The Netherlands. Box no 3

Box no 3 in the Dutch Personal Income Tax Act 2001

Box no 3 was developed by the government of the Netherlands in 2001 in order to tax the worldwide income of their residents from savings and investments. Taking into consideration, that in the Netherlands there is no wealth tax, some consider Box no 3 as an equivalent of the wealth tax. Taxation of the income from savings is based on weighted notional income, unlike the real received income. It taxed at the rate of 30% (from 2022: 33%), which is applied to deemed income and depends on the value of the savings or investments. As such, net savings below € 30.846 are exempt from taxation (for partners – exemption is equal to €61.692), above the exemption: up to € 72.979: 1,80%; €72.979 – € 1.005.572: 4,22%; above € 1.005.572: 5,33%. The effective tax rates are lower: 0,54%; 1,27%; 1,60% for the respective level of savings. The notional yield is applied to the net value of assets, which is fixed on 1^st of January of a tax year. Such assets are shares, real estate and land, savings deposits, endowment insurance policies, rights to tangible and intangible assets, and inheritance usufruct rights.¹ The valuation is done in accordance to fair market value (assets and debts), stock exchange value (shares) and bank estimated portfolio value (savings deposits).

Some investments are exempt from taxation, namely social investments into land, forests, renewal agriculture, sustainable dwellings; art and science works. Losses and debts related to tax liabilities are not taken into account while calculating the notional yield. However, debts not related to tax liabilities can be offset against assets. Whereas, if there were any debts related to the inheritance, they taken into the evaluation of the value of the inheritance usufruct right. In addition to the debts, some of the excessive deductions, which remain after deduction from Box no 1, can be deducted from Box no 3 and reduce the value of the assets.

There are several reasons, why Box no 3 was introduced into the legislation of personal income tax. Mainly, the government claimed that it would more precisely target the income from capital, prevent erosion of the tax base and will preclude transfer of the capital from the Netherlands to offshore tax havens. In essence, the financial structures based on the manipulation between capital gains and income became impractical and tax administration of the taxes became easier. At the same time, Box no 3 didn’t stop from transferring the capital to other countries and raised a lot of disputes around fairness of taxation, as well as validity of the application of the taxes (even low rates, after 2017) to savings accounts, considering very low yield on such investments. At the same time, many argue that the notional yield is based on the value of the asset (savings), but not on the actual investments, i.e. the savings accounts and portfolio investments in hedge funds may be in the same in value, but generate different yield.