For substantial interest holders (AB-holders) who immigrate to the Netherlands or return after a previous emigration, there are specific tax rules that may affect the determination of the value of their shares and the treatment of the conservative assessment. In this blog, we discuss tax points of interest for immigration and remigration of AB holders, such as the step-up rule upon immigration, the main exceptions to this and the specific treatment of the preserving assessment upon remigration.
Immigration: the acquisition price and the step-up scheme
When an AB holder moves to the Netherlands, the Netherlands determines the value of the shares on which future tax in box 2 will be levied. This is done on the basis of the original acquisition price (the historical cost price) or the market value at the time of immigration. In principle, the market value at immigration applies as the new acquisition price, which means a so-called step-up (or sometimes a step-down). This arrangement prevents double taxation on increases in value that have already occurred abroad, so that only the increase in value from the date of immigration is taxable in the Netherlands.
Exceptions to the step-up scheme: when is it not granted?
Although the step-up is usually applied on immigration, there are situations when the Netherlands does not grant it, for example when there is already a Dutch tax claim on the shares. The main exceptions are:
- Shares in a company actually established in the Netherlands: If the shares relate to a company that is actually established in the Netherlands, the original purchase price applies as the acquisition price. This makes sense because, prior to immigration, the Netherlands already had a tax claim on the increase in value based on foreign tax liability. This arrangement prevents previous increases in value from being untaxed.
- Shares in a company incorporated under Dutch law (notional resident in the Netherlands): In the case of shares in a company incorporated under Dutch law but actually established abroad (e.g. a Dutch BV operating outside the Netherlands), no step-up is also granted. The law considers these companies as ‘fictitiously established in the Netherlands,’ which means that the Netherlands continues to use the original purchase price as the acquisition price.
Step-up possible for shares in a company incorporated under Dutch law with a short establishment period in the Netherlands
In the case of shares in a company incorporated under Dutch law but never or less than five years actually established in the Netherlands, a step-up can be granted. This is because in these situations there is no continuous tax liability in the Netherlands, so the tax system allows the shares to be revalued on immigration.
Remigration: what happens to the conservative assessment?
Largely the same rules apply to remigration as to immigration, with some specific additions due to the protective assessment. This is an assessment imposed by the Tax Administration on the value of the substantial interest at the time of departure. In principle, it can only be collected upon certain taxable events, such as a dividend distribution or the sale of the shares. The protective assessment protects the Netherlands’ tax claim on the shares, while temporarily suspending collection.
In the case of remigration, there are two possible scenarios:
- Full remission of the protective tax assessment: If no payments have been made on the conservative assessment during the emigration period, it is fully remitted (reduced to nil) upon remigration. In that case, the original pre-emigration acquisition price again applies as the basis for taxation.
- Increase of the acquisition price in case of payments on the conservative assessment: If payments have been made on the protective assessment, the acquisition price will be adjusted to avoid double taxation. The acquisition price will be increased by – in short – about three or four times of the amount paid on the protective assessment, unless the price has already been adjusted by a foreign final settlement.
Conclusion
The tax concerns for immigration and remigration of AB holders require careful attention. Immigrants may be eligible for a step-up of the acquisition price unless there are specific exceptions. For remigrants, the conservation assessment plays a major role: it can be waived or, in the case of earlier payments, lead to an increased acquisition price.
