NETHERLANDS: An Introduction to Private Wealth Law

Benefits of the Dutch Tax System for High Net Worth Individuals

The Netherlands is not widely known for its favourable tax system for high net worth individuals. Although Dutch tax rates are not competitive on the face of it, the Netherlands can still be a beneficial location for high net worth individuals. Here we will briefly describe the current Dutch high net worth landscape from a tax perspective. We will also shed some light on the expected future changes to the Dutch tax system.

Current Dutch tax environment 

The Dutch income tax system is divided in so-called boxes, in which different income categories are taxed at different rates, as follows.

• Box 1 – income and gains from labour and private home are taxed at progressive rates (maximum 49.5%).

• Box 2 – income and gains from substantial interest shares are taxed at flat rate of 26.9% (generally 5% or more).

• Box 3 – income from savings and investments (deemed return taxed at 32%; bank balances 0.36%; other investments 6.17%; loan deduction 2.57%). Actual income and gains are not further taxed.

Through special regimes and decent tax planning, the Netherlands can be a favourable country for high net worth individuals to live and work. By applying the so-called 30% ruling, temporary residents can be treated as non-residents for a period of five years in terms of Box 2. This means that income and gains from non-Dutch substantial interest shares are exempt from the 26.9% Box 2 tax. Also net worth (Box 3) is not taxed during the first five years of Dutch residency. As a general rule, Dutch-resident individuals with a 30% ruling are still eligible for the extensive Dutch tax treaty network.

Thanks to this 30% ruling regime, the Netherlands is often more attractive than those jurisdictions that are better known for their high net worth tax systems – for example, the UK or Switzerland.

If the five-year period of the 30% ruling has expired, it is possible obtain a step-up in basis for the Box 2 shares. This step-up in basis for Box 2 shares is generally also available if the individual moves to the Netherlands without a 30% ruling. No Box 2 exit tax applies to non-Dutch shares if a foreign national leaves the Netherlands again within eight years.

The Dutch inheritance and gift tax rates are reasonable, with a 20% top rate for direct descendants. There is no general spouse exemption, except for an amount of EUR723.526 (as of 2023).

Within the Dutch Tax Authority, a special high net worth team is able to react in a service-minded and knowledgeable way to questions that are typical for high net worth individuals. Advance tax rulings are possible to obtain.

UBO registers 

Along with all other EU member states, the Netherlands has recently implemented an Ultimate Beneficial Owner (UBO) register for individuals holding a more than 25% ownership or voting stake in Dutch entities, along with a separate UBO register for trusts and the like. Although these registers were intended to be public, access has now been limited in line with recent EU case law.

Future changes to existing Dutch tax system

Based on Supreme Court cases, there is a need to change the current taxation system for net worth in Box 3. It is intended that the new taxation system will only enter into force in 2027 and will be based on a capital gains tax that is levied on an accrual basis. This new system will be less favourable in cases where returns are higher than the current deemed return in Box 3 – given that, in the current box 3 system, these actual high returns are not further taxed.

It is quite common for Dutch high net worth individuals to lend funds from their company structure to fund private investments. Through this leverage, the Box 3 tax base is lowered and the taxation on the actual return limited. In order to avoid this planning opportunity, as of December 2023 lending from Box 2 entities will be maximised at EUR700,000. Loans to finance private dwellings are excluded from this limitation. Following this new law, high net worth individuals will have to refinance their internal loans with external (bank) loans or declare a dividend to pay off the internal loan. Such dividend is taxed at the 26.9% Box 2 tax rate.

From 2024, the Box 2 tax rate will be increased from 26.9% to 31%. Box 2 income and gains up to an amount of EUR67,000 will be taxed at a lower 24.5% rate.

There is pressure from family-owned businesses to simplify the current tax system for the transfer of a business enterprise to the next generation. Although the basic facilities – ie, a roll-over of the Box 2 tax base and an 83% exemption for gift or inheritance tax – are favourable, the conditions that apply to the business transfer facilities are considered too strict.

Final remark 

Taxation should never be a decisive factor in determining the residency of a high net worth individual. Nevertheless, if residency in the Netherlands is an option, the Dutch tax system can compete with some of the more well-known favourable tax regimes.