After years of uncertainty, a bill has finally been presented for a new Dutch capital gains tax system (called ‘Box 3’), set to take effect in 2028. This change is necessary because the current system — which taxes fictional income — has been declared unlawful by the Dutch Supreme Court. This admittedly long blog provides a summary of the key points of the 132-page proposal. Keep in mind while reading the below that the Box 3 system taxes income from ‘savings and investment’. Not covered by this system are active income (work, business, etc), and income from your own company (if you own 5% or more).
Real vs. deemed income
The biggest change from the current system is, of course, that actual income will be taxed instead of deemed returns on investment. The intention is to tax both ‘direct’ income such as rent, dividends and interest, and ‘indirect’ income (capital gains).
Tax free threshold
Instead of a tax free threshold expressed in asset value – as exists now – the new system will introduce a tax free threshold of Box 3 income, set at €1,800 per year. This threshold will be proportionally distributed between domestic and (possibly exempt) foreign returns. (Meaning it will partly go to waste if you invest in real estate in lower-taxed countries.)
Tax rate
The proposed tax rate for Box 3 is 36%, although this may still be adjusted in the 2028 Tax Plan, to be presented in autumn 2027.
Bank accounts
In theory, a complex system would be needed — calculating end balance minus starting balance plus withdrawals minus deposits — to determine actual capital growth on a bank account without double-taxing income (like salary already taxed in Box 1). In practice, the taxable ‘gain’ on savings accounts will be based on interest statements provided by banks. Foreign currency accounts will complicate things, as tax is determined based on gains in euro.
Real estate
- Primary residences will remain in ‘Box 1’ (out scope for this blog);
- Real estate that is (part of) a business also stays in Box 1;
- Other real estate assets fall under Box 3 and generate two forms of income:
- Direct: rental income
- Indirect: capital gains
Direct income is taxed annually, and maintenance and periodic costs (such as maintenance and mortgage interest) are deductible.
Indirect income is taxed only once realized, and certain improvement costs (renovations) will be deductible from the realized gain in that year.
Baseline will be the WOZ value (official Dutch property valuation) as of 1 January 2028, since earlier value increases will have already been taxed under the current system. This could be a reason to object to a WOZ value that is too low.
Additionally, and slightly alarmingly, a new form of fictional income will be introduced for Box 3 properties which do not generate ‘direct’ income: in those cases (holiday homes for instance) a deemed return on investment of 3.35% of the WOZ value will be taxed.
Foreign property income is usually exempt from Dutch tax under bilateral tax treaties, but this differs per country and treaty.
Separate accounting required
For Box 3 real estate, two profit-and-loss accounts must be maintained:
- One for direct income, showing rental income minus maintenance and periodic costs.
- One for indirect income, showing capital gains/losses minus improvement costs.
Maintenance costs are not deductible from capital gains, and improvement costs are not deductible from rental income. These definitions will likely be further shaped by case law.
Start-ups
Box 3 shares in companies (less than 5% ownership) will also be taxed on both direct return on investment (dividends) and indirect return on investment (capital gains or losses). Gains do not need to be realized to be taxed — meaning potential cash flow problems.
To not fully discourage people from investing in start-ups, an exception applies for certain investments in certain start-ups: value increases in these start-up shares will only be taxed upon realization.
The proposed definition of a start-up is strict:
- Company younger than 5 years;
- Less than €30 million in revenue;
- No more than 25% owned by an older company.
If a company no longer qualifies as a start-up, this could have serious tax consequences for the shareholder. Within a week after having launched this bill, government already announced this part of the proposal will be reviewed.
Interest
Interest earned from bank accounts, savings deposits, and receivables is taxable. Loans may also yield an indirect return, but its value is generally considered equal to the amount owed (in euros).
- Interest paid on personal loans is deductible.
- Mortgage interest is deductible from rental income, but not from capital gains (except through loss compensation)
For loans provided by others than financial institutions, a record-keeping requirement will apply. There will also be a conditional debt forgiveness exemption, meaning some debt cancellations will not be treated as a taxable increase in wealth.
Crypto assets
By 2028, crypto platforms are expected to share data with the Dutch tax authorities in a way similar to banks, reducing the administrative burden on taxpayer and the tax authorities.
Main rule: Both direct (e.g., staking rewards) and indirect gains (value increases) will be taxed — regardless of whether the gain is realized. Unrealized losses can result in a negative return on investment, leading to no Box 3 tax. There will be no tax refund for losses, but you will be able to carry losses forward to offset future gains.
Loss compensation
Capital losses can be used to offset gains in future years. Backward loss compensation (offsetting prior-year gains) is not allowed due to the administrative burden (and costs) in would cause for the tax authorities, especially in the early years of the new system.
Loss compensation applies within Box 3 only — for example, crypto losses can offset rental income. Cross-box compensation (Box 1 or 2) is not allowed.
Foreign assets
Foreign assets are also taxed in Box 3 unless exempt under a tax treaty or Dutch double tax relief regulations. Foreign bank accounts, crypto wallets, and investment portfolios are rarely covered by treaties, so they are generally taxable in the Netherlands.
Foreign real estate is typically taxed in the country where it is located and exempt from Dutch tax under treaty rules. Some treaties have different methods of exemption for rental income versus capital gains, which could lead to questions: Should a fictional return on a non-rented foreign holiday home be treated the same as actual rental income and thus be exempt in the Netherlands under the treaty? In our view: yes, as this is already the case under the current fictional return-on-investment system.
Conclusion
All of the above combined means that you will have to reconsider the way you invest. What used to be smart, may no longer be smart anymore. Feel free to reach out on Linkedin, or through our contact form if you would like to discuss this with me or one of my colleagues.
