display

These tax breaks include (among others):

  • A general tax break (“algemene heffingskorting”), available to everyone
  • Labour Tax break (“Arbeidskorting”), applied on income from labour
  • Work Tax Break (“Werkbonus”), only for those who have limited income from labour
  • Income combination Tax Break (“Inkomensafhankelijke combinatiekorting”)
  • Tax break for “normally” retired folks (“Heffingskortingen voor AOW-gerechtigden”)

To get an idea of these tax breaks, here are a two tables shown income and the associated approximate tax breaks for the General Tax Break and the Labour Tax Break.

Box 1 Taxable IncomeGeneral Tax Break (2015)General Tax Break (2016)
€ 10.000€ 2.203€ 2.230
€ 20.000€ 2.199€ 2.226
€ 30.000€ 1.967€ 1.747
€ 40.000€ 1.735€ 1.267
€ 50.000€ 1.503€    788
€ 60.000€ 1.342€    308
€ 70.000€ 1.342€        0


Labour Income Labour Tax Break (2015)Labour Tax Break (2016)
€ 10.000€    100€    400
€ 20.000€ 2.220€ 3.103
€ 40.000€ 2.220€ 2.864
€ 60.000€ 1.811€ 2.064
€ 80.000€ 1.011€ 1.264
€ 90.000€    611€    864
€ 100.000€    211€    464
€ 110.000€    184€      64
€ 120.000€    184€        0


The taxes you owe will be reduced by the applicable tax break(s). Determining how much tax you actually have to pay is therefore not easy. Fortunately the government provides very good and “free of charge” (not really, as you already paid taxes to fund it ;-)) software to prepare your taxes and submit online.

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How much do you need to become financially independent in the Netherlands?

This is the “million Euro question”, maybe even quite literally. It is also completely depending on your personaeuro-note2l preferences and abilities, which leads to many possible answers. However, to provide some guidance, a few scenarios are reviewed that give an indication of the range and what the limitations are.

In order to become financially independent, you need to have income producing assets that cover your expenses (preferably a little bit more asset income than expenses). So before you know how many income producing assets you need, you need to know your expenses.

We are going to review three scenarios regarding expenses for a couple with one kid (i.e. our situation). However, the lower range may also be considered representative for a single/couple without kids, and the higher range for a couple with two more kids. Most people will think these yearly expenses are far too low, therefore we take a quick look at some of the underlying assumptions why they aren’t.


For our scenarios we took the following assumptions into consideration:

  • You no longer NEED a car to get to work, you may still want one for convenience to get around (or travel) but that is up to you
  • You don’t NEED to go on holiday (albeit we rather go as well; just keep it basic and fun and you still can go on holiday(s))
  • You don’t NEED at €50 per month mobile phone plan
  • You don’t NEED a new wardrobe every month
  • You don’t get any old age retirement income (government) or pension (i.e. you are not yet 67 years old) (yet)
  • You CAN do a lot of your own work around the house, grow your own food, buy used, etc.
  • It is possible to comfortably live at the “poverty” level (i.e. voor een basisuitkering) at approximately €16,500 per year (after taxes) for a couple (this is the minimum governmental support you can receive)
  • You don’t have to pay for you child’s education (you can if you want, but that takes more money and time before you reach financial independence; or you don’t have children, or they are already done with school)
  • Your home is not yet paid off as you retire way before the normal retirement age and normal 25-30 year mortgage (if it is, great, you will need less)
  • You don’t like fancy cars (transport budget can easily be blasted out of the water)
  • You are very healthy (you work out, eat limited meats, lots of fruit and vegetables, etc.) and thus keep your healthcare expenses low

The expenses used below are obviously rough numbers, depending on your preference, home ownership status (e.g. if you house is paid off or not),  location (urban vs. city) and many more, you will have differences in the expense groups and your overall yearly expenses. However, the below noted scenarios are also meant to give a general idea of what to expect. We are personally aiming for scenario 2, but perhaps without a car and more travel.


The following yearly expenses are assumed (based on our own experiences and assumptions above)

Scenario 1: “Poverty” Option
Housing and utilities€ 9.500Either rent of buy something small outside a major urban area, including insurance, water, electricity and gas, internet, phone(s).
Groceries€ 2.500Basic foods only
Transportation€ 1.000You bike + public transport and occasional rental car only
Travel/Holiday€ 0,-No holidays, just walks in the park
Healthcare€ 2.500Mandatory healthcare without options + minor expenses
Other€ 1.000Everything else
Total€ 16.500


Scenario 2: Base Case Option
Housing and utilities€ 12,000Either rent of buy, including insurance, water, electricity and gas, internet, phone(s)
Groceries€ 3,500Basic foods with the occasional extras
Transportation€ 3,000You still have your own basic car
Travel/Holiday€ 2,000One/Two basic holidays or one more fancy holiday on occasion
Healthcare€ 2,500Mandatory healthcare without options + minor expenses
Other€ 2,000Everything else
Total€ 25,000


Scenario 3: “Luxury” Option
Housing and utilities€ 14,000Either rent of buy, including insurance, water, electricity and gas, internet, phone(s). Nicer house/luxury options than base case
Groceries€ 3,500Basic foods with the occasional extras
Transportation€ 3,500Slightly nicer/bigger car than be base case option
Travel/Holiday€ 3,000A couple nice or one very nice holiday
Healthcare€ 3,500Mandatory healthcare plus options + expenses
Other€ 2,500Everything else
Total€ 30,000



The Dutch tax system is fairly complex and expensive (see here and here for more information); as a rough indication about 25-40% of your overall income (be it from income from employment, investment income and/or wealth) disappears to government coffers. The system is setup such that the higher the income/wealth, the more taxes you pay.

