A crucial decision for expats and executives
A recent ruling by the Amsterdam Court of Appeal (ECLI:NL: GHAMS:2025:1746) once again highlights the importance of proper tax structuring for expats and executives with a lucrative interest. The case involved an expat participating in a management participation plan (MPP) via a foreign entity while applying the 30%-ruling. The key issue: should the benefit be taxed in Box 2 (substantial interest) or Box 1 (income from other activities)?
Box 1 vs Box 2: the tax impact
Article 3.95b(5) of the Dutch Income Tax Act 2001 allows, under strict conditions, income from a lucrative interest to be taxed in Box 2 (up to 31%) instead of Box 1 (up to 49.5%). The difference is significant.
So what went wrong in this case?
The taxpayer held his interest through a foreign company and opted for partial non-resident taxpayer status under the 30%-ruling. This disqualified him from using the Box 2 election, as Dutch law only permits it for interests in Dutch resident entities. The result: the income was taxed in Box 1 at the higher rate.
What can others in similar situations do?
Executives and expats in comparable positions can:
- Transfer their lucrative interest to a Dutch BV;
- Relocate the fiscal seat of their foreign holding to the Netherlands;
- Ensure at least 95% of the gains are distributed to personal accounts within the same calendar year to meet the election criteria.
Conclusion
This ruling serves as a clear reminder: those wishing to benefit from Box 2 taxation must proactively structure their affairs accordingly. Don’t wait until the tax authorities make their move – reach out to us for expert guidance.