For the purpose of our exercise we are going to assume an average 30% tax burden. In short, your expenses are equal to 70% of your after tax investment income.

In short you approximately need the following (investment) incomes BEFORE taxes:

Based on scenario 1: €23.600

Based on scenario 2: €35.700

Based on scenario 3: €42.800


Now that we know our expenses and our approximate tax burden, we can determine the amount of income producing assets we need to become financially independent. For the purpose of this post, we assume you are familiar with the 4% rule (if not see here). It assumes you get a 7% return per year on your assets and inflation is 3%, leaving 4% for you to spend each year going forward. Therefore you will need assets that are 25X your expenses.

Based on scenario 1 you would need (at the 4% rule): €590.000

Based on scenario 2 you would need (at the 4% rule): €893.000

Based on scenario 3 you would need (at the 4% rule): €1.071.000

Too optimistic in your view? Need more security? Maybe a 3% rule is more appropriate (i.e. assets 33X your expenses), this would lead to the following required assets.

Based on scenario 1 you would need (at the 3% rule): €779.000

Based on scenario 2 you would need (at the 3% rule): €1.178.000

Based on scenario 3 you would need (at the 3% rule): €1.414.000


You need a lot of income producing assets to become financially independent in The Netherlands. The primary way to get there faster, is to spend as little as you possible have to (while still enjoying your life!), and thus allow for more investing.

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For those not familiar with the Dutch tax system: it’s complicated! The Dutch tax code is very comprehensive, complicated and darn terrifying. One thing can be said though, there are very limited ways of reducing or sheltering from taxes (legally that is). Considering we are no experts, or are exceptionally rich and have great tax consultants, we just need to know enough to know what we are up against.

Dutch Taxes – Part 1: An Overview

A quick overview of the Dutch taxes is provided below to get a sense of the system.

Types of Taxes

A few of the long list of taxes applicable in the Netherlands:

  • Income Tax (Inkomstenbelasting)
  • Tax in income from Interest/shares in corporations (Vermogen en Aanmerkelijk Belang)
  • Wealth Tax (a tax based on a fictional return on investment of 4%, over which you pay 30% (i.e. 1.2% of your applicable wealth))
  • Dividend Tax
  • Value Added Tax (BTW), which is a staggering 21% for many products and services
  • Property tax (WOZ)
  • Private motor vehicle and motorcycle tax (BPM), this is for purchase of your vehicle only
  • Road Tax, this is to be able to operate your vehicle legally on Dutch roads and depends on vehicle weight and CO2 emissions
  • Special taxes on gasoline, booze, etc.

Because taxes like values added tax (BTW), property tax (WOZ), private motor vehicle and motorcycle tax (BPM), Road Tax and more are not normally part of your yearly personal tax filing (for business tax filings these may be different), these will not be looked at separately going forward, as you are going to have to pay then anyways (as applicable).

Tax System

The Dutch income tax filing system consists of 3 groups called “boxes”; these divide income into various categories with their own rules, regulations, deductions and taxation percentages.

An overview of these three boxes:

  • Box 1: income from work and property (belastbaar inkomen uit werk en woning)
  • Box 2: income from interest/shares in corporations (belastbaar inkomen uit aanmerkelijk belang)
  • Box 3: income from savings and investments (belastbaar inkomen uit sparen en beleggen)

Losses in one box cannot be transferred to another box for compensation, which is a bit of a disappointment (e.g. when Box 1 is negative due to limited to no income during Financial Independence, the deduction does not carry over to Box 2 or 3 to cover the increased taxation here as a result of significant assets and/or income).

What are the (total) tax rates on income in these various boxes for 2015?

Box 1:

Tax BracketsTaxable Income RangeTaxation Percentage
1Up to € 19.82236,5%
2From € 19.823 to € 33.58942%
3From € 33.590 to € 57.58542%
4From € 57.586 and up52%

Box 2: 25% on taxable income.

Box 3: 30% on taxable income.

When looking at this superficially, you want to get most of your income from items in Box 2 and 3. This would be great, because this is where our income streams will be coming from during our Financial Independence. However, there is more to this than meets the eye, more to follow in future posts where Box 1, 2 and 3 will be reviewed in more detail.

Tax Deductions

There are a fair number of items that will provide a tax deduction, some are general and some are only applicable based on personal criteria (Persoonsgebonden aftrek), here are a few that are of interest to our situation:

  • Mortgage interest (Hypotheekrentaftrek)
  • Public Transportation (Reiskosten openbaar vervoer)
  • Medical Cost (Zorgkosten)
  • Gifts/Donations (Giften)
  • Kids under 21 (Levensonderhoud kinderen jonger dan 21 jaar)
  • Certain high-risk investment losses (Durfkapitaal)
  • Education (Studiekosten en andere scholingsuitgaven)

All of the above have certain restrictions on what is permitted and what is not; details can be found with the Tax Man (www.belastingdienst.nl). In the upcoming posts on Box 1, 2 and 3, the applicable deductions will also be reviewed in more detail.

Tax Filings

You should always file you income taxes in the Netherlands (and on time!), why? Because if you do not, the tax man will make an estimate of what they think you owe them and include a fine on top of that. Now that is an even better way to have money disappear other than paying taxes.

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